Citing "Great Recession," Dallas Police & Fire Pension Fund Trims Benefits For "New Hires"
Back in mid-June came The Big Announcement: The Dallas Police & Fire Pension System was ponying up the $200 million needed to build the long-stalled-out Museum Tower high-rise in the Arts District. That same day, you may recall, we revisited a blast from the past -- the system's $27-mil investment in Arizona, which, as of last summer, was worth close to nada. Then, just last month, the Dallas Police & Fire Pension System's name came up yet again -- this time, as an investor in Jack Matthews and NYLO's boutique hotel in the Cedars, next to the South Side.
In all, according to the most recent annual report available online (2009), the Dallas Police & Fire Pension System, which boasts a membership close to 9,100 (including active members and benefit recipients), has about a quarter of its close-to-$3-billion in assets tied up in real estate investments -- including several million in Fort Worth's So7 mixed-use development. That investment's presently tied up in litigation: After the jump you'll find a lawsuit filed in Dallas County District Court two weeks ago in which the fund alleges that the lender, a subsidiary of CapitalSource Inc., is holding up money tied to the development's finish-out. The fund, which has been fighting the lender for months, alleges it's lost $9 million so far.
"We have a firm that runs this investment for us, and they told me the bank has not responded to their calls," says pension fund administrator Richard Tettamant. "So they decided to sue to get them to respond. We put in a Chuy's over there, it's been very successful, and three or four [other restaurants] want to go in there, and they're being held up because the bank won't come up with the money."
I'd come across that suit yesterday morning, by accident, while looking for something unrelated on the county's website. But it was a particularly interesting find given recent rumors swirling around Dallas City Hall that the pension fund isn't faring well, prompting cuts to benefits for new and future hires. Tettamant dismisses this as "old news" before acknowledging that, yes, after receiving the 2010 Actuarial Report in October and after "more than several discussions," at the beginning of the month "88 percent of the membership" did indeed agree to "trim benefits to new hires."
I asked if the trims were significant. He said: Yes.
"I would say it's a significant trim," Tettamant acknowledges. "It puts the benefits back to where the fund was in the '70s. And, you know, when you're in the great recession we thought it was responsible to do that till the economy turns around. When you're hired, you're promised a lifetime of benefits, and our role is to make sure the fund is secure. Our job is to protect and secure the fund."
Tettamant, who has served as the fund's administrator since 1993, says "it's complicated" when asked about the trims; he says it's "tough to come up with a formula" to explain how it'll work. But he says perhaps the most significant change has to do with when benefits kick in: "Instead of being able to draw full benefits at 50, it's 55," he explains.
The fund -- which has on its board council members Dave Neumann, Sheffie Kadane and Jerry Allen -- has its billions tied up all over the place, from private-equity firms to dairy and timber companies. It's also an equity partner in the LBJ Project about to commence construction, which will turn a wide swatch of the freeway into managed toll lanes. Tettamant insists that the cuts have nothing at all to do with the fund's real estate investments.
"We are an over-$3-billion pension fund, and have more money invested in public securities -- a lot more -- than in real estate," he says. "The pension fund is well-diversified so there's not one investment that would cause anybody to look at trimming benefits. The whole thing is the great receccion happened. There's no getting around it. I heard this economist say there are 25 million Americans unemployed, and that's the problem. What we decided to do was trim the benefits to protect the funds for the future."
Kadane says he knows nothing about the fund being in trouble, and the administrator says that "if the economy turns around, the fund will be in good shape," and those new hires may one day receive the benefits previously given to their predecessors. Fingers crossed.
"Right now the fund is in very good condition," he says. "And the whole deal is we are looking to the future with 2008, 2009 in our rearview mirrors, and till this all gets settled we need to be very conservative. Our job is to protect the pension system, and we proposed [making the cuts], they bought off on it, and away we go."
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