Workers' Pensions Endangered By City Officials

A few years ago, the city of Houston decided to sweeten its workers' retirement benefits. Along with their traditional pensions, city workers nearing retirement were offered special accounts, fed with money from the city pension fund. Although the accounts would pay generous returns, a study showed that the cost to the city would be modest.

What seemed a good idea then now looks ruinous. Hundreds of older workers will qualify for million-dollar payouts at retirement from these accounts. When their monthly pension checks start coming, some will actually have higher incomes than they did when they were working.

The city pension fund cannot support the payouts and has about $1.5 billion less than the benefits it owes the work force. The district attorney is looking into possible wrongdoing. City voters will go to the polls on May 15 to decide whether Houston should opt out of a Texas constitutional requirement that all pension promises be kept.

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At the heart of the matter is a type of pension benefit that has generally been shunned by corporations but embraced by state and local governments. Known as a DROP, for deferred retirement option program, the strategy has been hailed as a way to keep hard-to-replace teachers, engineers and other public workers on the job as they near retirement.

Advocates say the plans allow workers to get big one-time checks when they retire, at potentially no additional cost. In practical terms, though, DROP's have been abused again and again by naïve or self-interested officials, who have pumped up benefits well beyond what the rank and file expected or what the pension fund could pay. Records show that some of these officials set up rich programs to coincide with their own retirements. (emphasis added)

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