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City officials are considering a retirement incentive program for senior employees in hopes of trimming overhead and opening the way to promotions.

Council on Wednesday tabled a vote on the creation of a "deferred retirement option program," or "DROP," for city firefighters, pending further discussion. Mayor Michael Cherepko said his administration also will bring council a similar program for other employees, including police.

The "DROP" currently being reviewed by council would allow firefighters with at least 22 years' service who are at least 54 years old to receive a lump-sum payment equivalent to up to three years' pension benefits, provided they fulfill certain other conditions.

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Actuaries hired by the city have assured officials that the DROP would either save money or --- at worst --- be cost-neutral, Cherepko said.

But Council President Darryl Segina said he and his colleagues need additional information --- including the actuaries' estimates on the cost of implementing DROPs --- before council can vote. "This is a very important bill, and once something like this goes into a contract, you will never be able to take it out," he said.

A so-called "DROP" window would be open for a limited amount of time and could be closed at the city's discretion. "If financial conditions change, this can be pulled off of the table at any moment," City Solicitor J. Jason Elash told council at Tuesday's work session.

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The DROP would have two benefits to the city, Cherepko said. Firefighters and police can currently retire with 20 years' service, regardless of their age, he said. "A program like this encourages them to make a longer career of it, and retire at 54 instead of, say, 42, which means less of a draw-down on the pension fund," Cherepko said.

On the other hand, it may also encourage some older employees --- with commensurately higher salaries --- to accept retirement, which would reduce salaries while opening up new avenues for promotion, he said.

"Once they decide to enter the 'DROP,' they continue working for up to three years, and they begin drawing on the pension, but instead of receiving the (pension) payout, it gets put into an account for the lump sum," Cherepko said. Before the end of the three years, the employee has to retire from active duty, or they lose the lump-sum payout, he said.

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Many other local and state governments across the United States offer DROP plans for their employees, including the states of Florida and Indiana and the cities of Philadelphia and Jacksonville, Fla.

According to a 2012 story in Jacksonville's newspaper, the Florida Times-Union, DROP programs were introduced in Louisiana in 1981 and were designed to be revenue neutral. When workers enter a DROP, the newspaper noted, "their pension benefits are capped, so it doesn't matter if they get a raise, and the percentage of income they'll receive as a pension doesn't keep on increasing."

"At the same time, the workers are taken off the city books, so tax money doesn't have to be contributed on their behalf --- at least on paper," the newspaper said.

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A 2002 report to the Pennsylvania General Assembly concluded that DROPs do offer advantages, including the retention of experienced employees as well as the ability to offer employees "a desirable retirement benefit option at little or no cost."

DROPs can save money in a community's budget, the report said, because the community's contributions to pension plans on behalf of its employees cease when those employees begin participating in a DROP. At the same time, their pension benefits are frozen and can't increase.

DROPs also serve as an effective "personnel management tool" that enables communities to engage in long-term succession planning, the report said.

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But the same report cautioned that "true cost neutrality in DROP programs is difficult to measure and achieve," and that payroll costs and administrative overhead can actually increase.

In Jacksonville's case, the city was able to put off making $80 million in contributions to its pension fund, making up the deficit through investments, according to the Times-Union, but critics of the city's program claim the city has merely "kicked the can down the road" and increased its overall cost of providing pensions, "leading to larger contributions needing to be made later."

The Philadelphia DROP plan also has been criticized, according to the Philadelphia Inquirer's Philly.com website, at least in part because city council members have been allowed to enroll.

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