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Deferred Retirement Option Program (DROP)

October 1, 2010
Michael S Hebel SFPOA Welfare Officer

ASK MIKE…THE RETIREES’ CORNER

Q. Mike, I have 27+ years of service and would like to enter DROP. But my optimal time to enter is in 2012. Will this program be extended beyond June 30, 2011?

A. I don’t know. But I do know that the POA will present the best case possible for its extension for another 3 years through June 30, 2014. A Charter initiative, sponsored and financed by the POA, and approved by the voters in February 2008, established the DROP program which allows most police officers to have the equivalent of your monthly service retirement allowance posted to your individual DROP account while you continue to work in your current position and receive your salary and benefits as an active employee.

DROP has been popular with veteran police officers. Through June 30, 2010 the Retirement System has conducted 303 counseling sessions and processed 123 DROP elections. Already 31 police officers have exited DROP.

The DROP program, which began on July 1, 2008, was a three trial program set to end on June 30, 2011. However, not later than April 15, 2011 the City Controller and the consulting actuary (Cheiron) for the Retirement System must prepare a joint report documenting the “net cost effect” of DROP. This report will be submitted to the Board of Supervisors. The Board of Supervisors, based on this joint report, may renew the program for an additional period not to exceed 3 years. The net cost of the program must be cost neutral for an extension to occur; that is, DROP must not have resulted in any net increase in cost to the City. If the Board of Supervisors determines not to renew DROP, those members then enrolled shall be permitted to complete their program participation pursuant to the terms in effect when they entered into it.

When the time comes (4-15-2011) to determine “the net cost effect” of DROP, the Controller and Cheiron must take into consideration a number of factors including: retirement contributions made by members participating in DROP, the City’s share of the return on investment of the DROP monies, cost of conducting academies and FTO programs for new recruits, and the expenditures associated with recruiting and training new officers.

While we will have to wait to April 15, 2011 to get the data upon which an extension decision will be made, I am optimistic that a 3-year renewal will occur. I believe that the program will prove to have been better than “cost neutral.” But even if shown to be cost neutral, the POA still must convince a majority of the Board to extend the program.

Stay tuned. I and the POA will release the findings of the joint report as soon as it is made public by Cheiron and the Controller’s Office.

SOCIAL SECURITY COST OF LIVING

  1. Mike, I receive a small monthly social security check. I accumulate it and use it to pay the property taxes on my residence. Since my real estate taxes go up 2% every year, I count on social security to go up at least by that amount. Will there be a raise in January 2011?
  2. Most unfortunately the answer is NO. The last annual cost of living was paid in January 2009. It was a 5.8% increase – one of the largest paid since COLA’s were made a permanent feature of the Social Security benefit structure in 1950. The data did not support a COLA in January 2010. And again, with prices still below their 2008 levels, beneficiaries are not expected, for the second straight year, to receive a COLA in January 2011.

The good news is that, while social security payments adjust to compensate for the effects of inflation, they are never reduced even if prices were to fall (disinflation or deflation). In the Tier I police/fire retirement plans, there can be a decrease in monthly pension benefit if there is a reduction in the wages paid to active members. This actually happened in fiscal year 2010-2011 for those Tier I retirees who held the rank of commander; they saw or will shortly see a small, actually tiny, decrease in their monthly pension benefit. This occurred for commanders since commanders and above are in a separate bargaining unit so they did not receive the 1.6% raise for all ranks up to and including captain.

Social Security recently reported that the typical 65-year-old today will live to age 83. One in four 65-year-olds will live to age 90. One in ten 65-year-olds will live to age 95.

Social security has a very informative web site at: www.socialsecurity.gov. It is well worth a visit.

SFPOA/SFPD RETIREMENT PLANNING SEMINAR

Q. Mike, I see photos in the POA’s Journal of police officers and their spouses/partners who have attended the 3-day retirement planning seminar at Sigmund Stern Grove. Is this seminar really necessary to properly plan my retirement from the SFPD?

A. Yes, yes, and yes! You should attend one of these seminars. The POA-SFPD jointly sponsors these three times per year. The next one is scheduled for October 5 – 7. Too late though, for this one is all booked up. However there will be presentations in February, June, and October 2011. The dates have yet to be determined, but will be announced shortly. Call the POA (861-5060) to schedule your attendance.

Now, why should you attend? Recent research for the Employee Benefit Research Institute demonstrated a clear connection between retirement planning and retirement enjoyment. Especially successful in retirement were those employees who took more than 18 months to think seriously about retirement. The POA has worked hard over the last twenty years to provide a sensational retirement plan for its members. But each member has the responsibility to use this plan for maximum prosperity and enjoyment. I strongly urge you to attend one of these seminars. The location is superb, the lunches are delectable, the companionship is notable, and the instructors are exceptional. Ask recent attendees as to their opinion of this seminar.

Mike Hebel has been the POA’s Welfare Officer since January 1974. He is an attorney and a certified financial planner. He has received awards/recognition as a Northern California “super lawyer” and included amongst “America’s top financial planners.” He represents POA members at the City’s Retirement Board and at the Workers’ Compensation Appeals Board. He also advises on investment matters pertaining to the City’s deferred compensation plan. He is currently the chair-person on the SF Police Credit Union’s Supervisory Committee. Mike served with the PAL as president and long-term Board member. Mike retired from the SFPD in 1994 after a distinguished 28 year career. He is a frequent and long-time contributor to the POA Journal. If you have a question for Mike, send an e-mail to mike@sfpoa.org or call him at 861-0211.