City Hall

Who Pays and When: How Dallas' Pension Fix Works

Mike Rawlings spoke at Dallas' annual police memorial service earlier this month.
Mike Rawlings spoke at Dallas' annual police memorial service earlier this month. Brian Maschino
Dallas' city officials, the city's representatives in Austin, representatives for the pension and Dallas' police and fire associations have been praised for coming together and hammering out a plan to kick the Dallas Police and Fire Pension System toward financial stability.

Less has been said about the compromise's costs to be incurred by residents of Dallas or by members of the fund. Now that the final version of the bill is available, let's take a look at how it will function, assuming Gov. Greg Abbott elects to sign it.

Increasing contributions and benefit cuts: Members of the pension are absorbing most of the fix's costs through $1.4 billion in benefit cuts and $1.2 billion in increased contributions from police and firefighters over the next 30 years. The breakdown of the increased contributions is simple. Instead of the 8.5 percent of total pay most pension members currently contribute to the fund, members will pay in 13.5 percent of their checks beginning Sept. 1.

An officer or firefighter will now have to serve 36 years to max out his or her pension.

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Explaining the benefit cuts is a bit more complicated. The most obvious change to benefits for both future pensioners is a reduction in the total percentage of previous monthly pay that pensioners can receive. Before Sept. 1, pensioners are eligible to receive up to 96 percent of their average pay for their last 36 months of service. After Sept. 1, pensioners will receive up to 90 percent of their average pay for their last 60 months of service.

The rate at which police and firefighters can accrue that maximum benefit is also reduced in some cases. Previously, all police and firefighters hired before March 1, 2011, earned 3 percent of their maximum benefits for every year of service. Police and firefighters hired after that date earned between 2 percent and 3 percent of their benefits, depending on service time.

Under the new pension agreement, all officers will earn 2.5 percent of their maximum benefits for all future service, and officers hired before March 1, 2011, will retain the 3 percent annual accruals they earned before that date. An officer or firefighter will now have to serve 36 years to max out his or her pension.

Climbing retirement ages: Full retirement will take place at age 58, rather than 50 or 55. Officers hired after March 1, 2011, will not be eligible for early retirement until they are 53. For officers hired before that date, the early retirement age will remain 45 as long as they turned 45 before September 1 and elect to retire before the age of 49. All pensioners will also be eligible for so-called "20-and-out" retirement, which allows officers to retire after 20 years of service while being subject to a reduced percentage of pension earned per year. 

The deal will cost the city $900 million over the next 30 years.

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Pensioners are also losing their annual 4 percent cost-of-living increase, as well as any potential interest that would've been paid to active Deferred Retirement Option Program accounts. DROP allowed police and firefighters of retirement age to collect their pension, depositing it into special accounts earning as much as 10 percent interest, while they continued to work.

Active members who elect to participate in DROP can only do so for 10 years, under the new law.

Paying the city's tab: The deal will cost the city $900 million over the next 30 years, according to city estimates. For the next seven years, the city will contribute at 34.5 percent of police and fire base pay plus a $13 million lump sum each year to the fund. If the city's contribution doesn't meet a minimum payment required — based on hiring targets set for the first seven years by the legislature — it will make that minimum payment. (For example, 2018's minimum payment is about $139 million.) Currently, the city contributes 27.5 percent of police and fire pay to the fund each year.

After seven years of guaranteed payments, the fund will be independently evaluated. If it's on its way to financial health, the payment floor will be removed, and contributions will remain at 34.5 percent of police pay. If all goes according to plan, full funding will be achieved in more than 30 years.

Correction May 31 — This article has been amended to correct a math error with regard to how quickly police officers can earn their full pension and clarify language about when officers who hope to retire early can do so.
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Stephen Young has written about Dallas news for the Observer since 2014. He's a Dallas native and a graduate of the University of North Texas.
Contact: Stephen Young