It is not to be interpreted as GFOA sanctioning the underlying activity that gives rise to the exposure. Over the past ten years, many governments have implemented deferred retirement option plans in order to achieve a variety of financial and human resource management goals. DROP plans allow employees who would otherwise retire in a defined benefit plan to continue working. The employee typically receives the money in the account, including an agreed-upon interest amount, in a lump sum when he or she retires.
It is not to be interpreted as GFOA sanctioning the underlying activity that gives rise to the exposure. Over the past ten years, many governments have implemented deferred retirement option plans in order to achieve a variety of financial and human resource management goals.
DROP plans allow employees who would otherwise retire in a defined benefit plan to continue working. The employee typically receives the money in the account, including an agreed-upon interest amount, in a lump sum when he or she retires.
In these cases, unexpected cost increases have been attributed to factors such as unfavorable plan design and faulty investment return assumptions. GFOA recommends that governments exercise extreme caution in considering DROP plans and that prior to approving such plans they conduct a structured decision-making process that includes, at minimum, the following steps: Establish an open and credible review process.
Because such plans may have far-reaching financial and operational impacts for the government, it is important that prior to implementing DROPs, all relevant factors be thoroughly considered. Further, potential conflicts of interest among decision-makers who design a DROP should be monitored closely.
Instances of self-dealing are costly, unethical, potentially illegal, and may harm the long-term credibility of the government entity.
Governments considering implementation of DROPS should conduct a review process that is transparent -- that is, that provides for public participation, open discussion and public decision making based on analysis and facts that are made freely available to the public; is comprehensive; identifies and corrects for potential conflicts of interest; and is well documented.
Set and communicate explicit goals up front. Establishing and publicly communicating the desired results of a DROP program early in the process will both enhance transparency in the decision-making process and facilitate the establishment of performance measures and subsequent evaluation of results.
Inappropriate goals, such as rewarding a select group of staff, should be explicitly rejected. It is critical that goals not conflict with other retirement plan provisions for example, a government would not want to provide DROPs for retaining employees while also offering early retirement incentives.
Both financial and operational goals should be established. Operational goals typically address human resource needs, as follows: DROP plans may make it easier to forecast the level and timing of employee separations from service; Employee retention: Some governments have pursued a forward DROP that provides incentives for employees to work for a finite period of time, as a means of retaining employees; and Separation from service: Certain governments have established back DROPs that may provide incentives for employees to leave governmental service within a window of time.
Financial goals, because they are based on actuarial and interest earnings assumptions, should be carefully formulated and decision-makers and the public should be fully informed of the inherent risks. For example, even though a plan may be designed to be cost-neutral, a drop in interest rates below the assumed rate may leave the government with a significant unfunded liability.
In addition, governments that agree to DROPs or PLOPs in exchange for wage and other operating cost reductions need to include in their risk analysis the prospect that pension improvements tend to be permanent while wages and other operating costs are subject to frequent reconsideration and thus any savings may be reduced or eliminated in future years.
Consider and select design options that support financial and operational goals. The following design elements and their implications should be considered: Parameters should be set based on employee retention or separation goals.
For example, if a government wants to maximize retention, participation should begin no earlier than normal retirement age. Degree to which decision to participate is binding on employee.
Irrevocability is desirable because it a streamlines plan administration, b avoids possible adverse selection, c promotes cost neutrality, d supports succession planning, and d may avoid creating IRS issues. Participation should be capped, consistent with achieving goals.
For example, a government could allow three to five-year participation based on a need to retain employees or induce a reduction in its workforce over a specific time period. Governments should consider a sunset provision for DROPs.
However, governments should recognize that improvements in pension plans are difficult or impossible to reverse. Analyze cost impact of design options. As stated above in the section on financial goals, governments should recognize and make clear to the public that costs are based on certain assumptions and that actual costs may exceed assumptions.
Governments should engage qualified experts to analyze costs and should focus particularly on Investment return assumptions and how they were arrived at.
An investment return credited toward the employee account should be conservative and linked to the risk and return of the underlying investments. The government should not guarantee an investment return. It may be advantageous to determine if actuarial impacts may vary from one department to another e.
Conduct a portfolio analysis. Because a DROP plan creates an accelerated need for cash payouts, a government should perform additional portfolio analysis to ensure investments can produce sufficient income to meet liquidity needs.mission statement.
To foster an environment conducive to faculty research and teaching of the highest caliber to advance the area of finance. The department strives to develop its faculty throughout the course of their careers in the achievement of excellence in scholarly research, education and service.
Sustainability Operations Review notes progress toward ASU sustainability goals. The City of Fresno Finance Department works with over 25, businesses and events annually. The Business License sections of the Fresno Municipal Code state the requirements and regulations under which all businesses shall operate [FMC Sections 5 .
webkandii.com offers you simple and convenient access to all the government information, forms and services you need. It's a whole-of-government service providing essential information on planning, starting and growing your business. Get breaking Finance news and the latest business articles from AOL.
From stock market news to jobs and real estate, it can all be found here. MOOT CORP ® Competition “The Super Bowl of Business Plan Competition.” Business Week. The MOOT CORP ® Competition simulates entrepreneurs asking investors for funding. MBAs from the best business schools in the world present their business plans to panels of investors.