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After Mediation Fails, Dallas Police Pension Fight Heads Back to Austin

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This week there was some hope that the city of Dallas and the troubled Dallas Police and Fire Pension System were on their way to reaching a deal to save the pension from potential insolvency.

Early Wednesday morning, however, that mediation broke down, leading to some of the strongest signals yet from Dallas city officials about the future of pensions for Dallas' uniformed employees.

Thursday afternoon, ahead of Dallas Mayor Mike Rawlings' testimony in Austin in front of the Texas Pension Review Board, the City Council unanimously approved a resolution calling on the four council members who sit on the pension board to exercise any legal means necessary to steer the pension away from insolvency.

The council is concerned that the fund's $3.6 billion unfunded liability — combined with withdrawals from some retirees Deferred Retirement Option Program (DROP) accounts — could leave the fund insolvent in less than a decade. DROP accounts are savings accounts with guaranteed interest rates. As officials and the public found out about the fund's instability last year, members of the fund with DROP accounts withdrew about $600 million. Rawlings — who has an ongoing lawsuit against the pension system to stop DROP withdrawals — has called it a run on the bank. Pension officials have blamed the mayor for panicking retirees, inspiring the withdrawals.

The City Council now feels the threat is high enough that the council is willing to pay the legal bills for any Pension Board member who hires private counsel to take on the system in court.

"This is not a step that the four pension trustees have taken lightly," said City Council member and Pension Board member Philip Kingston. "There is a severe problem at the pension and we need the help of a court, I believe, to sort it out."

Thursday in Austin, Rawlings and the fund's executive director, Kelly Gottschalk, disagreed over why the talks broke down. Rawlings, according to reporters tweeting from the meeting, said there was disagreement over the city's proposal to prop up the fund by clawing back interest already paid to retirees with DROP accounts. Gottschalk insisted that the fund's leadership was willing to close this deal on Tuesday night, but took issue with the city's recently released backup plan for the fund which would replace the pension with a partially city-funded 401k plan.

The resolution passed by the council on Wednesday, she said, was a "distraction."

While the pension board did not signal Thursday whether or not it plans to intervene in the fight between the city and its police and firefighters, the board's chairman, Josh McGee, seemed to agree that the system's priority should be ensuring base benefit payments. "Monthly disbursements as part of the base benefit is very important. It probably ranks above DROP disbursals," McGee said, according to KXAS' Ken Kalthoff.

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