The Dallas Police and Fire Pension’s (DPFP) board of trustees has voted unanimously in favor of a plan proposed by Texas State Rep. Dan Flynn to rescue the retirement system from financial ruin. .
The Dallas Police and Fire Pension System fund has become something of a poster child for America’s struggling pension funds, with an estimated $2 billion to $5 billion in unfunded liabilities attributed to bad investments and poor prior management. And over six weeks last year, anxious retirees withdrew $220 million from the fund.
The fund troubles are so bad that it has put the city of Dallas at risk of municipal bankruptcy, despite it being one of the fastest-growing cities in the country. In November, Dallas Mayor Mike Rawlings told the Texas Pension Review Board that “the city is potentially walking into the fan blades that might look like bankruptcy.”
Rep. Flynn’s plan, which is effective Sept. 1, includes a normal retirement age of 58, with an early retirement age of 53, as well as a benefit multiplier of 2.50%. The plan also includes:
- Unreduced early retirement if benefit multipliers earned equal 90% of average computation pay.
- Immediate elimination of COLA’s for all participants, including annuitants; the Board has the option of granting ad hoc COLA’s based on financial benchmarks. These benchmarks would not be expected to be achieved in the near term.
- DROP accounts will be paid out over the expected lifetime of the participant upon their retirement based on the actuarial mortality tables in effect at the time of their retirement.
- Active members who have not yet entered the DROP will receive no interest on their DROP account while active or upon retirement.
- Current active members who are in DROP will keep the interest they have earned in DROP; they will not receive further interest while in active DROP but will receive interest upon retirement based on a Treasury rate for a period comparable to their life expectancy on the DROP account balance as of September 1, 2017; future contributions to their DROP accounts after September 1, 2017, will not receive interest while in DROP or upon retirement.
- Current retirees with a DROP account will receive interest based on a Treasury rate for a period comparable to their life expectancy.
- City contribution rate of 34.5% of computation pay, plus $11 million per year.
- Employee contribution rate of 13.5%.
The DPFP selected Rep. Flynn’s proposal over that of Mayor Rawlings, in which the city of Dallas would contribute $18 million per year to the fund, with the remaining gap was closed through a combination of benefit modifications, increased member contributions, and equity adjustments, such as recovering money that has already disbursed.
Assuming those equity adjustments are eventually upheld by courts, the Rawlings plan called for Dallas to commit to 30-year Actuarially Required Contribution with a limit. And if the equity adjustment were to be disallowed by courts, the city would have reduced the contribution by $7 million per year, and provide a contribution of $11 million per year.
By Michael Katz