For a while longer at least, the Dallas Police and Fire Pension System board of directors is going to hold off the elephant in the room. On Thursday afternoon, by an 11-1 vote, the board agreed to continue restricting lump-sum withdrawals from deferred retirement option program (DROP) accounts.
DROP accounts are essentially savings accounts that allowed retirement-eligible police and firefighters to continue working while drawing pension checks. The checks were deposited in the accounts, which then collected guaranteed interest of between 8 to 10 percent. As reports swirled about the long-term health of the pension fund and its multi-billion-dollar unfunded liability last year, DROP pensioners began withdrawing cash from their accounts to the tune of about $600 million.
Late last year, Dallas Mayor Mike Rawlings sued to stop the DROP withdrawals, something he believed was essential to preserving the liquidity of the fund. Earlier this month, after DPFP director Kelley Gottschalk signaled her intention to recommend that the board allow between $100 and $280 million in lump sum DROP withdrawals, Rawlings withdrew his name from the suit, clearing the way for the four City Council members on the DPFP board to take over the legal action against the fund.
Thursday, Gottschalk changed her tune. Gottschalk, according to Dallas City Council and DPFP Board member Scott Griggs, told the board that the fund was in a “most vulnerable time” because paying out any lump-sum withdrawals this month could cause a $171.4 million loan received by the fund to become due immediately. The loan, Gottschalk said, matures in May 2017, but can be called in immediately if the fund’s assets dip below $2 billion. Right now, the fund has $2.2 billion in assets.
After the vote, Griggs called the decision to keep the DROP floodgates closed a “big win” on Facebook. Philip Kingston, Griggs’ colleague on the pension board and the City Council called it a “bitter pill” for police and firefighters with DROP accounts, but said the vote was essential to preserving the health of the fund.