For the second time in six months, a Pennsylvania court has vacated an interest arbitration award containing a Deferred Retirement Option Plan (DROP). This time, the court applied the provisions of Act 600. In Borough of Ellwood City v. Ellwood City Police Department Wage and Policy Unit, the Court of Common Pleas of Lawrence County vacated a DROP provision in an Act 111 interest arbitration award because it was "outside the authority of the Borough legislatively granted to it by [Act 600]."

The court juxtaposed the DROP provision mandated by the Act 111 interest arbitration panel and the statutory authority granted to municipalities under Act 600. Although the case involved a number of potential issues, the court focused on the conflict between the DROP provision in the arbitration award, which allowed an officer to stay in service for 12 to 48 months after the officer's retirement date, and Act 600's requirement that a pension be calculated based on no less than an officer’s last 36 months of employment. As the court accurately reasoned, "this is not possible with a DROP participant."

In December 2008, the Court of Common Pleas of Bucks County issued a similar decision under the County Code, vacating an interest arbitration award that ordered the County of Bucks to institute a DROP. Although the Bucks County court applied the County Code, it applied similar reasoning in reaching the same result that the Lawrence County court reached.

Conclusion and Practice Advice

This is the first decision that analyzes whether DROPs are authorized under Act 600. All municipalities that have pension plans governed by Act 600 should be mindful of this decision in future negotiations. If a municipality has not done so in the past, it should object to and identify as unlawful any bargaining proposal for a DROP in order to preserve the issue for appeal if a DROP is awarded. It also should appeal any interest arbitration award containing a DROP.

An interesting note about the DROP struck down in Borough of Ellwood City is that it appeared that the arbitration panel ordered that the DROP be cost neutral, stating that "the Borough shall not be obligated to agree to any plan, which does require the Borough to make any additional payments to the Police Pension Plan." Thus, as in the earlier, Bucks County case, the potential cost impact of a DROP was not an issue in the Borough of Ellwood City decision.

If you have any questions regarding this alert, please contact William K. Kennedy at 215.864.8243 or kennedyw@ballardspahr.com.


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