The four Dallas City Council members who serve as trustees on the police and fire pension board have filed a petition that asks a judge to assign an outside controller to manage its assets to prevent liquidation.
Jennifer Staubach Gates, Scott Griggs, Philip Kingston, and Erik Wilson filed the petition for intervention today, which alleges that the board is preparing to sell off its assets to allow payments to flow to pensioners with DROP accounts. Those accounts, which can be withdrawn in lump sums, guaranteed interest rates as high 8 percent over time (it’s no longer that high, however), an amount that is well above market rate and is, according to the city, unsustainable in relation to its existing assets. A run on the DROP withdrawals late last year cost the fund $500 million; the city fears it’s on a path to be insolvent in the next decade.
The intervention is an addendum to an earlier lawsuit filed by Mayor Mike Rawlings as a private citizen, which successfully resulted in a judge halting withdrawals until mid-January. Three weeks ago, after the temporary restraining order expired, the judge agreed to allow pensioners to pull out $3,000 a month from their Deferred Retirement Option Plans on top of their monthly pension benefits.
In the lawsuit filed today came the strong words from the Council trustees: “Instead of seizing the opportunity to reassess DPFPS’s priorities and to stop voluntarily processing excessive DROP disbursements that impair service retirement, disability, and death benefits, the Board, through the System Participant Trustees, has directed its staff to formulate a plan to sell DPFPS assets so that it can resume large DROP payments based on artificial liquidity and without regard to the resulting impairment. Collectively, these actions all but ensure destruction of DPFPS.”
In its own statement, the pension fund put the onus back on the city, arguing that its representatives in the past could’ve cut this off at the knees and didn’t:
“The petition filed today is essentially an action against decisions that were made beginning decades ago by a previous pension board. City council members serving on that board had every opportunity to argue against questionable investments and promised benefits. But they, and the former mayors who appointed them, were missing in action. No city council member serving on the pension board ever voted against the benefits structure or investments cited in today’s filing.”
The petition calls the pension fund a “leaky bucket,” suffering from years of mismanagement, bad investments, and overpromises. During a hearing late last month, the City Council was told that the average DROP account contained $597,000. More than 500 of the 1,900 existing accounts have valuations of more than $1 million, with the highest sailing up to $4.3 million. Police and firefighters were allowed to contribute to their DROP accounts while they were still working, so long as they retired on paper, deposited their monthly check, and sacrifice the pension credit they’d have gotten for continuing to work.
The average annual pension benefit is $46,400. There are about 9,600 total members in the plan.
“The 1,300 retirees who retired before the advent of the DROP program, those 1,300 all live on less than $2,500 a month and several hundred live on $1,500 a month,” said Kingston during that hearing. “If our goal is to take care of the most vulnerable beneficiaries first … it is imperative that we do not pay out excess benefits beyond what we know for a fact is a constitutionally protected base benefit.”
The lawsuit makes it clear that the city has no plans to ask the taxpayers to bail it out:
“The City will not accept liability for the Board’s wrongdoing, nor is the City willing to ask Dallas taxpayers to sacrifice paved streets, affordable housing, public safety, parks, and other necessities in order to cover all of the DPFPS losses caused by years of mismanagement.”
And it also alleges serious conflicts of interest:
“Votes have been taken by Board members with personal DROP accounts or who have immediate family members with DROP accounts on questions about whether to permit DROP disbursements, the Board has engaged in uncontrolled overspending on administrative activities; has permitted unauthorized custody of DPFPS accounts for use as collateral for indebtedness and speculation; has favored DROP accounts at the risk of impairing constitutionally-protected pension benefits, and has claimed the right to impose unlimited and funded debts on the City without sufficient legal authority.”
Here’s the full lawsuit: