The Dallas City Council today was briefed on a potential fix for the city’s ailing Police and Fire Pension Fund, which could go broke in as soon as a decade without any changes.
The proposed plan targets some of the fund’s most generous benefits. The pension’s cost-of-living allowance would change and the city would increase its contribution to the fund by a billion dollars over the next 30 years.
There’d also be changes to the Deferred Retirement Option Plan, known as DROP. That’s a separate savings account for first responders eligible for retirement, but who want to keep working.
For years, DROP guaranteed an interest rate of at least 8 percent.
“Folks out there, police and fire, took advantage of something they were offered," Chief Financial Officer, Elizabeth Reich said. "Absolutely. And it was a great deal. I don’t fault anyone for that.”
But some of the pension fund’s real estate investments were overvalued, and then lost money. Allegations of mismanagement surfaced. Moody’s estimates Dallas has the second-most dire pension problems of any big city.
A part of the solution, Reich says, is eventually cutting the guaranteed interest rate on DROP accounts to zero.
“About 3,800 employees do not have a DROP account. This does not affect you. For the 3,000 people that do have a DROP account, the effect will vary, based on how long they were in DROP, etc.”
More than $500 million have been withdrawn from deferred retirement accounts since August – which has been described as “a run on the bank.”
Mayor Mike Rawlings sued the pension board this week — as a private citizen — to try to freeze those withdrawals. A judge denied that request, pending a pension board meeting Thursday on the matter.
Rawlings will also give a State of the City address Thursday.