HomeMy WebLinkAboutIR 8703INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8703
�$,_ArrREo
To the Mayor and Members of the City Council August 4, 2005
Page 1 of 2
SUBJECT: Report on the Deferred Retirement Option Program (DROP) for
the City of Fort Worth
The purpose of this report is to provide information on the City's Deferred Retirement Option
Program (DROP) in response to questions raised by the City Council during the June 30 — July 1,
2005 Council Retreat.
On December 3, 2002, the City Council approved the DROP benefit for City employees with the
adoption of Ordinance No. 15334. The Ordinance allows employees who attain the normal
retirement date to remain in active service with the City and participate in the DROP. By making
this election, the amount equal to the benefit the employee would have received if he /she retired is
credited to a DROP account each month. When the employee separates from service with the City,
the employee receives a lump sum payment of the DROP account balance in addition to the normal
monthly pension benefit.
Once an employee enters DROP, the employee no longer receives service credit for working for the
City, and future pay increases are not credited to the pension benefit, i.e., the employee's pension
benefit is frozen. To be eligible for the lump sum DROP balance, the employee must remain in
DROP for at least twelve months. The maximum stay in DROP is five years. During the DROP
period, no cost of living adjustment (COLA) or interest is credited to the DROP account. However,
if an employee completes at least two years of service after making a DROP election, the
employee's initial pension benefit upon retirement will include a retroactive COLA for the DROP
period. Lastly DROP participants and the City continue making contributions into the Retirement
Fund, until the DROP participant separates from service; these contributions become part of the
Retirement Fund; however they are never credited to the participant's DROP account balance.
Based on information secured from the Employee Retirement Fund administration office, there are
currently 124 participants in the DROP program with the value of all deferred retirement
contributions in the "DROP account" totaling approximately $9,575,000. This money remains part
of the Retirement Fund's investment portfolio, and all investment and interest earnings are credited
to the Retirement Fund, not the DROP participants.
The Ordinance requires the Retirement Board to commission an actuarial study on the impact of the
DROP on the retirement fund and general fund of the City no later than December 2007 (after five
years of experience). The actuarial review is scheduled to occur during the first quarter of FY
2007 -08. In accordance with the ordinance, "in the event that the actuary certifies that the DROP
has had, or will have, a material adverse impact on the retirement fund or the general fund of the
City, the City Council shall determine if the DROP shall be terminated."
ISSUED BY THE CITY MANAGER
FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS
To the Mayor and Members of the City Council
No. 8703
August 4, 2005
Page 2 of 2
SUBJECT: Report on the Deferred Retirement Option Program (DROP) for
the City of Fort Worth
Unless directed otherwise, staff will continue to work with the Employee Retirement Fund to ensure
that the actuarial study as stipulated by the ordinance is completed by December 2007. Should you
have any further questions regarding this matter, please contact Richard Zavala, Acting Assistant
City Manager or me.
rYi
Charles R. Boswell
City Manager
ISSUED BY THE CITY MANAGER
FORT WORTH, TEXAS