Pension payouts for retired San Diego city employees continue to reach record levels, as one firefighter was paid $885,000 out of the retirement fund in 2016.

1 / 14 Click through to see the recipients of 2016’s largest DROP payments to city retirees. (Jeff Dillon) 2 / 14 Name, title: Frederick Gerke, police sergeant Pension: $77,730 DROP: $536,882 Total: $614,612 (Scott Linnett/The San Diego Union-Tribune) 3 / 14 Name, title: Kevin Rausis, police sergeant Pension: $50,184 DROP: $553,129 Total: $603,313 (The San Diego Union-Tribune) 4 / 14 Name, title: Sharon Mc Falls, police sergeant (no photo available) Pension: $70,395 DROP: $588,491 Total: $658,886 (U-T file ) 5 / 14 Name, title: Douglas Nakama, deputy fire chief Pension: $103,715 DROP: $591,890 Total: $695,605 Photo: Doug Nakama, crouching in white hard hat and goggles at far right, training Japanese firefighters in 2007 at U.S. Fleet Activities Sasebo. ( / Courtesy of Doug Nakama) 6 / 14 Name, title: Debra L Farrar, police lieutenant Pension: $49,876 DROP: $596,231 Total: $646,107 Photo: SDPD Lt. Debra Farrar (left) offers support to Kaylee Wilson (right), daughter of slain police officer Chris Wilson, as she addresses the the court. (John Gibbins) 7 / 14 Name, title: Michael Shadoan, fire engineer (no photo available) Pension: $48,997 DROP: $604,081 Total: $653,078 (/ Union-Tribune) 8 / 14 Name, title: Kevin Ammon, police lieutenant (no photo available) Pension: $57,116 DROP: $606,396 Total: $663,512 ( / Union-Tribune file photo) 9 / 14 Name, title: Daniel Saner (right), fire battalion chief Pension: $109,857 DROP: $617,839 Total: $727,696 (Nelvin C. Cepeda) 10 / 14 Name, title: Dawn Summers, police captain Pension: $104,295 DROP: $643,548 Total: $747,843 () 11 / 14 Name, title: Mark Jones (left), assistant police chief Pension: $25,763 DROP: $771,645 Total: $797,408 (Charlie Neuman) 12 / 14 Name, title: Benjamin Castro, fire battalion chief Pension: $69,088 DROP: $816,760 Total: $885,848 (Laura Embry / The San Diego Union-Tribune) 13 / 14 The analysis is based on 2016 pension data from the San Diego City Employees’ Retirement System, which submitted its records to Transparent California through a public records request. Non-DROP pension amounts in many cases are for a partial year since data represent all recipients in 2016 and employees don’t always retire at the end of a calendar year. (San Diego Union-Tribune file photo) 14 / 14 Firefighter DROP payments hit new recordReport: Cities make meager progress tackling pension debtSan Diego still plagued by pension debt ( / Anthony Tarantino)

San Diego Fire-Rescue battalion chief Benjamin Castro received most of the money — $816,760 — as a lump-sum payment under a special program called the Deferred Retirement Option Plan or DROP. It allows employees to receive a paycheck at the same time as they receive pension checks, which are placed into a special account available only when they retire.

The program has generally had a five-year limit, given public criticism that it amounts to double-dipping. But firefighters have been allowed to extend the program by using accrued vacation — extending their time collecting a pension and a paycheck by up to 17 months.


Several of the top pensioners in 2016 benefited from extension of their time in the DROP program. Seen as one of the excesses leading to the city’s pension crisis in the first decade of this century, the program was withdrawn as a benefit for new city hires starting in 2005.

But the cost of that program and others is still coming due, as the city’s unfunded pension deficit has grown to $2.5 billion, according to a February report. Before that, it was $2 billion.

Castro, 59, said it was his choice to accrue a large vacation balance during his 35-year tenure within the department.


“You know, I was a single dad trying to put two kids through college so I didn’t take a lot of time off. That was my unique situation,” Castro said. “Honestly, I worked my butt off to get to where I am. I accomplished a lot and I’m proud of that.”

He worked as both a captain and a trained paramedic, which he said was a rare combination in the department, and it gave him the opportunity to pick up more work and assignments.

“Hopefully people can understand that the big number they see online is not what I get every year,” Castro said. “There’s no manipulation of the system. It was just the way the system was set up for us.”

According to data from the San Diego City Employees Retirement System, Castro entered the DROP program in May 2010. By June 2013, he had accumulated nearly $400,000 in his DROP account.


The end of Castro’s five years in DROP would have been May 2015. But city audit documents show he had more than 1,800 hours of unused annual leave, allowing him to extend the five-year program enrollment by at least 386 days.

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He retired in June 2016 and received the balance of his $816,760 DROP account in a lump sum, the largest payment in the history of the program and the highest amount among all city retirees in 2016. Additional pension checks for half of the year brought the total to $885,848, according to data the city released to the open-government group Transparent California.

Castro tops the previous record-holder, retired fire captain Frank De Clercq, who received $711,200 in a lump sum in 2015. His additional pension checks that year brought his total to $734,868.


In 2016, De Clercq’s pension — the one he will received on an annual basis for life — came to about $107,400.

Since the DROP program launched in 1997, supporters have said it saves the city money on a number of fronts.

First, it keeps experienced workers on the job, rather than retiring to collect benefits available to them as soon as age 50. That saves the city recruitment and hiring costs.

Second, retirement benefits for the workers stop accruing when they enter DROP — so the final salary and years of service used to calculate their pension ends up lower.


Third, the DROP accounts have a guaranteed rate of return (1.5 percent at present) and the pension fund gains any interest earned above that — which can be substantial.

Critics have insisted it’s still a boondoggle.

"[DROP] doesn’t achieve its objective,” former City Attorney Michael Aguirre said. “It doesn’t save any money. You’re keeping older and more expensive employees when you could have some fresh blood coming it at less than half the cost.”

After Castro, the next largest pension payouts in 2016 were for retired assistant police chief Mark Jones at $771,650, police captain Dawn Summers at $643,550 and fire battalion chief Daniel Saner at $617,800. Messages left for Jones, Summers, Saner were not returned.


According to a review of pension records, police and fire retirees tend to dominate the top of DROP payment lists in San Diego. Firefighters consistently receive more money on average, as the only city workers allowed to extend the program beyond five years using leftover vacation time.

DROP extension comes with consequences for the department, which has come under scrutiny in recent years for regularly going over its overtime budget and allowing employees to accrue larger vacation balances than city contracts call for.

As of February 2016, department employees had accumulated $19 million worth of unused leave time, and almost half of it — some $8.8 million — was above the limits set in labor contracts.

Keeping firefighters on the payroll while they spend out their vacation balances not only boosts their DROP accounts, it often takes up a position in the department, preventing a new firefighter from coming aboard. This heightens the need for overtime hours to cover shifts.


International Association of Fire Fighters Union Local 145 President Alan Arrollado said it’s more difficult for firefighters to use their time off because of “constant staffing,” a contract provision that requires fire stations to be fully staffed around the clock for fires, medical calls or other emergencies.

This means firefighters must work overtime to fill vacant positions or when co-workers are sick, injured and on vacation.

“If you force a firefighter to take time off, his engine isn’t going to run with one less person,” Arrollado said. “The city backfills it with overtime. So now, you’re not only paying for someone to take the day off, you’re also paying a different firefighter time and a half to fill the position.”

For years, annual vacation accrual caps went unenforced. City officials said it was cheaper to pay out accrued annual leave upon retirement — or allow firefighters to cash out portions during employment — than to force vacation use.


The leave balances are now being used for DROP extension, but Arrollado said the city and department have since taken steps to reduce the liability.

Annual leave accruals were previously exacerbated by department-wide shortage of full-time staff. There are about 800 uniformed fire personnel on staff in San Diego, covering 47 stations, according to the department’s website.

A 2014 staffing analysis found that in 2013 approximately 80 full-time positions were vacant, leaving current employees to pick up the empty shifts, work more overtime and accrue larger leave balances themselves.

Arrollado said the department has since hired nearly 300 new employees and is almost fully staffed now, which will help alleviate the burden on more experienced employees with larger vacation accruals.


Firefighters are also being forced to cash in their accrued annual leave to get vacation balances under control by 2019, when new union contracts with the city take effect, Arrollado said.

DROP recipients have two choices when they retire. They can receive their accrued DROP balance as a lump sum, or have it paid out as an annuity over time.

Data show the retirement fund paid out more than $74.1 million to more than 1,950 DROP participants last year, as lump sums and annuities. That’s a 7.2 percent increase from 2015’s payout of $69.1 million to 1,825 pensioners.

Joe Nation, a former Democratic state legislator who teaches public policy at Stanford’s Institute for Economic Policy Research, said an increase in DROP payments could be the result of more retirees choosing the lump sum because of uncertainty about the pension funds’ stability.


Castro said he chose to empty his entire DROP account in one lump sum because the rate of guaranteed interest is less than the rate of inflation, and it made more sense financially to have the money managed elsewhere.

Nation said there were problems with public pension funds long before the Great Recession affected retirement portfolios. City officials had been promising generous pay and pension benefits for years without setting aside enough money to cover the costs.

“It isn’t so much that the system is run poorly, it’s that it’s in a position now where people are getting nervous about their money being there in the future,” Nation said. “All you need is the doubt or the fear that the bank is going to fail and everyone will rush to the bank and say, ‘give me my money.”

Politicians had the overly-optimistic assumption that the economy would keep growing and that investment returns on the pension fund would be more than enough to cover the expense of promised benefits.


“For years pension systems have been overstating their earnings and understating their liabilities, the money that they expect to owe in the future,” Nation said. “And of course if you’re doing both of those, you dig that financial hole even deeper. You won’t even have a chance to miss that iceberg that you’re headed straight for.”

When the recession hit and the value of the public pension funds’ investments fell, San Diego — like many cities across the country — owed hundreds of millions of extra dollars in promised benefits to current employees and pensioners.

A March analysis found that San Diego’s finances are still plagued by pension debt despite numerous efforts to solve the problem through ballot measures and revised policies at City Hall.

City finance officials found that San Diego’s annual pension payment is five times higher than it should be — at $325 million per year instead of $63 million — because of the unfunded liability, caused by underfunding in the early 2000s.


“I think it’s wrong to scapegoat people who are reaping the benefits of a system they had no part in creating,” Nation said. “But everyone ought to take some blame. In particular, the city officials and politicians who created and promoted a system that they had to know at some point was not sustainable.”

Statewide, the ranking of top DROP payments for retired city employees is dominated by Los Angeles. Nine LA city retirees received more than Castro, and he ranks 10th statewide.


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