Dallas Police and Fire Pension System executives say they want more clarity over who gets the final say in a plan to remedy billions in unfunded liabilities and have approved legal action to get it.
The skirmish over who has that power — the system or the city — has been playing out for months.
The board “authorized an action in state court to clarify the process by which DPFP is legally obligated to adopt a plan by November 1, 2024 that meets statutory funding and amortization requirements,” according to a Thursday press release from the organization.
"This by no means indicates a departure from working with the City of Dallas,” Nicholas Merrick, chairman of the DPFP Board of Trustees, said in the release.
"However, there is a legitimate and very important disagreement that exists with respect to the interpretation of our statutory mandate. We believe this clarification by the courts is critical to moving forward with a plan for the pension of the City’s valued first responders,” Merrick continued.
KERA reached out to the city for comment on the recent press release from the pension system, but did not receive comment before this story was published.
KERA also reached out the Dallas Police and Fire Pension System executives to ask if any legal action had been initiated yet. This story will be updated with any comment.
'No City approval...needed'
KERA reported in May that attorneys for the public safety pension system sent a letter to the Texas Pension Review Board’s top executive saying both the city and the board’s reading of legislation guiding the plan was “erroneous.”
“The System’s board has exclusive authority to adopt a pension plan,” the January letter said. “No City approval is contemplated or needed.”
In another letter obtained by KERA sent to state regulators on May 10, Dallas City Attorney Tammy Palomino said she “only recently became aware” of the initial correspondence from the Dallas Police and Fire Pension System — and that its reading of the two state statues is “plainly incorrect.”
Palomino’s letter said ultimately the city council must approve any plan that will be sent to state regulators.
District 9 Council Member Paula Blackmon told KERA at the time that, while elected officials will be keeping their promise to remedy the issue, the city shouldn’t be finding out about this after the fact.
“So much for working together, this was sent in January and we just found out about it a couple of weeks ago,” Blackmon said in May. “It kind of goes to the illusion of working together, or disillusion, right?”
When reached for comment about the most recent announcement from pension executives, Blackmon had this to say:
"I don't comment on legal matters," Blackmon told KERA in a text message. "I guess the courts will figure it out."
Pension executives did not respond to request for comment by KERA when the May story was published. But, in a statement posted to the pension system’s website just days after that story was published, officials said they needed to “correct certain inaccuracies.”
In it, they stated that the letter sent to the state’s pension board was “a very scholarly analysis of the conflict between the DPFP statue” and the funding plan as laid out by state law.
“DPFP has stated publicly on numerous occasions that failure to reach an agreement with the City of Dallas almost certainly would result in further legislative action in 2025,” the release said. “The disclosure of this letter to the press by the City of Dallas appears to be an attempt by the City to mischaracterize the actual substance of the letter and use it to put DPFP in a bad light.”
Risky investments
The billions in unfunded liabilities come after risky real estate investments nearly destroyed the pension system. In 2017, Texas legislators had to step in to temporarily remedy the situation.
“I am very proud of the job our Board and Staff have done in managing DPFP’s investment portfolio,” Merrick said in the press release. “While there has been publicity around some poor investment return numbers, the fact is those are primarily due to decisions regarding private assets that were made more than 15 years ago.”
In June, city officials were briefed on the pension system’s investment standings.
Dory Wiley is the president and CEO of Commerce Street Investment Management and worked on an initial analysis of the Dallas Police and Fire Pension System’s investments. Wiley told the city’s Ad Hoc Committee on Pensions that the fund was performing below average, compared to other systems in Texas.
Wiley said the public safety fund has done a good job with investments in public equity, or stocks. As of June 2023, the fund has received over 8% in returns. That’s more than other peer cities, according to Wiley’s presentation.
“But having said that, we go to the private equity and then that’s where the underperformance is,” Wiley said. “Part of that is legacy assets…they’ve been dealing with them for the last seven years, I know they’re still dealing with them.”
Both the public safety pension board and city staff’s recommendations are fairly close. The goal is to start building back the retirement fund that was on the brink of collapse in 2016 due to risky real estate investments.
The main difference is whether to increase police and fire retirees’ benefits. City officials call that a cost-of-living adjustment, or COLA.
“No one is going to have it 100% their way or 100% our way,” Atkins said during a late April Ad Hoc Committee on Pensions meeting. “But we got to come to the conclusion that we are doing the best we can to make sure we are making the right decision.”
The plan
City staff say there are several issues standing in the way of increasing benefits — including paying more in annual contributions — and that it isn’t legal until the system is at least 70% funded.
The city says that as of January 1, 2023, the public safety pension fund is projected to be fully funded in 82 years, according to a city presentation. The briefing also lays out city staff’s recommendations to “offer supplemental pay to bridge” the gap until 2046 – when the fund is forecasted to be 70% funded.
That pay is around a 1% increase added to retirees base benefits in 2025. An additional 1% per year could be added as a stipend, assuming the pension fund’s assets gain positive returns. And the city wants to make sure more oversight over the system is added.
The recommendation is to include a requirement for city approval on “items that substantially increase [the] City’s liability.” That includes changes to benefits, actuarial assumptions and settling lawsuits.
Right now, the city estimates it will contribute around $11.2 billion over a 30-year period. City officials stated in their briefing presentation that adopting the pension executive’s recommendations could mean an additional $419 million over those 30 years — bringing the total price tag to $11.6 billion.
City and pension officials must submit a funding plan to state regulators by Nov. 1.
Got a tip? Email Nathan Collins at ncollins@kera.org. You can follow Nathan on Twitter @nathannotforyou.
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