City Hall

Mike Rawlings Sues Dallas Police and Fire Pension System, Showdown Set for Thursday

Dallas Mayor Mike Rawlings sued the Dallas Police and Fire Pension System Monday morning. Well, sort of. Officially, Rawlings filed his suit merely as a resident.

The pension system has gone through crisis after crisis as its bid to escape the deep financial hole created by former fund director Richard Tettamant's high risk real estate investments has moved forward.

In his suit, Rawlings is seeking to have the DPFP stop making payments to retired pension members from those members' deferred retirement option program (DROP) until the pension's multi-billion dollar shortfall can be addressed.

DROP accounts allow fully vested Dallas Police and Fire pensioners to defer retirement and have their pension payments deposited into an account that draws a guaranteed interest rate. That rate would be between 7 percent and 10 percent, depending on when the deposits were made. Once a pensioner actually retires, he or she may make withdrawals from the DROP account. Any money that remains in the account continues to draw its assigned interest rate.

As the mayor and the Dallas City Council have discussed reforming the DPFP in order to avoid having the fund go bankrupt — something that could happen in less than 30 years, according to financial analysts — many members with DROP accounts have begun taking their money out of the system. Since August 2016, Rawlings' attorney Michael Gruber said Monday afternoon, more than $500 million, about 20 percent of the DPFP's current value, has been withdrawn from DROP accounts.

Rawlings, citing a Texas law provision that allows any citizen to sue a local pension system for not upholding its constitutional responsibilities, is suing to stop those payments after a letter he wrote to the pension board last week demanding that the payments stop has, to this point, gone unheeded. Rawlings believes, as he stresses to a Texas Senate committee hearing in Austin last month, that the DPFP threatens the city of Dallas with bankruptcy if it isn't reformed.

Gruber argued at a court hearing Monday afternoon that, while DPFP pensioners' regular pension payments are constitutionally protected, the interested guaranteed members with DROP accounts is not. Therefore, when the pension makes DROP payments at the expense of it's overall health, it is acting in violation of state law.

"There is a right that cannot be violated and it's the right to maintain the pension for all of these people who've worked all these years and have seen what should be a 40-year pension, that's a sound pension, down to 15 years," Gruber said after the hearing. "They had 15 years of benefits left and what's happened, by paying out these discretionary DROP payments, that's gone to 10 years in 90 days."

Attorneys representing the pension board refused to comment after the hearing, but told Judge Tonya Parker that the DPFP board plans to vote Thursday on whether or not to suspend DROP payments. A similar vote in September did not pass the board, which is made up of police and fire personnel, pensioners and three members of the Dallas City Council.

During the hearing, they argued that stopping certain DROP payments would violate federal required distribution laws and disputed whether or not Rawlings had standing to file the suit in the first place because he has not been directly harmed by any actions taken by the DPFP.

Critics of the DROP program have pointed out that many of its participants have ridden guaranteed city interest to becoming millionaires. Ken Sprecher, a police pensioner who sits on the DPFP board, disputed that characterization.

"Of the 10,000 members of [DPFP], the vast majority are not millionaires. The ones that I know all worked two or three jobs to put their kids through school and live in a decent house in a nice neighborhood," Sprecher said.

Attorneys for both Rawlings and the DPFP system agreed with Judge Parker to delay any legal decision to stop DROP payouts until after Thursday's DPFP board vote.
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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