Voters in Jacksonville, Fla., on Tuesday approved a referendum that creates a half-cent sales tax that will be used exclusively to fully fund the city’s three pension funds.
The vote came as a result of a state law passed earlier this year that allowed for the referendum, with the requirement that all three pension funds become closed to new employees and the employee contribution rate is increased to at least 10%. The pension funds are the general employees and corrections officer pension funds that make up the $2 billion Jacksonville City Retirement System and the $1.8 billion Jacksonville Police & Fire Pension Fund.
Since we are doing a comparison of public pension plans for major cities based on data from their actuarial reports, it’s time to turn to Jacksonville.
The data itself is bad:
But the bomb is about to DROP – as described by the Florida Times-Union in their investigation of the Jacksonville Pension Crisis:
DROP programs are widely used in government pension plans — the Florida Retirement System and major cities offer them. Employees who enter DROP technically retire and start receiving their pensions in a DROP account, but meanwhile, they keep working their same jobs and still get their regular paychecks.
In Jacksonville, police and firefighters can enter DROP after 20 years of service and remain in it for up to five years. For instance, a retiree whose beginning pension equates to $36,400 a year would accumulate about $224,000 in his DROP account after five years because of the 8.4 percent per year growth rate.
In addition, the 3 percent COLAs bump up pension amounts during the DROP period.
After stepping down from their jobs, police and firefighters get access to their DROP accounts by taking the money all at once or in monthly distributions.
This is a variation of double-dipping where the money is not physically leaving the plan so the funded and depletion ratios do not look catastrophic until such time as those DROP accounts, made more generous by being hidden, become due for payment.