By Stephen Winham
I was among a distinct minority of people in state government who thought adding DROP to our state retirement systems was a bad idea for the state from the outset. It clearly provided a good benefit for employees at a time when state salaries were not nearly so generous as today, but I was concerned about the real costs, not just to retirement systems, but to agencies’ active payrolls. I was also concerned about real and perceived inequities resulting from employees making decisions they would later regret. In my opinion, the existence of DROP in state retirement systems has generally failed to benefit the state financially or otherwise – And I find the whole concept of “Back DROP”, the State Police Retirement System option recently publicized in conjunction with the controversy over SB 294 of 2014, ridiculous on its face.
DROP for our state retirement systems seemed to at least have sensible goals when originally implemented and estimating the fiscal impact seemed relatively easy for an actuary. Simply put, an employee, who would otherwise be entitled to retire, continued working and drawing a pay check. The amount that would have been paid the retired employee in monthly retirement checks was frozen at that level and went into a DROP account each month while the employee continued to draw a salary. The employee did not have to make contributions to his/her retirement system while in DROP, so s/he got an immediate increase in net pay and could continue to get raises, though they would not increase the retirement benefit amount. When the employee actually retired s/he could get the balance in the DROP account and begin to receive monthly retirement checks.
DROP was sold as a way to retain experienced employees for a period of time beyond when they might otherwise actually retire by providing them with an additional incentive. It was also supposed to accomplish the almost contradictory goal of encouraging higher paid employees to actually retire at the end of DROP participation. This would reduce the amount of money necessary for salaries overall and/or create additional promotional opportunities and openings for other employees.
So, DROP was viewed by most as a simple, predictable benefit for both the state and its employees. But, guess what? It has rarely worked that way and the reality of the way it does work begs the following questions:
- How many people who participate in DROP would have really retired, when eligible, in its absence? Based on experience, the answer is very few. Therefore, the major ostensible advantage of DROP to the state, retention of experienced employees, would not seem to have actually been a state issue.
- How many state employees with retirement eligibility are indispensable? Again, my answer would be very few. A significant percentage of indispensable employees would indicate gross understaffing, poor management planning, or both.
- How many people who enter DROP actually retire at the end of DROP participation? My guess, again based on experience, would be significantly fewer than originally projected.
Because employees can come out of DROP and continue to work without skipping a beat, any expected salaries savings can evaporate quickly. In fact, high salaried people not already eligible for the absolute maximum in retirement benefits often continue to work an additional minimum of 3 years so they can start to accrue additional benefits to be paid as supplements to their “frozen” regular retirement checks. So, ultimate liabilities of the retirement systems are harder to project and salaries on the active payroll are often higher than they would have been otherwise.
The new option Colonel Mike Edmonson apparently wanted to take advantage of via SB 294 only exists in the State Police Retirement System and is called “Back DROP”. I had never heard of this before and still find it hard to believe it exists and was actually recommended by an actuary. It does absolutely nothing DROP was intended to do except encourage some people to simply work longer.
If I understand it correctly, under “Back DROP” the employee starts thinking about retiring and how to game the retirement system to his/her best financial advantage. As retirement eligibility approaches, s/he gets the system to run numbers so s/he can make the best choice when s/he actually retires between the following:
1. Pretending s/he entered DROP up to 3 years ago (going back to the future, in other words); or
2. Getting a lifetime benefit based on the highest average salary
Does that sound anything like DROP to you? Me, neither. It sounds like having your cake and eating it, too. Those eligible can’t possibly make the wrong decision – for them – and no pesky actuarial reductions in benefits like the Initial Benefit Option (IBO) that is available to all retirees.
Go to the following link, scroll down to “BACK DROP Plan – Only for Members Eligible for DROP after 10/01/2009” and see how you interpret the option: http://lsprs.org/retirement/options/
Now, think about it. How is it possible to get in the ballpark of figuring out how to adequately fund a benefit that doesn’t actually defer anything and lets those eligible choose the best option for them at the last possible moment? How must the thousands of people who retired under regular DROP plans in all state retirement systems feel about the ability of anybody else to have this open-ended option?
Our retirement systems have total unfunded accrued liabilities of some $19 Billion. These liabilities did not crop up overnight but must, under existing law, be liquidated by 2029. How can any legislative action that extends state retirement benefits to those not previously eligible for them possibly do anything to help address this problem?
As Everett Dirksen said, “A million here, a million there, pretty soon you’re talking real money.” In Louisiana, we don’t seem to get the simple truth of that, and not just in our retirement policies.
Louisiana Voice 
After going to the link you provided it appears that the State Troopers that become eligible to retire after 10/1/2009 would only be eligible for this Drop program. Reading and looking at the examples it appears the difference between this and regular drop is that you work your 36 months before entering drop at retirement. They then calculated what you would have made under drop to give the individual. It still has the reduced benefit period of month per month that is like regular drop at the end if you do not take it when first eligible. It would appear that during the 36 months they are still paying into their retirement system. Doesn’t say how that is addressed. As someone who has done drop and still working for finacial reasons. One of the reasons I decided to stay was that with downsizing there was no one following me to train for my job. So once I do decide to retire more than likely my job will be privatized, which is what the ultimate goal is of this Administation.
I sympathize with your situation, but I stand by my take on the distinction between regular and “Back DROP” and it is my understanding, from what Colonel Edmonson has said publicly, SB 294 provides the means for him to use this option.
Great post, Stephen!! From reading your post (and scrolling down and reading the back DROP provisions for LSP retirement system), I am now firmly convinced of two things. First, I think there can be little doubt whatsoever that the SB-294 amendment was a stealth mechanism for enabling Col. Edmondson to enjoy the provisions of back DROP which, as you point out, seems an absurd provision on its face. Second, even though Louisiana is required each year to have a balanced budget, it seems apparent to me that the various state retirement systems have been utilized as a form of annual “shadow budget deficit.” It’s really no different than if we had run up a recognized cumulative deficit of $19 billion. That represents approximately $4,200 for every man, woman, and child in the state. While I realize that’s a tad overstated since state workers MUST pick up a portion of the tab (i.e. no choice, work for State = you pay into retirement system); nevertheless, $4,200 is a pretty significant figure. While it pales in comparison to the approximate $60,000 debt per man, woman, and child of the U. S. government, it’s still a high number given that, in theory, the budget is “balanced” each year. Thanks for the excellent post and insight, and I think it speaks volumes that someone who follows all this as you do and was integrally involved during your own tenure with the state is just now hearing of back DROP. Sure makes it seem like this provision wasn’t widely disseminated or communicated and can hardly be in the best financial interest of the system itself nor the taxpayers of Louisiana!!
I have known Mr. Winham for more than two decades. I have always held him in high esteem because of his integrity, ethics, and intelligence. Not to mention that he has a great sense of humor and justice. As Guy Clark describes it he “has a playground sense of justice, she won’t take odds.” I chose not to do DROP when it came “my turn”. I looked at all of the numbers, my particular situation, and where I thought I was going to be. Did I make the right choice – I do not know but I made it and will live with it. Sometimes we get a “do over” or “Back DROP” and sometimes we do not. Be that as it may we, i.e. no one should have a legislated “do over” for them and them alone (or two people). That would be kinda like legislating a change to a law to allow someone who was previously convicted of breaking the statute to suddenly not have broken the law.
An excellent analysis. I had the same decision to make as many and chose not to participate in the DROP program. I am also aware of many from Edmonson’s Academy class and others who did and subsequently retired. For some, the decision worked out well; for others, it did not. I suppose they weren’t important enough to include in any legislation to undo an irrevocable decision. (I’m still having trouble with that term since it doesn’t seem to really mean that.)
This attempt is exactly why the public is frustrated and bewildered with our government at every level and especially those politicians and political appointees who took an oath of service and trust. The real impact of this is good for no one but Colonel Edmonson ( are we really to believe that the other Trooper will benefit much at all) and those politicians and staff who use the public money as political bargaining tools.
I’ve had some tell me that anyone would have done the same thing if they could and that this is minor in comparison to other things the Legislature does all the time. First, while certain not everyone would have done this, I can only speak for me. Not only would I not have done it, I would never have been so self serving as even to ask for it. Secondly, should we really compare one bad action to a worse action to justify it? Isn’t bad…. just bad? Is it okay to steal because others do? Is there a dollar amount where it suddenly becomes wrong? Does he so “deserve” the money that it had to be done in an unethical and covert manner? (Not to mention the highly questionable Constitutionality of the action.)
If it’s such a great idea, why sneak it through? If Edmonson is so “entitled” wouldn’t the other Legislators want to stand up and join in? Why did it only occur to a “staffer” at State Police and one Legislator? I guess in this case they only trusted one Legislator to understand this. If I were the other Legislators, I would be angry they didn’t think I was smart enough to see how great an idea this was. If I was the governor, I would be angry they didn’t trust me with the truth. Of course no one else seems to feel insulted or tricked or lied to. Maybe that’s because some were actually participants (though silent) in the game and the others fear retribution in things such as committee assignments if they talk. I have yet to hear Edmonson or Riser or someone from the Governor’s office express regret over their tactics. In fact it would seem they have calculated that there isn’t anything anyone can do short of going to court.
Because of the cost involved most Retirees though incensed, are resting their hope on the State Police Retirement System Board. The Executive Director has taken positive steps by hiring an outside attorney who apparently is well versed in Constitutional and Retirement System Law. I am concerned however as to whether the Board will have the courage of their convictions and follow through on their Fiduciary Responsibility.
After all, 5 of the 11 Board Members work in State Police under Edmonson, another member is a private contractor for State Police, and other members are from the Senate and the House, where this Legislation was passed, and the Division of Administration, where there are still questions as to their possible involvement in facilitating and coordinating this bill. If everyone involved in passage of, signing, or directly working for the beneficiary of this law recused themselves because of real or perceived conflict of interest that would only leave the State Treasurer, John Kennedy and the Surviving Spouse Representative Ms. Bourg to handle it. (In fairness to Mr. Pierson from the House Retirement Committee, I believe he did not participate in the vote on this bill when the House accepted the now infamous Conference Committee version, but he still has to face the wrath of those in charge.)
As my Dad used to say, “We are in a Mell of a Hess!”
I think you are wrong when you say: “How many people who participate in DROP would have really retired, when eligible, in its absence? Based on experience, the answer is very few.”
I am a teacher and many, many teachers are ready to retire, but due to our low salaries we stick it out for three more years to have a “cushion” from our DROP account. We’ve had enough due to endless testing, Common Core, and every problem in education being blamed on us and most would retire upon immediate eligibility…but DROP keeps us slugging it out for three more years.
Then you say: “How many state employees with retirement eligibility are indispensable? Again, my answer would be very few.”
Really? Schools hire Teach for America, aka “I’ll teach a few years and erase my student loans then get a real job,” teachers when the teachers with a four to six year degree in education and 25 to 30 years of experience retire. I think in light of their Teach for America replacements, these teachers ARE indispensable.
I did not mention the unique situation with teachers in my column, but wish I had. As I am sure you know, teachers (and law enforcement personnel) were the prime government employees considered when DROP plans were originally implemented. Your points are well made and taken. Thank you.
Steve…Kudos for your incisive analysis on the DROP situation. Those of us who labored in the private sector find the nuances of this LSP/Sheriff’s Association “Back DROP” most inscrutable.
Based on the LSPRS minutes from Nov. 19, 2008 after Mike Edmonson was in place as the agency head, (page 4 of PDF here: http://www.lspripoff.com/LSP1108.pdf). Edmonson’s designated representative to the board and the guy talking to Riser, Charile Dupuy, made a motion to have the legislation prepared to implement the “Back DROP” program. How difficult would it be to estimate the impact of this program on the retirement system? Shouldn’t this new program cost be put into the mix of what Edmonson has wrought on the retirees during Jindal’s tenure?