To the editor:
Few Cape taxpayers know or understand the DROP (Deferred Retirement Option Plan) or the effect on the Cape Budget and Pension Plans. The DROP program allows a city employee to retire and return to work immediately for a maximum of five years. During that period his retirement allowance is held by the appropriate Pension Board and invested for him with a guaranteed 6.5 percent compounded interest return. Twice per year the participant may elect to take the investment returns earned by the pension plans if greater than 6.5 percent.
Hold your breath Cape taxpayer, this plan allows employees to walk away with "Golden Parachutes" of up to $750,000.
Last year the three employees in the program walked away with payments in the mid six figures. Approximately 30 others could do the same in the next five years. These numbers don't tell the entire story. Employees can retroactively join this scheme through a program called BAC-DROP. Since there has been a "pay freeze" for the last five years, it is a no-brainer for an employee not yet entered in the DROP Plan to enter the BAC-DROP just prior to retirement and get a 6.5 percent compounded rate of return on money that was never deposited. In most places programs like this are not allowed. It's called, "Double Dipping."
Unions claim that the program saves money since the city no longer contributes to the pension plan after the employee enters the DROP but they fail to calculate the cost to the pension system by guaranteeing a return above what the system actually earns, thus increasing the unfunded liability of the plans. The actuarially accrued unfunded liability of the Cape Pension Plans is now $200,000,000. The required annual appropriation to amortize this liability over the next 29 years will be $18,680,753 in the 2013 Budget.
Despite the false rhetoric, this is where the Fire Safety Fee is intended to go. Mayor Sullivan and Councilman Leetz are correct; the solvency of the pension plans is at risk. End the pension abuses like the DROP program. Replace these pooh-bahs with the lower cost new hires the city manager has promised. Stop this obscene drain on the pension plans and we will have true "Sustainability"
Donald E. McKiernan