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Emergency Management 7


Recommendation

A. The retirement multiplier for Department of Public Safety commissioned officers who retire with at least 30 years of service should be increased from 2.80 percent to 3.0 percent per year of service; or

B. A Deferred Retirement Option Plan should be offered to Department of Public Safety troopers who are eligible to retire and have at least 25 years of service credit in the Employees Retirement System of Texas; or

C. Department of Public Safety should develop a program of multiple incentives, including a bonus plan tied to years of service; provide hazardous duty pay and develop a plan of stipends for special DPS trooper expertise, based on education, special expertise in languages, enforcement methods and other professional certifications.


Summary

During these times of unrest and terrorism it is imperative to keep experienced Department of Public Safety (DPS) senior commissioned officers. The events of September 11 have led to an increase on the demands of all DPS officers and especially those senior officers who are involved in investigations and intelligence gathering. DPS has been working closely with both federal and local law enforcement during this time, and the demands on their time are at a peak.

Furthermore, the safety needs of the state’s highways require additional efforts to promote truck safety. Today, highways are congested with international traffic, which creates an important need to aggressively enforce commercial truck safety. To that end, DPS proposed adding non-commissioned personnel in the License and Weight Service. But, while adding 57 commercial vehicle inspectors and 20 motor carriers investigators would enhance the department’s ability to regulate commercial traffic and improve security,[1] it would not make up for the projected loss of DPS trooper law enforcement experience.

A law enforcement officer is eligible to retire and receive a retirement annuity after 20 years of service. As of May 2001, there were 517 DPS officers with at least 20 years of service and who would be at least 50 years of age on or before August 2002.[2] The current benefit factor is 2.8 percent.

According to the 2000-01 Legislative Appropriations Request, there are 3,247 DPS commissioned officers, with approximately 300 scheduled for retirement during the 2002-03 biennium. These 300 senior officers are the most experienced in dealing with criminal intelligence/ terrorism.

Clearly their expertise will be sorely missed in these times of enhanced security risks. Incentives should be developed to reduce the number of enforcement officers retiring.


Higher Multiplier for Certain Officers

Retirement benefits for law enforcement officers and custodial officers are administered by the Employees Retirement System (ERS) and the Supplemental Retirement Program. ERS provides funding for the largest portion of the retiree’s annuity, and the Supplemental Retirement Program supplements the annuity. The total benefit factor for eligible retirees is 2.8 percent (the 2.3 percent ERS benefit factor plus 0.5 percent) per year of service.[3] A law enforcement or custodial officer is eligible to retire and receive a standard retirement annuity with full benefits at age 50 after 20 years of service.[4] A higher benefit factor might reduce the number of officers retiring.

During the 2001 legislative session Senate Bill 1132 by Sen. Steve Ogden proposed increasing the multiplier for certain officers in the Law Enforcement and Custodial Officers Supplemental retirement program (LECOS) to 3.0 percent. This legislation did not pass.

Deferred Retirement Option Plan (DROP)

Deferred Retirement Option Program (DROP) plans are among the options available to government employers looking for ways to provide flexibility in their retirement plans without increasing costs.[5]

DROP allows an employee during their later working years to accumulate funds in a special account for distribution at retirement in exchange for a reduced monthly benefit for life.[6] The DROP period can be from one to five years. The employee can elect to receive funds accumulated during the DROP period in a lump-sum payment or in periodic installments—in addition to the accrued standard annuity benefit.

DROP participants would continue to make monthly contributions as required by law during their employment, including the DROP period.[7] However, the member no longer would earn further service or salary credits for the retirement annuity while participating in the DROP. The DROP account would earn interest until the employee retires and distribution of the DROP begins.

As of March 2000, 38 municipal, police and firefighter retirement systems had implemented DROP plans, including the Texas Teacher Retirement System.[8] Local police agencies which use DROP programs include Austin, Dallas, Houston and San Antonio.

DROP Advantages and Disadvantages

Employer: A major advantage for the employer is that DROPs often are implemented at no additional cost to the employer. A possible disadvantage for the employer is that a DROP would not achieve the desired retirement pattern and could increase the employer’s actuarial costs.

Employees: Retirement officials report that one advantage of the DROP for the employee is that it allows an employee to simultaneously earn a salary and a retirement income, which offers an opportunity to accumulate an additional tax-deferred "nest egg." Upon retirement the employee receives payment of the accumulated DROP benefits and begins receiving the monthly retirement benefit—although it is a reduced annuity. For many employees this is the "best of both worlds," providing both a guaranteed lifetime benefit and a lump sum to be invested by the employee after DROP ends.

A disadvantage for the employee is that the employee’s total future monthly retirement income will be lower if the employee spends the DROP accumulation amount instead of investing it to replace the amount the employee would have earned participating in the retirement system for up to five more years.


Other Incentives

DPS should develop a program of multiple incentives, including a bonus plan tied to years of service, provide hazardous duty pay and develop a plan of stipends for special DPS trooper expertise, based on education, special expertise in languages, enforcement methods and other professional certifications.

Many local law enforcement agencies use a system of multiple incentives and supplements to retain experienced law enforcement officers. Senate Bill 435 by Sen. Todd Staples, filed during the 2001 legislative session, proposed increasing hazardous duty pay from $7 per month to $25 per month. This bill was costly because it included not only DPS commissioned officers, but also other agency commissioned officers. Even an increase to $25 is reasonable today, considering that hazardous duty pay for Houston police officers is $300 per month.

The Texas Commission on Law Enforcement Standards and Education (TCLEOSE) provides certification in various areas. DPS does not provide certificate pay for officers with certificates, but local law enforcement agencies pay certificate pay ranging from $25 to $225 per month. Offering financial incentives for certificates encourages additional certification, which would boost officers’ expertise as well as salary.


Legislative Changes Required

To implement Recommendation A: Texas Government Code §814.07, should be amended to increase the multiplier for certain officers in the Law Enforcement and Custodial Officers Supplemental Retirement program.

To implement Recommendation B: Texas Government Code §814.08 should be amended to include a deferred optional retirement program benefit for certain Department of Public Safety troopers.

To implement Recommendation C: Texas Government Code §659 should be amended to include incentive pay for Department of Public Safety troopers.


Fiscal Impact

According to Texas Department of Public Safety officials, within the next 15 months 350 DPS troopers are expected to retire. The cost of implementing the recommendations should be compared to the cost of training new troopers. Assuming that all the retiring troopers will be replaced, the cost to train 300 new troopers within the next 15 months is estimated to be $7.1 million.

Recommendation A: According to the fiscal note prepared by the Employees Retirement System’s actuarial consultant and the Legislative Budget Board for Senate Bill 1132, the cost to the state (general revenue fund, general revenue dedicated accounts, federal funds and state highway fund) to increase the benefit factor would be $16.8 million in fiscal year 2003, $6.2 million in fiscal year 2004 and $976,548 in 2005 and 2006. These cost estimates were based on a change in the multiplier from 2.75 percent (2.25 percent plus 0.5 percent) to 3.0 percent.

The decreasing cost pattern to the state is due to two factors: First, the Law Enforcement and Custodial Officers Supplemental Retirement Fund has been over-funded since 1993. Therefore, the first years of the increase would not require state funding because the Supplemental Fund is over-funded and can fund the multiplier increase. Second, due to the increasing number of retirees and the recommended higher benefit multiplier, beginning in fiscal 2003, the state would need to increase its contribution to the fund to meet its actuarial commitments.[9]

Since the bill did not pass, a new fiscal note is needed to estimate the cost of the 2.3 percent per year of service multiplier recommended. The new fiscal note would include the new ERS multiplier factor of 2.8 percent (2.3 percent, plus the 0.5 percent supplemental factor). The cost cannot be estimated without an actuarial analysis.

Recommendation B: An actuarial analysis is needed to calculate the cost of implementing this recommendation. One of the advantages espoused by proponents of the DROP is that the option can be cost-neutral. However, the cost cannot be determined until such an analysis is made.

Recommendation C: It is not possible to estimate the fiscal impact of this recommendation because of the wide range of options and financial incentives available.


[1] Texas Department of Public Safety, Legislative Appropriations Request for Fiscal Years 2002 and 2003 ((Austin, Texas), p. 7.

[2] Legislative Budget Board, “Fiscal Note for SB 1132, 77th Regular Session,” Austin, Texas, April 30, 2001.

[3] Employees Retirement System, “Lawmakers Approve Many Benefit Changes in 2001,” Austin, Texas, October 18, 2001: http://www.ers.state.tx.us/Publications/FYB_Summer_01/BenefitChanges.htm.

[4] Employees Retirement System of Texas, Retirement Benefits for Law Enforcement Officers and Custodial Officers (Austin, Texas, April 2001), pp. 4-5.

[5] State Pension Review Board, “The DROP Feature of Defined Benefit Plans,” February 1996: http://www.prb.state.tx.us/drops.html.

[6] Teacher Retirement System of Texas, Deferred Retirement Option Plan (Austin, Texas, October 1999), p. 1.

[7] Teacher Retirement System of Texas, DROP (Deferred Retirement Option Plan) (Austin, Texas, October 15, 2001): http://www.trs.state.ts.us/Benefits/DROP.htm.

[8] State Pension Review Board, “Deferred Retirement Option Plans in Texas,” October 15, 2001:: http://www.Prb.state.tx.us/drops1.html.

[9] Telephone interview with Stephanie Coates, budget analyst, Legislative Budget Board, Austin, Texas, October 18, 2001.