DROP Thoughts submitted by Patricia Karnes on July 29, 2005

   The following notes are inspired by the surreal events in Aguirre's office. They are meant as possible pieces of a puzzle. Aguirre's "liquidity" search was a shocker. It is a concept of backfilling SDCERS. Most of us don't think like this and are surprised how bizarre it seems. -Patricia

RE: Considering DROP as a PONZI scheme.

DROP Crisis
   A DROP retiree contacted me regarding the lack of a SDCERS Board discussion of new IRS rules for the DROP program. She wrote: "It is curious it has dragged on for so long. I smell a rat (or at least a mouse!) Another source said: The DROP Distribution matter has been continued to either August 12 or 26. If anyone from RFPA is planning to attend the Ret. Bd. meeting on July 29, they should speak on the matter in the public comment time -- remind the Board of the urgency. Tom Rhodes spoke at the June 17 meeting. He was most concerned that the Board is not giving retirees enough time to make a decision on DROP accounts.

- This is my response to the DROP retiree about why the SDCERS administration is not making progress on advising DROP retirees about the IRS requiring DROP be treated as an IRA in the near future.

The rat called "Ponzi" in DROP?
    Trying Aguirre's ideas of SDCERS search for "liquidity", on for size, perhaps the SDCERS administration isn't announcing, or having Board discussions about the IRS' approaching change to handling DROP as IRAs, because they don't want the cash outflow of DROP moneys.
    Imagine if DROP participants found out that in the near future, the IRS is going to require DROP retirees to select an unalterable payment plan on their retirement date.
    Ask yourself, what DROP payment plan are the DROP retirees going to default to (per administration's future proposal of choices), if retirees don't have time to rollover to another option or withdraw funds?
    What do you think about leaving in your DROP in SDCERS, given June 30, 2004's 60cents on the dollar --and expected lower cents on your dollar for June 30, 2005, which you won't know about, until approximately January 2006. You can leave it in SDCERS, where you currently get 8% interest on your balance and probably the Board will lower that rate in the future, when you no longer have an option to change your payment plan selection. Are you are going to be trapped into waiting until you are over 70 years old, to receive the minimum distribution, unless you have made another plan.
    Just remember, Ron Saathoff brought DROP to SDCERS from a national Guns and Hoses union conference, he was on the Board that approved the 8% interest to DROP which is printed in the employee guide to retirement, and he is forever talking about how important it is that DROP money is making money for SDCERS ( Doug McCalla earns 11% investing it, but SDCERS is paying only 8% to DROP accounts). Saathoff pleads to keep DROP to help SDCERS.
    DROP sounds like buying an annuity in a Ponzi scheme, to me. Where is the security of your principle and interest rate in the future? How are you going to be paid back? Claims of employees and retirees are growing faster than the assets to pay the claims.