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  Posted on: Tuesday, October 15, 2019
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2020 DROP/PROP Interest Rate
October 15, 2019

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In a year with market changes hinging on tweets and political rhetoric, HPOPS is holding its own. For this calendar year the System has a rate of return greater than 11%. However, our fiscal year began July 1, 2019, so it is too early to predict our investment return for the fiscal year. We received a clean opinion from the auditors and our actuary reported that we exceeded early projections of our overall health, by improving our funding ratio by roughly 3.5% in two years, resulting in a funding level of 81.7%. While the City’s calculated contribution rate was lower because of better-than-expected performance, they are mandated to pay at the higher midpoint rate. The higher payments shorten the timeframe necessary to eliminate the unfunded liability. As you can see, the changes made to improve the overall health of our System are producing positive results that will ensure the long-term sustainability of our Plan.

On a separate note, the Board recently approved the 3.9% DROP/PROP interest rate that will be effective January 1, 2020. While some were predicting a rate of 2.5%, we felt that a reminder as to how this rate is calculated might help. In very simple terms, it is still based on a five-year average of returns but it is calculated at 65% of the compounded average. This year we dropped a 17.4% return rate from 2014, and picked up a 6.4% rate of return. Nonetheless, there is light at the end of the tunnel in that next year we will drop a 0.8% rate of return from 2015 and then in fiscal year 2021 we will drop a -3.1% from 2016.

We hope that members also understand the tradeoff between DROP/PROP accounts and accounts managed by brokers or other financial professionals. Transferring your DROP/PROP funds out of HPOPS to a third party may offer a higher rate of return, but that can only happen while assuming elevated risks of lower returns and/or downturns. The point is that DROP/PROP members are not exposed to this elevated level of risk and are guaranteed a floor of 2.5% even when markets are down. Also, remember that once you remove your funds from HPOPS you cannot put them back.  And a final and important point to make on this topic is that state law protects your funds from judgment, alienation, and other forms of attack while in the System.

The intent of this information is to help you make a well-informed decision as you plan your future. What may be good for one family might not be best for another. We encourage each of you to do what is best for you and your families.

Terry A. Bratton – Chairman of the Board

Dwayne Ready – Vice Chairman

David Trey Coleman - Secretary

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