Dallas Police and Fire Wins Court Ruling on Post-Retirement Income

Texas Supreme Court sides with fund’s reduction of required 8% return from special program.

The Texas Supreme Court handed the Dallas Police and Fire Pension System ($2 billion) a major victory in its struggle over a post-retirement work program, allowing the fund to pare its return to beneficiaries.

The program once guaranteed firefighter and cops a minimum 8% return if they continued to work past retirement. Called the Deferred Retirement Option Plan (DROP), it shunted the benefits they would have received into an account with a return so high that the pension plan’s sustainability suffered. The DROP rates were higher than what the retirement system’s investments were returning in the post-financial crisis years.

In 2014, the system lowered the return rate to 5%, which prompted DROP recipients to sue. Plaintiffs, who included Larry Eddington, a former pension trustee who helped create the Dallas DROP, argued that Texas’ constitution prevented any tampering with the return.

The case was thrown out by a federal judge last year, but it was appealed and went to the state high court.

The Texas Supreme Court agreed with the pension plan’s reduction Friday, finding the rate change to be “prospective only” since it doesn’t impact “funds deposited before the amendments became effective.”

Kent Custer, the fund’s chief investment officer, recently told CIO of his plans to reduce its exposure to private markets in favor of its public counterpart.

The retirement system has been teetering on the edge of insolvency. It was 47.7% funded as of its 2017 comprehensive financial annual report.

Josh Mond, the Dallas Police and Fire Pension System’s general counsel, could not be reached for comment.

The Texas Supreme Court declined comment.

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