Dallas City Council members are considering an option that could increase cost of living benefits for retirees who rely on the city's massively underfunded police and fire pension system. Under the current plan, they wouldn't see any increase in benefits for almost two decades.
That also means the city's annual contribution would increase — at a time when officials have warned about municipal overspending.
Members of the city’s Ad Hoc Committee on Pensions heard from a panel of Cheiron actuaries, who present three possible scenarios the city could adopt. Cheiron officials say they used last years’ actuarial valuation and that the specific contribution numbers were likely to change.
All three proposed plans recommend the city pays what’s called an actuarially determined contribution. That means the city’s annual contribution into the pension system would likely change and increase as time goes on until the system is funded.
“The first two scenarios do not change benefits at all,” Cheiron actuary Bill Hallmark said during the meeting. “The third scenario has the partial [cost-of-living adjustment] change.”
The actuaries said the first cost-of-living adjustment (COLA) — which partially protects against market inflation — for police and fire personnel would be around 2047, “if all assumptions are met.”
“The current COLA is not payable until you’re 70 percent funded,” Hallmark said. “Given the issue of not having any COLA for more than two-decades…we are suggesting you consider the partial COLA.”
City officials and the panel of actuaries say benefit increases are information because city employees do not pay into Social Security — another system that shields retirees from inflation.
Right now, the expected COLA rate is 1.5% increase in benefits. But under the scenario that would allow city officials to approve that adjustment almost immediately — the new expected rate would be around 0.75%.
But that means the city’s annual contribution would also go up.
“There is a cost in the near term,” Hallmark said. “In the long term…plans have remained in that 70 to 100 percent funded status for a long pension, so you would have a lower cost at that point.”
Hallmark says that would be much further in the future.
And all three plans involve a “graded” contribution — determined by a team of actuaries. That means the annual contributions go up significantly each year.
Under the plan that would allow for an increase in city fire and police personnel benefits immediately, at the top of the scale — the city may have to be over $400 million as part of one annual contribution.
Some council members wondered how a lump sum paid upfront into the pension system might offset their annual contribution. Recently, council members instructed city staff to complete an analysis of the city’s real estate portfolio to see what could be leveraged to fix the pension system.
But officials at Thursday’s briefing say that the city would need to come up with around $1.3 billion to keep their current contribution rate the same next year. Under the scenarios presented by the actuaries the annual contribution rate could jump more than 10% — that means millions more the city will need to shore up to pay into the system.
City officials are under a deadline to present a plan of action to the state’s pension board before the end of 2024.
“This is a conversation between two entities that want to get this right,” District 9 Council Member Paula Blackmon said. “The horse is out of the barn. We have to wrangle this in.”
The Cheiron actuaries say they will complete a new valuation based on the city-retained actuaries’ numbers once they are released. A final report of the recommendations is expected in early 2024.
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