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 Worker’s Compensation abuse and take steps to protect tax payer funds and the integrity of the program.  The motion requests that the CAO report back to Council on Worker’s 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 20, 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 LAFD, LAPD and the Harbor and Airport Departments.

Before DROP can be amended, a study must be conducted, followed by a meet-and-confer with the unions. To make changes to the DROP Program, the City would need to do the following:

  1. Have an actuarial study performed to evaluate whether the Program continues to be cost neutral and 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 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.