What is taking place right now in Dallas is nothing short of a pension Armageddon. The Dallas Police and Fire Pension System invested in risky real estate deals, including a swanky 200 condo development in downtown Dallas at the height of the housing meltdown. Retirees have withdrawn well over a half a billion dollars from the system as they fear its imminent collapse. The Dallas Morning News reported yesterday:
The Dallas Police and Fire Pension System's Board of Trustees suspended lump-sum withdrawals from the pension fund Thursday, staving off a possible restraining order and stopping $154 million in withdrawal requests.
The system was set to pay out the weekly requests Friday. Pension officials said allowing the withdrawals would leave them without the liquid reserves required to sustain the $2.1 billion fund.
"Our situation is currently critical, and we took action," board chairman Sam Friar said.
Pension officials and many police and firefighters have blamed Dallas Mayor Mike Rawlings for forcing the latest run on the bank. Dozens of retirees rushed to request withdrawals after Rawlings filed a lawsuit Monday to stop the withdrawals.
By then, more than $500 million had already gushed from the fund since the board proposed benefit cuts in August....
Council member Philip Kingston, a board trustee, said the mayor "unquestionably" forced the pension board's hand. He said Thursday was "the worst day I've had in public office."
"Unfortunately, financially, this had to happen," he said.
Kingston said the tough decision will be worth it if it means the pension, which is hurtling toward insolvency within the next decade or so, can be saved.
On Wednesday, the city officially unveiled its plan to save the fund. The biggest target was the lump-sum program officially called the Deferred Retirement Option Plan, or DROP.....
That plan, originally intended as a retention perk for veterans, made hundreds of officers, firefighters and retirees into millionaires. DROP allowed them to retire on paper, continue working and meanwhile defer their pension benefit checks into a separate account. Once they actually retired, they could remain in DROP and continue deferring their checks.
For years, DROP guaranteed at least 8 percent interest on the money. That hurt the entire fund when the investment returns couldn't keep up. The problem was made worse when the pension's current administration revealed that their predecessors had significantly overvalued risky real estate investments.
The city proposal would wipe away the DROP interest over the years. literally wiping it away from existing DROP accounts or adjusting future monthly benefits for those who already took their money out.
Kingston had declined to comment on the plan Wednesday. But on Thursday, he called the city's plan "Draconian." But so is the pension system's request for a $1.1 billion taxpayer bailout, he said.
Both taxpayers and police and firefighters will have to share in the pain, he said.
But as the discussions about a fix continued, the pace of DROP withdrawals threatened to weaken the fund even further. While the money going out reduced future liabilities, the pace could have forced the system to sell off its assets....
The fund has about $729 million in liquid assets. It needs to keep about $600 million on hand, meaning the restrictions could have been coming at some point even without the mayor's actions. The withdrawal requests this week alone would have meant the fund would dip below that level.... Rest of article
About that $1.1 billion bailout. The New York Times reported in November:
Dallas has the fastest economic growth of the nation’s 13 largest cities. Its streets hum with supersize cars and its skyline bristles with cranes. Its mayor is a former chief executive of Pizza Hut. Hundreds of multinational corporations have chosen Dallas for their headquarters, most recently Jacobs Engineering, which is moving to low-tax Texas from pricey Pasadena, Calif.
But under its glittering surface, Dallas has a problem that could bring it to its knees, and that could be an early test of America’s postelection commitment to safe streets and tax relief: The city’s pension fund for its police officers and firefighters is near collapse and seeking an immense bailout.Over six recent weeks, panicked Dallas retirees have pulled $220 million out of the fund. What set off the run was a recommendation in July that the retirees no longer be allowed to take out big blocks of money. Even before that, though, there were reports that the fund’s investments — some placed in highly risky and speculative ventures — were worth less than previously stated.What is happening in Dallas is an extreme example of what’s happening in many other places around the country. Elected officials promised workers solid pensions years ago, on the basis of wishful thinking rather than realistic expectations. Dallas’s troubles have become more urgent because its plan rules let some retirees take big withdrawals.Now, the Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas's entire general fund budget but not even close to what the pension fund needs to be fully funded. Nothing would be left for fighting endemic poverty south of the Trinity River, for public libraries, or for giving current police officers and firefighters a raise. Rest of article.
Simply put, there is no easy way out for Dallas.
This story is exactly why JJ covers the Mississippi Public Employees Retirement System. The combined obligations are $42 billion and some change. The assets are around $25 billion. It is literally the biggest piece of finance in Mississippi- public or private sector. It is too big to ignore yet that is exactly what the media and politicians do. It is important that people know what is going on with PERS so that what is taking place in Dallas right now never happens here.