The Dallas Police and Fire Pension System won a federal court victory against retired police officers who wanted the plan to continue its disbanded lump-sum payouts.
The 5th U.S. Circuit Court of Appeals ruled that the retirees don’t have a constitutionally protected property interest in a particular means of receiving their benefits.
Long teetering on insolvency, the $2.3 billion pension program is funded at just 48.1%, as of its last financial filing covering to year-end 2018. Previously, the Texas Supreme Court had rejected the lawsuit, brought using a similar argument related to the state’s constitution.
If the legal action had been successful, opponents argued, it would have sped up the plan’s insolvency, which is projected to take place within 10 years as more beneficiaries retire. Permitting retirees to remove large chunks of the plan’s assets would more swiftly deplete its resources.
The plaintiffs contended that the “threatened harm” to retired personnel “outweighs the harm that a preliminary injunction would inflict” on the pension system. Not having access to the money harms retirees, who figure the sums into their monthly budgets, the suit alleged.
The controversy revolves around a feature of the pension system called the Deferred Retirement Option Plan, or DROP. This let police officers and firefighters amass large lump sums—in some instances, millions of dollars that they could get in retirement in addition to a monthly benefit check.
The original idea was to make this a retention perk that permitted officers and firefighters to retire on paper while they actually kept working as their pension payments went to feed their DROP accounts.
But so much was pouring out of the DROP program, and into the pockets of retirees who feared a city bankruptcy, that a law was passed in 2017 that limited how much they can withdraw. That prompted the retirees’ lawsuit.