              POLICE PENSION AND RETIREMENT SYSTEM:
                     A DEFERRED OPTION PLAN

                               By

                    Ted G. Carlton, M.C.J.A.
                             Captain
                  Sex Crimes and Assaults Unit
           Oklahoma City, Oklahoma, Police Department


     Mike--a 20-year veteran of an Oklahoma police department--
retired last week at the rank of captain. However, for the next 5
years, he will continue to go to the same building, perform the
same work tasks, and receive the same salary, plus his monthly
retirement benefit. How can this be?  Mike just joined the Police
Deferred Option Plan of the Oklahoma Police Pension and
Retirement System.

     This article discusses how a deferred option retirement plan
works. It also examines the advantages and possible disadvantages
of the plan, both for the retiring officers and the agencies in
which they serve.

     Deferred option plans, such as the one Mike joined, work
best in States with statewide retirement systems. For example, in
Oklahoma, police officers who have 20 years of service may retire
with no age requirement. The officers immediately begin to
receive a monthly retirement benefit equal to 50 percent of their
final salary. For each year of service beyond 20 years, the
benefit increases at the rate of 2.5 percent per year, with a
maximum retirement benefit of 75 percent after 30 years. Officers
may continue to work beyond 30 years, but they receive no
additional retirement benefits.

THE PLAN

     Officers who have 20 years'service may join the deferred
option plan. However, once they submit the paperwork for this
move, their decision is irrevocable. After exercising this
option, the officers' contributions into the retirement system
cease, immediately increasing their net (take-home) pay. The
officers then continue to work in the same capacity and receive
departmental raises, promotions, etc., although their retirement
annuities remain frozen at the level at which they existed when
the officers exercised the deferred option. The officers may
maintain this status for up to 5 years after entering the
deferred option plan.

     Once on the plan, the officers' monthly retirement annuities
are paid into an annuity account that is administered by the
Oklahoma Pension and Retirement System. The monthly retirement
benefits, plus investment earnings on these benefits, are held
for the officers until their actual retirement.

     Here is how the plan might work for Mike, who was mentioned
at the beginning of this article, if his final salary (annualized
salary over the last 30 months of employment) is $50,000 and
there is a modest rate of return on the retirement system's
investment portfolio of 6 percent per year. Mike's retirement
benefit after 20 years would be 50 percent of his final salary,
or $25,000. Twenty-five thousand dollars per year placed into his
deferred option account, plus 6 percent interest would yield an
account value of over $149,000 in 5 years.

     Because Mike's retirement benefit is frozen at the time he
joins the deferred option plan, his retirement annuity would
freeze at $25,000 per year--it would not increase during his
final 5 years. Of course, the $149,000, properly managed, could
augment his yearly pension considerably.

     However, the officer who benefits most from this plan is the
one who has reached the maximum annuity level of 75 percent. If,
for example, Mike had entered the plan after 30 years rather than
20 years of service, he would, at the end of 5 years, have an
account balance of over $224,000. In essence, the deferred option
plan allows Mike to receive 150 percent of his salary for 5 years
(including the funds that go into savings), while his colleagues
in the plan with 30 years' service receive 175 percent of their
final salary.

ASSESSING THE PLAN

     Clearly, advantages and disadvantages exist for both the
agencies that offer this type of plan and the personnel who
choose to enter the plan. Agencies must decide whether such an
arrangement is feasible for their particular needs, and personnel
must decide whether it fits their long-term financial and career
needs.

Agency Advantages and Disadvantages

     Law enforcement agencies benefit from this type of
retirement plan in two fundamental ways. First, they retain
experienced officers and executives for a longer period of time;
second, managers can identify and plan for future vacancies.

     The U.S. Census Bureau estimates that by the year 2025, more
than one-quarter of the U.S. population will be age 60 or older.
(1) This means that the American workforce, including those in
law enforcement, is aging. Bearing this in mind, it is to the
agency's advantage to keep experienced officers who wish to
continue working in a profession they find rewarding.

     The second benefit law enforcement agencies derive from this
type of retirement plan is the ability to identify and plan for
future vacancies. The inability to predict upcoming staff
vacancies greatly thwarts the planning process in police
agencies. Administrators who incorrectly predict staff vacancies
may be forced to simply select the next name on the list of
managers--an ineffective way of selecting managers. (2)

     A deferred option retirement plan assists police executives
because it defines a 5-year window in which retired officers may
leave. Fortunately, most who opt for the plan tend to complete
the full 5 years, resulting in greater predictability of staff
vacancies.

     On the downside, every agency has some marginal employees in
its ranks. Therefore, to the extent that the deferred option plan
encourages some nonperformers to stay in their jobs solely for
financial reasons, the agency is not well-served by such a
retirement plan.

     In addition, the plan can significantly alter the internal
demographics of agencies, at least in terms of age. This, in
turn, requires that police administrators change leadership
styles, because when demographics change, existing philosophies
and operational policies of law enforcement agencies often become
less effective.

Advantages and Disadvantages to Officers

     Officers enrolled in this type of retirement plan receive
obvious financial benefits. Prior to the availability of the
plan, officers who were near retirement age would seek employment
in a position that paid half of their preretirement salaries in
order to equal their previous salary. However, the deferred
option plan allows officers to earn 150 percent of their current
salaries for 5 years, although 50 percent of this salary remains
unavailable for immediate use. In order to match such a financial
arrangement, officers eligible for the plan would need to secure
a retirement position that pays 100 percent of their final salary
in order for the position to be as economically attractive. In
most cases, this would not be easy to do.

     In addition, officers who enter the program enjoy the
immediate benefit of a larger paycheck. This is because they stop
contributing to the larger retirement system.

     A significant disadvantage to officers who exercise their
option to join this type of plan is that their retirement annuity
is frozen when the option is exercised. This means that they do
not benefit from the additional 2.5 percent a year for additional
years of service, and any substantial increases in salary during
the 5 years of participation in  the plan would not increase
their retirement benefits.

     Additionally, the benefits of this plan may encourage
officers to remain in law enforcement, even though they may be
suffering from burnout or may believe that they have plateaued.
Staying in a profession for financial reasons places both
psychological and emotional strains on employees. In these cases,
a disservice is done to both the employees and the agencies they
serve.

CONCLUSION

     The Oklahoma Deferred Option Plan provides an attractive
method to stay in law enforcement while providing additional
financial security for retiring employees. It also allows law
enforcement agencies to retain experienced police officers longer
than they could if this type of plan were not offered. However,
potential disadvantages also exist for both the agencies and the
officers.

     Clearly, a deferred option plan is not appropriate for every
officer or agency. Where appropriate, however, it is a worthwhile
option for law enforcement agencies to pursue.


ENDNOTES

     (1)  G. Bennett, Crimewarps: The Future of Crime in America
(Garden City, New York: Anchor Press/Doubleday, 1987).

     (2)  R. Hough, "How Deep is Your Bench?"  The Police Chief,
November 1991, 30-36.