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January 28, 2004   Email to Friend 

DROP WINDFALL COSTS STATE MILLIONS
Debra Davis
(334) 613-4686
January 28, 2004

As the Alabama Legislature trolls for additional tax dollars, the dual heads of the Alabama Education Association each have laid up for themselves a retirement "bonus" that could exceed $1 million cash, in addition to their regular pension of at least $200,000 annually when they retire, paid out of The Retirement Systems of Alabama (RSA).

Dr. Paul Hubbert, executive secretary of the AEA, and Dr. Joe Reed, associate executive secretary, meanwhile continue drawing their annual salaries of $342,000 and $338,000 respectively. Both were chief proponents of the Deferred Retirement Option Plan (DROP) passed by the legislature in 2002.

That law provides that a public employee with 25 years of service can sign up for retirement benefits when he reaches age 55 but continue working for another three to five years. During those years, the retirement funds are put into a special account which the person can claim in a lump sum when he actually retires. In the case of Dr. Hubbert, $16,917 is set aside monthly and $18,281 is set aside monthly for Dr. Reed, in their DROP account until they actually retire, according to figures from RSA. That would amount to $1,015,020 for Hubbert and $1,096,860 for Reed after five years.

Dr. Ed Richardson, who has just resigned as state superintendent of education to become interim president of Auburn University, accrues $10,624 monthly on an annual salary of $170,755. If he stays in the program five years, he would have a retirement "bonus" of $637,440, according to RSA.

Even for employees making substantially less, the "bonus" is significant. For example: Joe Public who works within the state retirement system, can work until he is 55, sign up for DROP and collect $88,000 retirement bonus after three years, retire at the age of 58 to draw his regular monthly retirement and continue to have his health insurance paid by the state. He could even exit DROP and continue in his existing job indefinitely and collect his bonus whenever he leaves service. Many say such an incentive will attract a huge majority of public employees to the program as they become eligible.

The Legislative Fiscal Office (LFO) says the DROP plan is costing the state an additional $27 million annually. That amount could grow as more state employees participate. There are 4,145 enrolled in DROP at the end of 2003, with an average of 135 more added per month. That includes 3,217 teachers, 728 state employees and 201 persons from local government, according to LFO. The total active in the Retirement System of Alabama include 125,000 teachers, 36,000 state employees and 45,000 city and county workers.

Participation is not limited to teachers or state employees. Local government employees and even some non-government personnel, such as Hubbert and Reed, are included in the state retirement system, and therefore could participate in DROP. The covered teacher group includes employees of elementary and secondary schools, junior colleges and universities.

Besides the AEA, other non-public groups with employees in the state retirement plan include the Alabama High School Athletic Association, Association of County Commissions, Alabama State Employees Association, Alabama Association of School Boards, Alabama Association of School Administrators, and other similar organizations.

The DROP was promoted to the legislature two years ago as a plan to keep veteran public employees and teachers from leaving after 25 years of service to begin new careers. Other states had enacted similar programs where there were shortages of highly trained personnel which were hard to replace. Some other states limit the deferred option to three years.

Alabama, however, is one of the few, if not the only, state to cover all members of the state retirement system, even if it might be fiscally desirable to reduce the number of employees in a certain field through attrition. Marginal employees also would be eligible. And since there is no requirement that the employee retire after his DROP period, he simply continues to work as long as he wants and collects his "bonus" when he actually leaves service.

Although almost everyone would agree that DROP is not something this state cannot afford in its present form, efforts to change or eliminate it would be a tough battle with the AEA and State Employees Association. The Decatur Daily says the fact "that it allows employees who aren't needed to stick around for up to five years and draw a salary and pile up retirement checks is something that needs to be changed."


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