Featured Post

Was it constitutional for Proposition 124 to replace PSPRS' permanent benefit increases with a capped 2% COLA?

In this blog I and multiple commenters have broached the subject of the suspect constitutionality of PSPRS' replacement of the old perma...

Monday, September 10, 2012

The folly of the DROP, part one

Which one of these urban legends is true?
  1. Mama Cass choked to death on a ham sandwich.
  2. John Denver was a sniper during the Vietnam War.
  3. The Deferred Retirement Option Plan (DROP) keeps experienced personnel on the job and is a win-win proposition for both employees and employers that saves taxpayers money.
The correct answer is . . . none of the above.  Mama Cass died of a heart attack, and John Denver never served in the military.  As for the third one, that legend is self-serving hype and half-truth.

The DROP was sold to politicians and the public because law enforcement and fire entities were rapidly losing valuable, experienced personnel.  These personnel were necessary in order to operate safely and efficiently and that replacing them was difficult and costly.  Without some type of incentive, experienced personnel would leave and service quality would suffer with severe, possibly fatal, consequences.

Experience is supposed to be self-perpetuating in an organization through the normal career progression of its employees.  It does not build up to a certain optimal level, after which it must be maintained at all costs.  The normal movement of workers up the ranks as attrition takes away the most experienced personnel should be sufficient to maintain a core of competent personnel.  If a small number of expereinced employees is so important to an organization that their departure will critically damage the organization, it means the organization is deficient in its training and promotion policies.  Also, those "critical" employees will have failed the organization by concentrating skill and knowledge in themselves and not training replacements.

Another problem with the DROP was that it was not a long-term solution to maintaining experienced personnel.  Some participants in the very first group to enter the DROP may have postponed their retirements to take advantage of a new windfall program being instituted just as they were about to retire.  However, everyone else would simply make the smart financial decision to incorporate the DROP into their original retirement plans.  Someone who planned to retire at 30 years would simply DROP at 25 years.  He would not stay for 35 years just because of the DROP.  At best, only a minimal amount of experience was retained by the DROP.

Finally, the DROP actually has a paradoxical effect on maintaining experience.  One of the problems with governments is that their hiring is subject to the vicissitudes of the economy.  Flush years allow them to hire; lean years force them to shrink via layoffs or attrition.  When public safety personnel are hired in large groups, they will tend to retire in large groups, usually at 20, 25, and 32 years for PSPRS members.  These milestones are when they first reach retirement eligibility, when they can add an extra 0.5% per year of service to their retirement benefit, and when they maximize their retirement benefit at 80%, respectively.  This would make a good case for the DROP to save experienced personnel, but in fact, the DROP only makes these mass exoduses worse.  The DROP created its own milestones when it changed from a fixed to variable interest rate and when it dropped its interest rate.  Large numbers of personnel wisely entered the DROP before these changes went into effect in order to maximize their DROP payment.  The DROP actually makes the retention of experienced personnel even more difficult by creating more incentives for them to leave en masse.

Developing experienced personnel should be a natural function of any organization, so the DROP was superfluous to begin with. The number of experienced personnel retained bythe DROP was minimal and may have actually worsened retention.  The next post will analyze whether the DROP is a win-win situation for employees and employers.

No comments:

Post a Comment

Relevant comments are welcome, but please adhere to the following rules:

1. No profanity or vulgarity.
2. No spam or advertising.
3. No copyrighted material may be posted unless you are the copyright owner.
4. Stay on topic.
5. Disagreement is fine, but please avoid ad hominem attacks.

Comments reflect the views of the authors alone, and do not reflect the opinion of this website.