Dallas Police and Fire Pension System Shows Signs of Life

Slowly but surely under the leadership of new executive director Kelly Gottschalk, the moribund Dallas Police and Fire Pension System seems to be digging itself out of the chasm dug during the leadership of former director Richard Tettamant. According to new data released by the pension fund on Thursday and posted to Facebook by Scott Griggs, a member of the City Council and the pension fund's board, the fund's deferred retirement option plan (DROP) — a lucrative inducement that allows officers and firefighters eligible for retirement to keep working, collect their pension checks and redeposit them in accounts that returned a guaranteed interest rate — may finally be getting healthy.

Before a rate cut agreed to by the the fund's board and its membership, the deferred accounts returned 8-10 percent interest, guaranteed. The program was so lucrative that it allowed several hundred cops to retire as millionaires, but it was only sustainable thanks to the creative accounting practices that undersold the fund's increasingly unfunded liabilities — Philip Kingston, a member of the board, told the Observer last year the deferred accounts cost the fund about $300 million, or about 10 percent of its $3.4 billion total size. After the rate cut was agreed to, current DROP members sued the fund, saying that the sliding scale interest rate decrease amounted to an unconstitutional rate cut. State District Judge Tonya Parker agreed with the retirees initially, but reversed herself on rehearing, leading to an appeal from the retirees. The case currently awaits a decision from Texas' 5th Court of Appeals. Following the ruling, the fund's board cut off enrollment in the deferral program. Recently, the fund has begun to reap the benefits.

In 2014, the fund's DROP obligations were $1.425 billion; in 2015, they were $1.516 billion. The projected DROP obligation for 2016 is, again, $1.516 billion. The increase has stopped.

"It's good news. It means a couple of things," Kingston says. "It means that DROP withdrawals have slowed and it probably also means that we've finally rooted out all of the over-valuation of assets in the system."

The good news on DROP will do little to correct the fund's unfunded liability of between $1.5 and $5 billion unless the board and members can agree on a way to cut the benefits. The way that's going to happen, if Kingston gets his way, is cutting the annual cost of living adjustment, which currently sits at 4 percent.

"[Adjusting the cost of living adjustment] is absolutely going to happen," Kingston says. How much it's reduced is the question. "We have a pretty significant faction on the board that doesn't want to cut it to zero. I do, or at least cut it to ad hoc where we pay it when we can afford it."

If the cost of living adjustment is cut to zero, Kingston says, indications are that the funding problem could be eliminated.

Cutting the benefits paid out now would allow the fund to hang on until cuts already negotiated with members who enrolled in 2011 or later begin to benefit the outlook. If appropriate cuts aren't agreed to, the fund could go broke sometime around 2030, according to estimates. Still, after three straight years of the system actually decreasing in value, any good news is great news.

Correction: This story has been amended to clarify the status of the lawsuit by pension system members against the system. The judge in the case ruled for the pensioners, before reversing herself on rehearing.