Let’s see how long this week will last, shall we?
I will spend some time catching up with our current biggest pension disasters, such as South Carolina, Connecticut, multiemployer pensions, and, of course, Dallas Police and Fire.
I see I last left off Dallas at the end of January. Let’s see what’s happened since then, shall we?
This is mainly going to be a link-a-palooza, with minimal commentary.
LAWSUITS: DROP, ASSET CONTROL, AND SETTLEMENT
There are multiple lawsuits going on (and one settled), the biggest one(s) surrounding DROP. The DROP was a benefit enhancement which “guaranteed” 8% (or was it 8.5%?) returns on employees’ deposits, which could be withdrawn as lump sums at retirement.
The DROP program is one of the biggest drivers behind the Dallas Police & Fire collapse – the need for the “guaranteed” high returns pushed the fund managers into chasing insane investments, which ended up “unexpectedly” cratering.
A group of retired Dallas police officers is asking a federal judge to restore access to their lump-sum pension accounts.
In a federal lawsuit filed Monday, the six retirees allege that their pension board violated their constitutional rights by restricting access to funds in the Deferred Retirement Option Plan, known as DROP.
If the lawsuit is successful, it will probably accelerate the pension system’s impending insolvency and make a remedy harder to achieve without a significant infusion of cash from the city and its taxpayers.
Still, the lawsuit argues that the “threatened harm” to the retired officers “outweighs the harm that a preliminary injunction would inflict” on the pension system. The suit says the retirees have been harmed by not having access to the money, which they figure into their monthly budgets.
DROP allowed officers and firefighters to accrue large lump sums of money — in some cases, millions of dollars — that they could receive in retirement in addition to a monthly benefit check. DROP was initially intended as a retention perk to allow active police and firefighters to retire on paper and continue working while their pension checks are credited to DROP accounts. Those accounts earned guaranteed interest rates of at least 8 percent for years.
The guaranteed rate is now 6 percent.
They allege that the troubled police and fire pension is preparing to liquidate assets to allow large-sum withdrawals to resume, which would destroy it.
The four Dallas City Council members who serve as trustees on the police and fire pension board have filed a petition that asks a judge to assign an outside controller to manage its assets to prevent liquidation.
Jennifer Staubach Gates, Scott Griggs, Philip Kingston, and Erik Wilson filed the petition for intervention today, which alleges that the board is preparing to sell off its assets to allow payments to flow to pensioners with DROP accounts. Those accounts, which can be withdrawn in lump sums, guaranteed interest rates as high 8 percent over time (it’s no longer that high, however), an amount that is well above market rate and is, according to the city, unsustainable in relation to its existing assets. A run on the DROP withdrawals late last year cost the fund $500 million; the city fears it’s on a path to be insolvent in the next decade.
The intervention is an addendum to an earlier lawsuit filed by Mayor Mike Rawlings as a private citizen, which successfully resulted in a judge halting withdrawals until mid-January. Three weeks ago, after the temporary restraining order expired, the judge agreed to allow pensioners to pull out $3,000 a month from their Deferred Retirement Option Plans on top of their monthly pension benefits.
In the lawsuit filed today came the strong words from the Council trustees: “Instead of seizing the opportunity to reassess DPFPS’s priorities and to stop voluntarily processing excessive DROP disbursements that impair service retirement, disability, and death benefits, the Board, through the System Participant Trustees, has directed its staff to formulate a plan to sell DPFPS assets so that it can resume large DROP payments based on artificial liquidity and without regard to the resulting impairment. Collectively, these actions all but ensure destruction of DPFPS.”
In its own statement, the pension fund put the onus back on the city, arguing that its representatives in the past could’ve cut this off at the knees and didn’t:
The average annual pension benefit is $46,400. There are about 9,600 total members in the plan.
“The 1,300 retirees who retired before the advent of the DROP program, those 1,300 all live on less than $2,500 a month and several hundred live on $1,500 a month,” said Kingston during that hearing. “If our goal is to take care of the most vulnerable beneficiaries first … it is imperative that we do not pay out excess benefits beyond what we know for a fact is a constitutionally protected base benefit.”
The failing Dallas Police and Fire Pension System has reached a settlement in a lawsuit against its former real estate advisers, whom pension officials had accused of leading the retirement fund astray.
CDK Realty Advisors and the pension system both agreed to drop all claims and counterclaims with prejudice, according to court records filed Tuesday. The only explanation given in the court record is that they “have now resolved their differences.”
Stuart Reynolds, an attorney for CDK, declined to comment Wednesday. Pension officials were not immediately available for comment.
A lawsuit had been set for trial before a judge in March. The pension system and its attorneys have also been battling litigation from four City Council members, Mayor Mike Rawlings, a former contract auditor and active and retired police and firefighters.
Those cases have existential concern. The retirement fund is now set to become insolvent within the next decade because of major losses and overvaluations — mostly from real estate — and generous benefits guaranteed by the system.
DROP WITHDRAWALS STILL FROZEN
The Dallas Police and Fire Pension System board decided Thursday that it’s too risky to pay out lump-sum withdrawals this month.
Executive Director Kelly Gottschalk told board members that pension officials were unable to renegotiate a debt agreement that could trigger a call on a $174 million loan this spring if the $2.2 billion fund dipped below $2 billion. Dipping below that to pay lump-sum withdrawals would harm the entire fund, she said.
The board agreed, in an 11-1 vote, with Gottschalk’s assessment that it should keep large sums of money in the system for now.
As Mish pointed out on February 9, Dallas really can’t afford to let more cash flow out of the pension fund. It’s in an asset death spiral.
Taxpayers on the Hook?
Taxpayers should not be on the hook for this mess. The promises were bound to fail from the get go.
The fault for this mess is squarely in the hands of politicians, not those running the fund.
Nearly every public pension plan in the nation is severely underfunded. There is nothing special about Dallas.
The witch hunt is on.
There is only one practical solution: cancel the plan for future employees while slashing benefits accrued.
No one wants to admit that, so lawsuits and pamphlets are flying.
Well, there is something special about Dallas — while many public pensions do “guarantee” too-high returns, implicit in their valuations, most public pensions do not allow large lump sums to leave the fun at retirement. There is a specific stress to the Dallas plan that makes their 45% fundedness worse than an illiquid 45% fundedness.
That’s one of the things pushing Dallas into crisis where other pensions are just slowly bleeding away.
PR CAMPAIGN FROM BOTH SIDES
So there’s been all sorts of politicking going on, including ads.
A new group of political, civic and business leaders is sending out a mailer backing the city’s proposal to save the failing Dallas Police and Fire Pension System.
The advertisement from Taxpayers for a Fair Pension will go to 100,000 homes of Republican and Democratic primary voters in Dallas, spokeswoman Becky Mayad said. The ad encourages its recipients to add themselves to the list of “concerned taxpayers.”
“Dallas needs a fair and equal Police and Fire Pension System that allows the departments to have a solid future for their employees and keeps the city competitive in its hiring and providing safe neighborhoods,” the mail ad says. “At the same time, taxpayers need protection from massive bailouts and the assurance of adequate basics services like trash pickup, neighborhood parks, libraries, and streets and alleys.”
The mailer is an opening salvo for the group, which officially formed last week. Former Dallas mayors Ron Kirk, Tom Leppert and Laura Miller are serving as the group’s co-chairs. The Dallas Citizens Council, several chambers of commerce, real estate organizations and other civic groups are part of the coalition.
The city’s proposal targets the benefits with significant cuts, including for retirees. It’s unclear whether important provisions of the plan are completely legal, and city leaders expect a court fight.
DALLAS — A slick mailer by a group co-chaired by three former mayors has drawn criticism as it claims the group will work to “salvage Dallas’ broken pension system.”
Called the Taxpayers for a Fair Pension, the new group is co-chaired by Laura Miller, Tom Leppert and Ron Kirk.
They’re three people who once had the power to appoint members of the Dallas Police and Fire Pension Board. So, how did they do when they had that power?
“They definitely were missing in action,” said Kelly Gottschalk, executive director of the fund.
To the citizens of Dallas: I know it is really confusing to read all the hoopla surrounding the Police and Fire Pension issue. What is really going on? How did this come about? Whose side are we to believe? After all, you pay taxes, you did all you were asked to do, right?
I’m speaking for myself here, but there are thousands of police officers and fire fighters in the same situation I am. I, too, pay my taxes. I, too, did all I was asked to do. Our pension is like your Social Security. We pay in with the promise and commitment to have a payout when we retire. We are not eligible for Social Security from our employment with the city.
The city of Dallas told me they would reward me with a retirement, and even offered an investment opportunity to keep me on the job. I listened and did that, too. Trust is a wonderful thing, isn’t it?
Well, it appears the city does not want to uphold its side of the bargain. And why should they? I upheld my promise and served for 32 years, but I am retired now, it feels like it’s time to forget about the pledge to me and all those who are no longer serving actively. So here is the new city plan, as I see it: Let’s convince the citizens of Dallas that those retirees really don’t deserve what they have earned. Let’s call them greedy and selfish. Let’s tell the citizens of Dallas that all we really want is to save the officers from themselves and start a new pension for the ones who are still working. And to make it more believable, let’s ask previous city leaders to get behind us. (After all, they didn’t do what they promised either, and they wouldn’t dare oppose this move, lest they’d be thought responsible for not doing their duty while at the helm.)
I have faith in your ability to see through all the political hay being made. Do this one thing for us: STAND BEHIND US! Make sure the city keeps their end of the bargain. The “Save the Pension” propaganda put out by the city would keep us out in the cold.
Mia Sullivan is a retired Dallas police officer living in Canton. She wrote this column for The Dallas Morning News. Email: firstname.lastname@example.org
Good luck with that argument.
Saying “You promised me a Hyundai!” is a little more convincing than “You promised me a Ferrari!”
Saying “You promised me a Hyundai” when people are forking out Ferrari costs is really going to annoy people.
McKINNEY (CBS11) – A retired Dallas Police officer and his family narrowly escaped a fire that consumed their McKinney home.
Glenn White served 34 years as a Dallas Police officer and 18 years as Dallas Police Association President until retiring in 2012.
Eleven days ago, his McKinney home went up in flames during the night.
White got out along with his wife and son, but the damage to the home was extensive.
Badges, awards, everything from his career is gone.
White said the fire comes at a time when changes to the city’s struggling Dallas Police and Fire pension make it difficult to get money he needs.
“I could have access to the DROP (Defined Retirement Option Program) get a large amount of money that I’m going to need I would be so much better off,” said White.
Yes, and only if we had sob stories of individual taxpayers with increasing burdens to shoulder.
The Dallas Police and Fire Pension System launched a political offensive Wednesday as the fight heated up in Austin over the future of the failing retirement fund.
The campaign — complete with the social media hashtag #BackThePension — is a response to a conglomeration of business and civic organizations, calling themselves Taxpayers for a Fair Pension, that is pushing fixes for the pension system that would hit the wallets of public safety workers and retirees.
Pension board Chairman Sam Friar has said he dislikes playing politics but that he has to make a case for his side against the deep-pocketed, well-connected group led by three former Dallas mayors.
“We’ve got to fight fire with fire,” Friar said. “It’s not a battle, but you’ve got to respond in kind.”
Friar on Wednesday introduced a series of videos that show retired and active police officers and firefighters talking about how they feel they’re getting short shrift from City Hall.
City leaders, who want to avoid a tax increase, hope to erase the unsustainably high interest rates paid out over the years through the Deferred Retirement Option Plan, known as DROP. The pension system created DROP in 1993 after then-Police Chief Bill Rathburn publicly lamented the departure of veteran officers seeking another job and a second pension.
DROP allowed police officers and firefighters to retire on paper while continuing to work, and their pension checks accrued interest in a separate account. The plan made hundreds of police and firefighters millionaires and has been a drain on the pension system.
Mayor Mike Rawlings has argued that those who benefited from DROP should share in the sacrifice to save the system.
The issue is that several people have already taken the money and run with it.
Four members of the Dallas City Council, all of whom represent the city on the Dallas Police and Fire Pension Board, intervened in Dallas Mayor Mike Rawlings’ ongoing lawsuit against the pension Wednesday afternoon. In their filing, the council members ask that the fund be placed in receivership as it attempts to remain solvent in the face of a $3.6 billion unfunded liability and multiple lawsuits.
“The System is a leaky bucket, with assets that have drained away through mismanagement and irresponsible payouts to members whose overall benefits were not matched to contributions, are not protected by the Constitution, and whose requests for immediate payments in staggering numbers have drained away precious assets,” the board members write in their filing. “No responsible party would commit further assets until it is sure that the System is on sound financial footing with a plan for long term solvency. The Board must surrender control of the wellbeing of the members to this Court’s equitable and statutory powers to protect DPFP’s trust beneficiaries’ service retirement, disability, and death benefits.”
Wednesday’s move by Philip Kingston, Scott Griggs, Erik Wilson and Jennifer Gates seemingly became inevitable when the City Council passed a resolution two weeks ago guaranteeing that the city would pay legal fees for the board members should they take an action like they did Wednesday.
As the Dallas Police and Fire Pension Board braced for possible legal action from four of its own trustees, frustrated Chairman Sam Friar sought retribution.
Friar, in his personal capacity, circulated a resolution among police and fire associations. The document proposed to permanently ban the associations from giving any endorsements or other political support for the council members on the board for their “despicable action.”
Association leaders ultimately disagreed with Friar’s resolution. But both his maneuver and the council members’ request to have a court take control of the pension system have added more friction to the deeply strained relationship between City Hall and active and retired police and firefighters.
Some hope still remains that they’ll find a way to save the pension system from insolvency. But so far, talks have gone nowhere, and tensions are running high.
The pension board felt the same way. Police board trustee Tho Tang Ho accused Griggs of just wanting to cast off the pension system and thousands of retirees and survivors without any future pension benefits.
The city has suggested such a plan, which would create a new pension system for younger workers, as an alternative option if other efforts fail. But Griggs said the first priority is to save the pension fund.
Retirees have expressed similar complaints for weeks. They’ve said the council and Mayor Mike Rawlings have made a bad situation worse.
Rawlings filed the lawsuit in which the council members intervened Wednesday. The goal of both legal actions was to shut down large lump-sum payments that threaten the stability of the pension system. Retirees and employee groups have argued that the mayor’s rhetoric has been solely to blame for withdrawals of more than $500 million.
On Thursday, some retirees again faulted the mayor and accused council members of working on a secret plot to weaken the fund and take it over from the mostly autonomous board. One retiree also suggested Gates was part of an opaque conspiracy involving her father, Roger Staubach, the Dallas Cowboys great and real estate developer.
But retired Dallas Fire-Rescue Lt. Joel Lavender came to Gates’ defense, saying the situation has been bad for everyone and that he understands the frustrations.
“I think it’s important that you all feel how she feels when she was attacked because that’s how we feel,” Lavender said. “We feel as if someone is turning their back on us. And when we want to put a face on who turned their back on us, this is what we see. We see the board. We see the mayor.”
Resolution is here at scribd.
I want to pull out this item specifically, from the end of the document.
BE IT RESOLVED BY THE COALITION OF DALLAS PUBLIC SAFETY EMPLOYEE ORGANIZATIONS:
That if any member of the Dallas City Council who is also a member of the Dallas Police & Fire Pension System take legal action against the System, ALL council members who are trustees of the Dallas Police & Fire Pension System will receive a lifetime ban from support from all member organizations of this coalition. Furthermore, members of this coalition will actively suport your opponents when applicable. This ban includes city, county, state, and national elections.
Well, we’ll see how effective that threat is. Many public employee unions have been finding themselves less popular as they get astronomically more expensive for taxpayers.
February 10: Laura Miller Profits From the Pension Mess
Her husband is being paid by the city of Dallas to sue the Pension Board.
Last night, Tanya Eiserer broke a story on WFAA Channel 8 about Laura Miller and the seats on the Police and Fire Pension Board that she left unfilled when she was mayor. We learned back in November that the City Council members who were appointed to the pension board simply didn’t show up to their jobs for about two decades, while the pension was making bad investments. Now we know why the seats at the pension board were empty: no one had even been appointed to fill them. So it’s interesting that former mayors Ron Kirk, Laura Miller, and Tom Leppert would now step up as the public faces of a group, Taxpayers for a Fair Pension, whose goal is to limit taxpayer exposure to any pension fix. As mayors, they were asleep at the switch, but now they want to get involved. And it’s really interesting that one of the lawyers who is suing the pension on behalf of four council members and the mayor is none other than Steve Wolens, Laura Miller’s husband.
Last Friday, I put up a post taking former mayor Laura Miller to task. The way I see it, her current public advocacy for a pension fix stands in sharp relief to her lack of action on the matter when she was mayor. For four years, she failed to appoint two of the four pension board members that she could have. I also find it interesting that her lawyer husband is now billing hours to the city of Dallas as he works on a lawsuit filed against the pension board. Read the post for more detail, if you’re not yet up to speed.
Well, today I got a press release from the Dallas Retired Fire Fighters Association in which they respond to something that Miller told me in that first post. She said, “Obviously, if we had known back then that the police and fire pension fund administrator was making poor investment decisions and hiding the results from everyone, we would have done something about it.” She was talking about Richard Tettamant. I’ve written a lot about Tettamant in this space, and Eric Celeste wrote about him in the January issue of D Magazine. Let’s just say that we, as an organization, are not fans of what Tettamant did with the roughly $100 million that the city gave him every year to invest, and we are eager to see if anything comes of the FBI’s visit to the pension offices.
A lot of money is at stake, and politics is involved at the heart.
Of course there’s going to be a lot of nastiness. We’ll see what happens.
PENSION FIX? PULLING MONEY FROM TRANSIT
Dallas police and firefighters are now looking to Dallas Area Rapid Transit’s budget to help get their failing pension system back on track.
City Council member Scott Griggs, a pension board trustee, has drafted a resolution to help fund the pension system using one-eighth of the city’s sales tax revenue dedicated to DART. He talked to his council colleagues about the idea — which has been pushed by police and fire associations — Wednesday during a closed-door legal session.
Griggs’ aim is to ask voters in November to make the choice between using money for DART’s future or for public safety workers’ retirements.
DART, of course, never thought it would be part of the pension mess. Agency spokesman Morgan Lyons said such a move is “potentially devastating for transit operations.”
Lyons said DART officials would have to consider cuts to train and bus service and perhaps even reconsider their ambitions to simultaneously build a second downtown Dallas rail line, a streetcar and a new suburban rail line to DFW International Airport.
But for the pension system, the money would be a significant boon. The ailing fund, which is on track for insolvency in 10 years, would be in line to get at least $30 million annually.
Under the Summary issued late Monday night:
Normal retirement age would be boosted from age 55 to 58;
The “benefit multiplier” used to determine retirement benefits would be reduced;
Cost of Living Increases (COLAs) would be permanently eliminated;
Those with DROP (Deferred Retirement Option Plan) accounts will have their interest rates cut from six percent to whatever U.S. Government Treasuries are earning — around three percent currently;
Those retiring will have their DROP accounts turned into lifetime annuities, while others with DROP accounts won’t be able to access them until they retire; and
Current employees will have their present contributions to the plan increased from 8.5 percent to 13.5 percent.
In addition, Dallas (meaning Dallas taxpayers) will increase its contribution to the plan by 14 percent, and, based on current investigations by the FBI, certain advisors to the plan may be charged with fraud and, if convicted, could go to jail.
The decision to install a “retention perk” back in 1993 now appears to be the domino that started pushing over all the others. Called the Deferred Retirement Option Plan, it was designed to keep police officers and firefighters from taking advantage of early retirement by allowing their retirement checks to be deposited into a tax-deferred savings account. The enticement was enhanced with promises that the funds there would earn nine percent a year.
The plan itself assumed its other investments would earn 8.5 percent a year, helping to keep the contribution of Dallas to the plan low. With the passage of time, it became clear that those assumptions were overly generous, and so the plan trustees, instead of asking for increased contributions from taxpayers or the plan beneficiaries, “reached for yield” by investing an increasing share of the fund’s assets in risky but potentially highly profitable ventures. Those ventures turned into adventures: villas in Hawaii; a luxury resort in Napa County, California; timberland in Uruguay; farmland in Australia; and the Museum Tower, high-end luxury townhouses in downtown Dallas.
February 24: DART Money Suggested as Dallas Pension Fix
Suggestion could reduce DART service in Dallas
Dallas leaders, looking everywhere for money to solve a Police and Fire Pension crisis, are looking now at the Dallas Area Rapid Transit agency.
DART receives proceeds from one cent of the Dallas sales tax rate. Dallas City Councilman Scott Griggs, also a member of the Police and Fire Pension Board, wants one-eighth of that one cent diverted to the ailing pension fund through a voter referendum in November.
Uncertainty about pensions is considered a major factor in the shrinking Dallas police force, while at the same time the city is reporting a surge in violent crime.
“This is not DART’s money. It is taxpayers’ money,” Griggs said. “And taxpayers deserve a say with this giant crisis we’re having, a pension crisis that’s turning into a public safety crisis. Do I want to put that eighth of a penny in DART or reallocate it to a public safety fund?”
Taking money out of mass transit to save the city’s dying police and fire pension fund is not a fun idea. It’s nothing to look forward to. But we have to do something, and whatever we do probably won’t taste sweet.
“The pension crisis is a public safety crisis now,” City Council member Scott Griggs said to me at the end of last week. “I hear from constituents and business owners every day about the high response time and how crime is going. It’s because we don’t have enough officers. Right now the city is doing an all-out push to get as many people as they can into the police academy. You can see in the numbers that they are not reaching their expectations.
“When I got on the council in 2011, we had 2.94 officers for every thousand residents,” Griggs continues. “Our stated goal was three per thousand. We’re now down to 2.5 officers per thousand. We have 600 fewer officers than we should.
“The pay is low. They don’t have social security. And now it looks like they don’t have a pension. And you’re asking them to do one of the hardest jobs and put their lives on the line.”
“The mayor wants to take a pound of flesh from innocent police and firefighters, their families and these officers in retirement who have already served 40 years,” Griggs said.
“The legislature isn’t not going to let that happen. The mayor may want to do it, but the legislature is in the way. The council is in the way. Even the courts are in the way. Can you imagine how many decades the litigation would go on?
“We need a billion dollars (to bail out the pension fund). The mayor thinks with aggressive tactics, with litigation and garnishment, they can get $750,000 in a best case scenario. It’s almost a full claw-back.”
Griggs has authored a draft resolution that would take one eighth of the local sales tax money that the city gives every year to DART, the regional mass transit agency, and steer it instead to bailing out the ailing pension fund. Dallas kicks in about $260 million a year to DART, so a one eighth cut would deliver about $32 million a year to the pension fund.
Fort Worth splits its local sales tax down the middle — half to transit and half to law enforcement — so Griggs’ proposed formula of only one-eighth to law enforcement, the rest to transit, is still vastly more generous to transit than what Fort Worth does.
But even this minor a reduction was barely out of Griggs’ mouth when DART spokesman Morgan Lyons began scraping away on his street-corner violin, telling The Dallas Morning News sorrowfully that Griggs’ idea would be “potentially devastating for transit operations.”
The plan, something of a poster child for America’s struggling pension funds, includes a normal retirement age of 58, with an early retirement age of 53, as well as a benefit multiplier of 2.5%.
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%.
Scott Griggs has drafted a resolution to save the pension fund by pulling sales tax dollars from DART — three Addisons-worth
The dominoes keep falling in the ongoing saga over the Dallas Police and Fire Pension Fund. Late last week, the Dallas Morning News reported on the latest idea to fix the troubled Dallas Police and Fire Pension Fund, and it is a whopper of a proposal.
In short, Dallas City Council member Scott Griggs has drafted a resolution that would take one-eighth of the sales tax Dallas currently contributes to Dallas Area Rapid Transit and use it to shore up the sinking fund. That would generate around $32 million-per-year for the police and fire pension, though it would leave an already financially challenged DART with a big budget gap.
How big? Think of it this way. Addison currently contributes between $9 and 13 million to DART. If Griggs’ proposal were adopted, it would represent the equivalent of three Addisons leaving the public transit agency. Over the course of 15 years, that’s nearly a half-billion dollar blow to DART’s bottom line.
Unsurprisingly, DART’s spokesperson was quick to sound the Chicken Little alarm. But over on the Dallas Observer, Jim Schutze wonders if this is a proverbial canary in the coal mine, the moment in which Dallas wakes up and realizes that, while its streets crumbled and its police department ceased being able to hire enough officers, it hasn’t gotten as much bang for its buck for all of the billions it has sunk into its sprawling, regional-minded, inefficient public transit system.
What a mess.
IS HOUSTON DOING BETTER?
From February 5, the argument that Houston is doing better where Dallas is whiffing it: Dallas and Houston both have pension problems, but Houston is actually solving theirs
Dallas’ pension misery has company in Houston.
Like Dallas, Houston is staring down billions of dollars in future pension payments that it can’t afford — and it needs the state Legislature’s help to fix it.
But Houston city leaders have something that has proven elusive in Dallas: an agreement among their employee groups and pension systems to cut benefits and infuse cash into the system.
Houston’s pension problem is comparatively stable. It’s actually an amalgamation of three pension problems — its separate municipal, police and firefighter funds.
The Houston Municipal Employees Pension System is in the worst shape of the three. And even that system is nowhere near the headache of the Dallas police and fire fund.
The primary problem for the municipal system, as well as the police system, is that Houston City Hall hasn’t paid into the fund what it was supposed to pay.
In the last three fiscal years alone, Houston has come up short on its contributions to the police pension by more than $97 million, according to the city’s financial documents. The employees system has missed out on $29 million in that time.
Dallas, on the other hand, paid exactly what it was obligated to pay by state law.
Dallas pension officials had proposed a similar solution last year that included benefit cuts and a cash infusion of $1 billion. That’s more painful for Dallas taxpayers than in Houston, because Dallas is a smaller city. But pension members rejected the plan in a vote, leaving the more drastic city plan as the only viable option for now.
Dallas officials have shown no interest in using pension obligation bonds anyway. The bonds could be a tough sell because the city’s bond rating has been in a free fall. And the bonds are a gamble because they come with an expensive interest rate. If the pension system can make much more on investment returns than the interest rate — say 4 or 5 percent — it’s a win. If not, the bonds are a drag on their balance sheets.
Dallas had used $535 million in bonds in 2005 to help shore up its municipal pension system, the Employee Retirement Fund. Houston also issued hundreds of millions in the bonds around the same time.
But while some Dallas officials still defend the decision, the returns haven’t been as high as hoped, especially because of huge losses during the recession.
The repayment plan for those bonds has also left the city to again underfund the pension plan the last several years. Officials in Dallas had to win voter approval to cut benefits for future employees last November to plug the holes in the civilian pension.
Lots more at the link.
And the Houston mess isn’t exactly cleaned up yet. I’ll do a separate post on Houston later.
AUSTIN (CBSDFW.COM) – A state lawmaker has filed a bill addressing the troubled Dallas Police and Fire Pension System.
House Pensions Committee Chairman Dan Flynn (R-Van) filed HB 3158 Tuesday.
The bill calls for “a new strong board of trustees” to work out the issues.
“This board will be free of heavy representation of those from elected positions and those without significant business experience,” explained Rep. Flynn’s news release.
The bill calls for the board to be composed of business executives with strong training required in fiduciary duty to save the plan, and “will be informed of the dangers of alternative investments and general board functions such as rule making.”
The goal of the bill is to ensure the Dallas Police and Fire Pension plan is actuarially sound.
“I am very concerned that without this piece of legislation, the Dallas Plan would have the potential to collapse in the very near future. We are continuing to refine the plan with all stakeholders to ensure the end result is the best possible outcome for the City of Dallas, the Pension Plan, the Retirees and the newest recruits to the fire and police force. I want to thank Sam Friar and Kelly Gottschalk at the plan, Mayor Rawlings and the many others who have contributed,” said Chairman Flynn.
Booming Dallas has something to worry about: a pension contagion.
The local economy has stormed back from the recession, and Dallas has grown its tax base for five consecutive years. In fiscal 2017, it grew an impressive 10 percent, outpacing the rate of many neighboring cities.
But the escalating financial problems at the Dallas Police and Fire Pension System are threatening that momentum.
The pension already consumes $125 million a year in taxpayer money (and growing), and that’s not enough to keep it solvent. The unfunded liability, now over $3.5 billion, is so large that the city’s credit rating has been cut by three major rating agencies.
Each has a negative outlook, an indication of the pension risk.
S&P Global Ratings downgraded Dallas twice. If the city cannot agree on a fix with public safety workers and the Legislature in Austin, Dallas’ credit rating could be lowered “multiple notches,” the agency said in January.
That would mean higher borrowing costs just when the city is planning to borrow a lot more. Dallas already faces higher annual contributions to the pension and higher pay for police and firefighters. At some point, these expenses could suck up dollars intended for streets, parks, libraries and the like.
A pension solution will require billion-dollar contributions from members and taxpayers, and there appears to be agreement on how to get the biggest numbers. But the pension and city are sharply divided over whether some benefits should be recovered, or “clawed back.” The police and fire pension has several tiers of workers, and some have received much richer benefits.
Many concessions in the current proposals would fall heavily on younger officers. While that’s a common approach with such reforms, it can damage morale and weaken the appeal of the pension, which has long been a valuable recruiting tool. That could undermine Dallas’ ability to retain first responders.
But the pension has to be fixed. A handful of large cities, including Dallas, devote over 25 percent of government spending to pensions, debt and other post-retirement benefits, according to a report this week by S&P Global Ratings. Those high fixed costs are “crowding out discretionary spending for some cities,” it said.
Oh yay. Chicago and New York are worse.
The sticking point centers on recovering some benefits already earned and paid out. Those belong to the members, she said.
But the city wants workers who benefited the most from the plan’s excessive returns to give back some of the gains. The city would freeze cost-of-living increases and try to recover some of the high interest paid in the deferred accounts, known as the DROP.
Late last year, over $500 million was withdrawn in lump sums from the DROP in what was described as a run on the bank. Large withdrawals, which have been suspended, would be replaced with annuities under the bill in Austin.
Clawing back gains from DROP’s guaranteed returns will require a major political and legal fight. But that money is crucial to closing the liability gap and sharing the sacrifice.
That DROP really is the poison pill that makes the situation so much worse.
Unfortunately, many will point to the DROP (which was extremely bad) and say “At least we don’t have such bad behavior!” … missing the multiple other bad items they have in their own pension bags, such as chronic underfunding, too-sunny valuation assumptions, pension obligation bonds, and loose disability pensions.
More and more pensions for current retirees are getting cut, whether public or private. I doubt the Dallas Police & Fire guys will win the PR campaign, though they may win the legal cases…and, of course, winning the legal cases may make their PR position that much worse.
Public Pensions Watch: Choices Have Consequences
Rhode Island Pensions: Liability Trends
Around the Pension Blogosphere