Controversial L.A. police and fire retirement plan more expensive than promised to voters, report says
The controversial retirement program that pays Los Angeles police and firefighters their salaries and pensions simultaneously at the end of their careers has not been “cost neutral” — as was promised to voters when they approved it in 2001.
That’s the conclusion of a study called for by Mayor Eric Garcetti and City Council members earlier this year after a Times investigation found that more than 1,200 participants who entered the Deferred Retirement Option Plan had then taken injury leaves at essentially twice their usual pay.
The finding contradicts years of claims by city officials that the program — a favorite of the politically powerful police and firefighters unions — doesn’t cost taxpayers any extra money. Garcetti and leaders of the City Council have clung to that argument despite a 2016 study that came to the same sobering conclusion, and the experience of other California cities that experimented with DROP programs and abandoned them due to the expense.
Like previous actuarial reports on DROP, the study finished last week noted that the program could become cost neutral in the future if participants forgo certain benefits, but it did not take into account the added expense of cops and firefighters collecting two large checks — salary and pension — while out on extended leaves.
The average absence from those leaves was 10 months, The Times found, but hundreds took more than a year off, typically for bad backs, sore knees, carpal tunnel syndrome and other ailments that afflict aging bodies regardless of profession.
The list includes a former firefighter who took almost a year off for a hurt knee after entering DROP. Less than two months after the injury, he crossed the finish line of a half-marathon in Portland, Ore., in a brisk 2:05:23. A married couple, a police captain and a detective, joined DROP then filed claims for carpal tunnel syndrome and other cumulative ailments and took about two years off. They collected nearly $2 million while in the program and spent some of their time off recovering at their condo in Cabo San Lucas, Mexico, The Times found.
Under the city’s administrative code, a determination that DROP is not “cost neutral” gives elected officials a chance to eliminate the program or renegotiate its terms with leaders of the police and firefighters unions. But there has been little appetite among city leaders to do that.
In August, Garcetti proposed suspending the pension payments to cops and firefighters in DROP who miss significant time due to injury or illness. They would still collect their salaries, tax-free, while they are off work recovering from their ailments. The City Council passed the measure 12-0 on first read Tuesday. It would have to clear another vote, scheduled for January, before becoming final.
Allowing employees to take long stretches of paid time off while in DROP runs counter to the rationale police union leaders offered when they proposed the program in 2000 — keeping experienced and savvy veterans a few years longer to serve the public and mentor new recruits.
Then-Mayor Richard Riordan backed the program and voters approved a 2001 ballot measure that promised DROP would create “no additional cost to the city.” Riordan has since called the plan — which has paid out more than $1.7 billion in early, extra pensions checks — a mistake. He called the widespread taking of prolonged injury leaves while in the program “total fraud.”
The plan could be cost neutral, in theory, because employees agree to freeze their pension amount when they enter DROP. That means any raises they receive during their five years in the program would not increase the size of their pension payment. They’d get more pension checks over their lifetime – up to an extra five years’ worth — but those checks would be a bit smaller, so the cost to the city could balance out over time.
But that’s not what has happened, according to the report. It noted that raises given to city cops and firefighters during the recession beginning in 2008 were much smaller than expected. That meant the value of freezing pensions before retirement was diminished.
The overall assessment of whether DROP is a good deal for taxpayers depends on many other factors, however, including how long the employees live in retirement and whether they enter DROP having already reached their maximum pension — 90% of their salary, plus city subsidized healthcare, guaranteed for life.
Other cities, including San Diego and San Francisco, experimented with DROP only to decide the program was prohibitively expensive.
Last week’s report is not the first time city leaders have been told the program is too costly.
In a closed-door meeting with Garcetti and City Council leaders in February 2016, former City Administrative Officer Miguel Santana presented the results of a previous actuarial study of DROP, which also showed the program was not, and never had been, cost neutral.
Santana urged city leaders to eliminate or drastically amend the program because it had never worked the way voters had been promised it would.
One of the original arguments for creating the program, a feared exodus of senior Los Angeles Police Department officers to retirement or other departments after the Rampart scandal — which exposed widespread corruption within the LAPD — was no longer a threat, Santana argued.
And there had never been a reason to include firefighters in the program because the city has no problem recruiting or retaining them, he added.
Garcetti and the City Council members ignored Santana’s advice and left the report in the files of the Executive Employee Relations Committee, which are not public.
When The Times obtained a copy of the report and Santana’s accompanying analysis in March, City Councilman Paul Koretz called Santana’s presentation “half-baked” and “not that compelling.” Koretz said that he often ignored suggestions from Santana, who, he said, “wasn’t a particularly pro-labor CAO.”
Koretz’s deputy chief of staff, David Hersch, said the councilman needed more time to study the report before commenting.
Garcetti said he chose not to act after the 2016 report because it included the years following the recession during which employees did not get regular raises. He said he wanted to wait for a more up-to-date report.
But DROP “is not an entitlement,” Garcetti said in March. “This is something we’ll keep if it works for our city and our public safety system, not simply because it has been there in the past.”
Times Staff Writer Ryan Menezes contributed to this report.
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