Previously posted on November 16, 2018

The effective date of the ordinance amending the DROP Program has been changed to February 1, 2019.  Initially, the proposed changes were anticipated to take effect on January 1, 2019. 

For the ordinance to be approved, there must be two “readings” by the City Council, and subsequently, it must be approved by the Mayor and published.  Timing issues due to the holidays and the City Council recess schedule have delayed approval of the ordinance.  The first reading is planned for early December 2018, the second reading is planned for January 2019 and publication will likely occur mid-January 2019.

The proposed changes will now be effective February 1, 2019.  Members entering DROP after January 31, 2019, will be subject to the new requirements.  No other provisions of the ordinance have been changed.

Previously posted on November 6, 2018:

The City Administrative Officer (CAO) has submitted a report to the City Council recommending approval of an ordinance amending the DROP Program.  There must be two readings of the ordinance before it is approved.  The changes would be effective January 1, 2019 and members who enter DROP on or after January 1, 2019 will be subject to the new requirements as follows:

• Participants must serve at least 112 hours on active duty status in a given calendar month or they are not eligible for pension accrual;
• If a participant should incur a serious injury in the line of duty and is hospitalized for three days or longer as a result, the participant can continue to retain eligibility for up to twelve months;
• If a participant leaves active duty and becomes ineligible for pension accrual, they will be allowed to go back to work and extend their time in DROP for up to 30 additional months, once the standard five-year DROP period expires.

The CAO also submitted the results of an actuarial study evaluating the proposed changes to DROP and the future costs to the City.  This is separate from the actuarial study (in progress) to evaluate cost neutrality of the DROP Program.  The cost neutrality actuarial study could possibly generate additional changes to the DROP Program that is expected to only affect future DROP participants.

Previously posted on August 24, 2018:

On August 24, 2018, the City announced proposed DROP improvements reached through a tentative agreement with the Los Angeles Police Protective League, United Firefighters of Los Angeles City, the Los Angeles Police Command Officers Association, the Los Angeles Fire Department Chief Officers Association, the Los Angeles Airport Peace Officers Association, the Los Angeles Airport Police Supervisors Association, the Los Angeles Airport Police Command Officers Association, the Los Angeles Port Police Association, and the Los Angeles Port Police Command Officers Association.

New DROP Requirements under the Agreement:

• Participants must serve at least 112 hours on active duty in a given month or they are not eligible for pension accrual;
• If a participant should incur a serious injury in the line of duty and is hospitalized for three days or longer, the participant can continue to retain eligibility for up to twelve months;
• If a participant leaves active duty and becomes ineligible for pension accrual, they will be allowed to go back to work and extend their time in DROP for up to 30 additional months, once the standard five-year DROP period expires.

A mandated financial analysis of the DROP Program (DROP study), which is required every five years, is currently being conducted to ensure that DROP remains cost neutral.

The new requirements are scheduled to be effective January 1, 2019, pending City Council approval.  Upon approval of the proposed amendments by the City Council, we will provide all the provisions as detailed by the approved ordinance.  Until that time, we will continue to keep you updated.  For further questions on the proposed amendments, please contact your respective unions or associations.

Previously posted on July 26, 2018:

On June 27, 2018, the City Administrative Officer (CAO) sent a second letter to the General Manager of LAFPP requesting that LAFPP authorize the Plan’s actuary, Segal Consulting, to prepare a report on the impact of proposed (potential) DROP program modifications. The Board of Fire and Police Pension Commissioners approved this new study request at its meeting on July 19, 2018 with the support of labor.  [Please also note that LAFPP will be reimbursed by the CAO for the cost of the report.] 

As this proposal is a meet and confer item, the details of the proposed DROP program modifications are bound by the confidential rules of collective bargaining and cannot be released at this time. Once this study is completed and should the City decide to proceed, there will still be sufficient notification to members of program changes while the amended DROP ordinance is approved by the City Council and Mayor and becomes effective. (An ordinance would require two readings by the City Council, at least 30 days apart.)

Please be assured that LAFPP will update you with information as soon as it is received from the CAO or the City Council. In the interim, continue to follow-up with your unions for more information.

For more information on LAFPP’s DROP Program, please visit the Member’s page for Active/DROP Members, under Plan Details.   For information on entering or exiting the DROP Program, please contact the DROP/Service Pensions Section at (213) 279-3100.

Previously posted on June 29, 2018:

On April 24, 2018, the City Administrative Officer (CAO) sent a letter to the General Manager of LAFPP requesting to initiate a cost-neutrality study of the DROP Program.  The Board of Fire and Police Pension Commissioners approved this request at its meeting on May 3, 2018.  The study will be conducted by the LAFPP Plan’s actuary, the Segal Company, and will use the actuarial assumptions adopted by the Board and parameters as defined by Segal.  The CAO confirmed that they will reimburse the Plan for the cost of the study.  The study is not anticipated to be completed for another several months.

If the City should determine that changes are needed to DROP based on the actuarial study or review of the Program meeting the City’s goals, they would have up to 180 days (approximately 6 months) to negotiate the changes with the unions, with a possibility of an additional 180 days if both sides agree to an extension. After that time, if the parties cannot reach an agreement, the City will notify LAFPP to suspend entries into DROP until such agreement is reached. Finally, an ordinance must be adopted by the City Council for any changes to be effective.

If the City and the unions should agree on changes before the 180-day period, there will still be sufficient notification to members while the amended DROP ordinance is published and becomes effective.

Please be assured that LAFPP will update you with information as soon as it is received from the CAO or the City Council. In the interim, continue to follow-up with your unions for more information.

Previously posted on March 30, 2018:

LAFPP members have expressed concern over the pending review of the DROP Program, especially the time allowed for members to enter DROP before any changes should occur. The following should provide a clarification of the review process and lead time that is provided.

The City Administrative Office (CAO) representing the City, and the unions representing the LAFPP sworn members of the Fire, Police, Harbor and Airport Departments will meet and confer to negotiate any changes to the program. If the City should decide that changes are needed, they would have up to 180 days (approximately 6 months) to negotiate the changes with the unions, with a possibility of an additional 180 days if both sides agree to an extension. After that time, if the parties cannot reach an agreement, the City will notify LAFPP to suspend entries into DROP until such agreement is reached. Finally, an ordinance must be adopted by the City Council for any changes to be effective.

If the City and the unions should agree on changes before the 180-day period there will still be sufficient notification while the amended DROP ordinance is approved by the City Council and Mayor and becomes effective.

Please be assured that LAFPP will update you with information as soon as it is received from the CAO or the City Council. In the interim, continue to follow-up with your unions for more information.

Previously posted on February 21, 2018:

On February 7, the City Council made a motion to request a review of the Deferred Retirement Option Plan (DROP) Program.  The Council stated it was critical that the City investigate possible Workers’ Compensation abuse and take steps to protect taxpayer funds and the integrity of the program.  The motion requests that the CAO report back to Council on Workers’ Compensation issues as it pertains to DROP and report on the current status of the DROP program.  The Los Angeles Police Protective League released a statement pledging to work with the City on the accountability of the Workers’ Compensation Program.

A review of the DROP Program is mandated by the Los Angeles Administrative Code at least every five years or more often.  The last study was completed in February 2014 and covered the period through June 30, 2012.

Review Process

The Administrative Code, Section 4.2100(c), specifically states the criteria by which DROP can either be amended or suspended. These criteria include maintaining cost neutrality to the City and/or meeting the City’s DROP goals of retaining and lengthening the careers of sworn personnel with the Police, Fire, Harbor, and Airport Departments.

Before DROP can be amended, an actuarial study and review of the City’s DROP goals must be conducted.  To make changes to the DROP Program, the City would need to do the following:

1. Have an actuarial study performed to evaluate whether DROP continues to be cost neutral, and review whether the Program is meeting the goal of extending the careers of sworn personnel;
2. Meet and confer with the unions to negotiate changes to the Program if the City determines changes are needed based on this review.  (The City would have up to 180 days to negotiate the changes with the unions, with the possibility of an additional 180 days if both sides agree to an extension);
3. If the parties cannot reach an agreement on DROP changes, the City will notify LAFPP to suspend entries into DROP until such time as an agreement is reached;
4. Any amendments to the DROP ordinance will only affect those persons who enter DROP after the date the changes become effective.  Those persons already in DROP would not be affected.

DROP History

• The DROP Program was established in 2002 and was designed to be cost neutral, improve employee morale and retention and lengthen the careers of public safety personnel.
• Actuarial review studies were completed in January 2008 and February 2014.
• The DROP Ordinance was first amended in May 2007:
  • Police & Fire Chiefs no longer eligible to participate
  • Program extended for another 5 years
• The DROP Ordinance was last amended on November 7, 2008:
  • The “Sunset Clause” for termination of the Program was removed allowing the Program to continue indefinitely unless and until an ordinance is amended in the future.
  • The member must be on Active Duty Status at the time of entry.

Cost Neutrality Control Factors

• Participants continue to pay mandatory member contributions until they reach the maximum years of service for their tier. This contribution goes into the fund and is not part of the member’s DROP account.
• LAFPP does not allow members to enter DROP retroactively – you cannot backdate your entry effective date. Only active members with at least 25 years of service (and age 50, depending on the tier) are eligible to enter DROP.
• The DROP account interest rate of 5% is lower than the LAFPP fund’s assumed investment earnings rate of 7.25%.
• Participants can remain in DROP for a maximum of 5 years.  At the end of the 5-year period, participants must retire and take distribution (total withdrawal from LAFPP) of their entire DROP account.  Interest does not accrue after a member exits DROP.
• As of January 1, 2018, total DROP account balances make up less than 2% of LAFPP’s total assets of approximately $22.0 billion.

In terms of the overall health of our Plan, the most recent actuarial study determined that, as of June 30, 2017, our pension plan is 91.5% funded.  In addition, the City consistently makes its Annual Required Contribution (as determined by the Plan’s actuary) to LAFPP.  An asset/liability study is conducted periodically that carefully monitors the cohesion between the benefits the Plan is obligated to pay to our pensioners and the long-term investment strategies in place. The most recent study of the Plan concluded that LAFPP’s funding level was “unquestionably strong” relative to most other public pension plans.

For more information on LAFPP’s DROP Program, please visit the Member’s page for Active/DROP Members, under Plan Details.  For questions, please contact your respective union.  For information on entering or exiting the DROP Program, please contact the DROP/Service Pensions Section at (213) 279-3100.