Question: When is a retirement not a retirement?
Answer: When your employer offers a deferred retirement option plan (DROP), allowing you to collect retirement while you're still working.
A perk like that might seem like fantasy to most, but for sworn Colorado Springs police and fire employees, it's a reality. Once cops and firefighters reach certain ages and years-of-service levels, they're eligible to enter a DROP for up to five years. During that time, money from their "retirement" accrues in a separate account of their choosing. (It could be stocks, bonds or a money-market account.) There are about 85 employees in DROP right now.
When they leave for good, new retirees collect a lump sum — often $100,000-plus for lower-level employees, $200,000-plus for top-paid employees.
"It's popular. A lot of guys don't do it for the full five years; they do it for two or three years," says Patrick David, vice president of the Colorado Springs Police Protective Association. "...A lot of guys use it for medical expenses."
There are other reasons. Mayoral Chief of Staff Steve Cox — serving on an interim basis and technically still the fire chief — entered the DROP about a year ago. Cox says it's allowed him to build a nest egg that will be available to his wife even if he dies.
While popular with employees, DROP programs nationwide have come under fire. In many cases, DROPs are seen as damaging to the sustainability of pension plans, and as overly generous to employees, whom some decry as "double dippers."
Locally, not all fire and police pensions are fully funded, and are often bemoaned by city officials who call them a drain on the city. Dan Slack, spokesman for the Fire and Police Pension Association of Colorado, says DROPs aren't the problem. The programs, he says, aren't as outrageous as they sound, as long as there are proper ground rules, which he says exist locally.
The city has three police and fire pension plans, all of which offer the DROP. But they differ slightly in when an employee is eligible to enter; in most cases, one must be between the ages of 50 and 55, with 20 to 25 years of service.
The catch: Once they go into DROP, the city no longer contributes to their pensions, and they no longer accrue years of service. So they're locked into a lower lifetime retirement benefit.
Cox sacrificed considerably on the amount of his monthly pension checks when he entered the DROP. Because of that trade-off, Cox says, "actuarialy, [the DROP plans] are neutral."
Slack agrees — but he couldn't determine any particular study or audit to back him up. He notes that some pensions take big risks with DROP programs by guaranteeing interest on accounts, but the Springs' pensions don't guarantee anything, he says. And that means the pension isn't at risk. Meanwhile, he says, the plans can actually help employers by reducing costs.
There is a lucrative exception. Employees "max out" their pension after a certain number of years of service, usually around 30 or 40. And for an employee who's guaranteed a full pension, a DROP is all gravy.