Three Baltimore public safety unions have reached an agreement with the Dixon administration to scale back lucrative retirement payouts for police officers and firefighters who work longer than 20 years.
The compromise, fueled in part by the down economy, would save the city an estimated $4 million to $7 million yearly while preserving elements of a popular pension selection known as the deferred retirement option plan, or DROP.
Under the plan, public safety officials receive a large lump-sum payment if they continue working past their traditional retirement date.
The proposed revisions address only one element of public safety pension problems, however. City officials continue to worry about the growing cost of other benefits and insist that more changes are needed.
The 13-year-old deferral program was supposed to keep experienced police officers and firefighters on the job longer without significant additional expense but has wound up costing Baltimore as much as $10 million a year.
The problem has been apparent for years, and efforts by Gov. Martin O'Malley to alter the deferral option when he was mayor failed amid bitter opposition from the unions and an onslaught of amendments that gutted his efforts in the City Council.
This time the legislative process might be smoother: The heads of three public safety unions, along with a deputy mayor, signed an agreement that any changes to legislation introduced in the City Council yesterday must be backed by all of them.
"We try to do this a lot of the time. We really try to get people to buy in," Mayor Sheila Dixon said, calling union leaders "extremely open" to pension fixes.
Dixon called the program a "luxury" that is no longer affordable in tight budget times. "That money could go back into the Police Department or the Fire Department for day-to-day operations," she said.
Deputy Mayor Christopher Thomaskutty, who led lengthy negotiations with unions, called the compromise "a big deal" and "a longtime fix to a budget-busting problem."
Amid economic turbulence, police and fire pension plan assets have plummeted from roughly $2.4 billion last summer to about $1.5 billion now. The decline played some role in bringing the parties to the table, said Bob Sledgeski, who heads the firefighters union. Stephan Fugate, the head of the fire officers union and a frequent critic of the administration, noted that labor and management worked "collaboratively" in "a cleaner process" than in the past.
The DROP program was designed to retain police and firefighters after their 20 years of service - a date at which many retire because they become eligible to earn 50 percent of their salary as a pension. There are 980 participants in the program.
A city police officer, for example, who participates in DROP can retire after 30 years with a $215,000 lump sum plus a pension payout of $61,000 a year.
Under current rules, those who continue working after 20 years can receive their regular salary plus pension payouts for three years. The payments go into a savings account earning 8.25 percent interest until the member stops working. The proposed change cuts the interest on that account to 5.5 percent.
The legislation would also curtail a practice that allowed police who participate in the deferral plan to eventually catch up to colleagues who did not enroll and saw their years-of-service credits used for pension benefits increase. Firefighters would still be allowed to catch up.
The proposal also includes a requirement that those in the deferral plan stay on the job longer before their pension payments reflect salary increases earned after enrollment. Police would have a shorter wait (3 1/2 years) than firefighters (five years).
The fix to DROP, however, does not address a much more costly structural problem with the fire and police pension plan that will likely cause a more intense fight. That issue - how to change a little-known provision called the variable benefit - will be the subject of a City Council hearing Thursday.
The variable benefit, in its current form, could drive the city's contribution to the fire and police pension plan to $110 million in fiscal year 2011, up from $69 million this year.
"The scale of the problem is much larger," Thomaskutty said.