Let’s talk about fair.
It always makes your eyes bug out when you see the dollar amounts of the annual salaries — just the salaries, not including the benefits! — paid to public employees these days.
Surely, your eyes widened, if not bugged out, if you read the table of the salaries of Longboat Key town employees published on page 2A of last week’s Longboat Observer.
Here’s just a sampling:
• Fire Department administrative assistant: $52,332
• Police Department administrative assistant: $51,563
• Emergency-services specialist: $59,051
• IT systems & network administrator: $84,697
• Planner: $58,427 to $79,726
• Plans examiner: $59,300
• Planning Department office manager: $53,500
• Director of planning, zoning: $95,800.
Seriously, you would be hard-pressed to find comparable salaries in the private sector in this market for similar job duties and responsibilities. And, then, when you add in the fringe benefits paid by the town (taxpayers) — health insurance (100%), pensions, vacations, holiday time and sick time — the total compensation is truly extraordinary and, in this day, extravagant.
We defy anyone: Find a small business or any business with 100 or fewer employees that pays the breadth of salary and benefits that Longboat Key employees receive.
And yet, some of the non-union town employees are now dissatisfied that the town may not give them access to yet another great perk — the Florida Retirement System’s DROP program — as the town shifts them to a new defined contribution pension plan.
If Florida taxpayers actually focused on what DROP is costing them, not to mention on the fact it exists to begin with, they should demand its end. Millions upon millions of dollars in unfunded pension liabilities are already causing taxpayers to face higher and higher taxes in the coming years. DROP is exacerbating these costs.
9.5% guaranteed returns
Talk about “not fair.” Something must give. Taxpayers can no longer afford what elected officials and unions create for public employees.
If you read the accompanying box, you get a sense of this nice perk — the state’s Deferred Retirement Option Program. The text explains and the table illustrates how DROP works. In short, it goes like this: Say an individual has worked for the town for 30 years and is retiring at age 60. In that 30 years, he has built up a sizable pension — thanks to the town’s annual contributions and his own contributions.
But rather than retire and draw a monthly pension payment, the employee can enter DROP. This allows him to keep his job at his current rate of pay but no longer earn additional pension benefits.
Instead, DROP allows the employee to earn his salary plus tax-deferred interest and an annual cost-of-living increase on the pension that would be paid out to him if he truly were to retire. Taxpayers cover those costs if the town’s pension funds don’t provide the necessary returns.
Until last year, public employees who entered DROP earned a rich 6.5% on their pensions, plus 3% annual cost-of-living increases. Can you imagine — 9.5% returns?
The Legislature has since adjusted the formula downward. Anyone entering DROP now will earn much less — closer to 3% returns and current market rates.
At issue for Longboat Key’s Town Commission is whether seven to a dozen general employees should be allowed to enter the DROP program before the town ceases to participate in it. Because general employees have opted to switch from the town’s defined benefit plan — the one that has grown to $27 million in unfunded liabilities — to a defined contribution plan, the town is dropping DROP.
The new agreement with the town’s firefighter union already has eliminated DROP, although some of the Fire Department’s employees were allowed to join DROP as part of the union-negotiated agreement with the town. Now a dozen general employees want the same opportunity.
Firefighter’s pension: $100,980
Here’s what it comes down to: If commissioners want to be fair to all — employees and taxpayers alike — they should look at this question in terms of pieces of a cake. The whole cake is what makes financial sense for the town to pay in salaries and benefits to all of its employees. What’s more, commissioners know they must constrain the growth in total employee payroll while they increase tax collections to reduce the town’s pension liabilities.
So, if the cake is limited in size, and it is, choices must be made on the size of each piece. You can no longer have your cake and eat it, too. You can’t have 100% of your health insurance paid and DROP and pensions and high salaries. Those days are over.
While commissioners wrestle with this question of allowing DROP for a few (we would drop it once and for all), they should continue to guide the town manager on a longer-term strategy for sensible compensation at every level. Something is clearly out of whack when a Fire Department lieutenant is retiring after 25 years with an annual pension of $100,980.
HOW ‘DROP’ WORKS: HAVE YOUR CAKE, EAT IT, TOO
The following is taken from published information from the Florida Retirement System.
What is DROP?
The Deferred Retirement Option Program (DROP) allows you to effectively retire under the Florida Retirement System (FRS) Pension Plan. You begin accumulating your retirement benefits while delaying your termination for up to 60 months from the date you first reach your normal retirement date or your eligible deferral date.
As a DROP participant, you simultaneously earn a salary, and your monthly retirement benefits are held on your behalf.
Before you participate in DROP, you earn one month of retirement service credit for each month you work. When you enter DROP, you are considered to be retired and you stop earning retirement service credit.
While participating in DROP, your monthly retirement benefits accumulate in the FRS Trust Fund, earning tax-deferred interest while you continue to work for an FRS employer. Tax-deferred interest means that you pay any taxes owed when you receive the interest instead of when the interest was earned.
When your DROP participation ends, you receive your DROP payout and begin receiving your monthly retirement benefit, in the same amount determined at retirement, plus annual cost-of-living increases.
The longer you participate in DROP, the greater your financial gain. However, even short periods of DROP participation can offer enough financial advantages to make participation the right choice for you.
For many, DROP offers the “best of both worlds” by providing the financial security of a guaranteed lifetime benefit and an opportunity to accumulate additional savings while you are working.
How much interest will my DROP account earn?
DROP participants with a DROP begin date before July 1, 2011, earn interest, compounded monthly, at an effective annual rate of 6.5%.
DROP participants with a DROP begin date on or after July 1, 2011, earn interest, compounded monthly, at an effective annual rate of 1.3%.
If your DROP begin date is before Aug. 1, 2011, the monthly retirement benefit credited to your DROP account increases by a 3% cost-of-living adjustment (COLA) each July 1, or by a prorated amount if you have been in DROP for less than one year when you receive your first COLA.
The COLA formula for DROP participants whose DROP begin date is on or after Aug. 1, 2011, will be the sum of the pre-July 2011 service credit divided by the total service credit at retirement multiplied by 3%.
A member who enters DROP effective July 1, 2012, with 30 years of service of which 29 years occurred before July 1, 2011:
29/30 = .9667 X 3% = 2.9%.
This member will receive a 2.9% COLA each July.
What about my lump-sum annual leave payment?
You may choose to receive a lump-sum payment of your accumulated annual leave, either at the time you enter DROP or after your DROP participation ends. Based on your employer’s policy, up to 500 hours can be reported.
If your accumulated annual leave is paid to you at the time you enter DROP and your employer confirms and reports the amount to us on the monthly payroll report, this increases your retirement benefit, therefore your DROP accumulation increases as well. If you receive a lump-sum annual leave payment(s) after your DROP participation begins, it will not change your FRS benefit calculation.
HOW A DROP ACCOUNT ACCUMULATES
The following table illustrates the estimated value of a DROP account for participants who joined prior to July 1, 2011. They earn 6.5% annual interest and a 3% cost-of-living increase.
Retirement Years in DROP
Benefit: 1 2 3 4 5
$100/month $1,235 $2,588 $4,067 $5,681 $7,441
$500 $6,177 $12,940 $20,334 $28,405 $37,203
$800 $9,883 $20,704 $32,534 $45,448 $59,525
$1,000 $12,353 $25,880 $40,668 $56,810 $74,406
$1,500 $18,530 $38,820 $61,002 $85,215 $111,609
$2,000 $24,707 $51,760 $81,336 $113,620 $148,812
$2,500 $30,883 $64,701 $101,670 $142,025 $186,015
$3,000 $37,060 $77,641 $122,004 $170,430 $223,218
$3,500 $43,237 $90,581 $142,338 $198,835 $260,421
$4,000 $49,414 $103,521 $162,672 $227,240 $297,624
$5,000 $61,767 $129,402 $203,342 $284,054 $372,037
Currently 1 Response
- Yes!!! Great idea!!!! Drop the DROP - !!! Freeze wages for 5 years!! Abolish the STEP plan!! Disingrate the pension for existing employees!! Don't even bother to try to explain the pension to prospective applicants - because one doesn't exist!! With any luck - you can run off whatever valuable workers left; the only decision to be made is who will take your crabby old butt to the hospital or chase the burglar out of your mansion!! Good plan!!
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