Pension Plan Drops Interest Rate to Match Earnings

April 24, 2012 ( - Starting this month, the Ohio Police and Fire Pension Fund is paying 2.23% interest on accounts in the Deferred Retirement Option Plan (DROP).

The optional statewide program has paid 5% since its inception in 2003. “You can’t pay out more than what you earn,” said Executive Director William Estabrook, according to The Columbus Dispatch. “Our earned interest in 2011 was 2.24%.”   

Estabrook noted that the board can adjust the interest rate — which will change quarterly to match the 10-year U.S. Treasury note rate in effect on the last day of the previous quarter — in the future if investment returns bounce back.  

The Columbus Dispatch reports that DROP lets police officers and firefighters defer retirement up to eight years while their pension payments accumulate with interest. They can get the lump sum upon retiring. The pension they receive in retirement is frozen at the time of enrolling in DROP and is unaffected by later pay raises.   

About 3,500 police and firefighters participate in the DROP program.  

The news report noted that the fight so far is between firefighters and the pension system. Police are OK with the change. The firefighters union thinks current participants in DROP should be unaffected by the proposed plan changes.  

Though the interest-rate drop didn’t need legislative approval, other police and fire pension proposals do. They include a higher retirement age (from 48 to 52) for new hires, bigger deductions from employee salaries (from 10% to 12.25%) and lower cost-of-living adjustments.