Tomorrow afternoon, the Dallas City Council will be briefed on the status of the Dallas Police and Fire Pension System and the Employees Retirement Fund. The briefing follows a meeting between city staff and the council’s Ad Hoc Committee on Pensions last week that was at times contentious as some council members pushed back on ideas to help both pensions remain solvent.
Here’s what you need to know before tomorrow’s briefing:
The history. The DPFPS came perilously close to bankruptcy in 2016 for several reasons. At the time, the pension had two programs that could be paid into: a full pension system and the deferred retirement option plan, known as DROP. The latter allowed officers and firefighters to continue working past their 20-year retirement date and place their pension payments into DROP. When they retired, they would get their pension payment and those DROP payments, which guaranteed anywhere from 8 to 10 percent interest.
The DPFPS invested heavily in luxury real estate developments that didn’t perform as expected. The stock market collapse in 2008 exacerbated their underperformance. When the pension system announced in the summer of 2016 that it would need to cut benefits because of the shortfall, retirees began withdrawing their DROP contributions, pulling about $500 million and leaving the system very close to the bare minimum it would need in liquid assets. The city suspended enrollment in DROP and moved those payments to annuities. In 2017, the Texas Legislature passed a bill that saved the pension for a time but mandated that Dallas come up with a way to make the fund solvent and sustainable by late 2024. (For more about the DPFPS shortfall, go here.)
The shortfalls. The Employees’ Retirement Fund faces a $1 billion shortfall, while the fire and police pension system is short by $3 billion. The ERF benefits about 7,500 current civilian city employees and another 7,800 or so retirees. The DPFPS administers the pension program for more than 10,000 current and retired officers.
The boards of both pensions are developing plans that would make them fully funded by 2055. The state pension review board has until December 2024 to issue a report on whether the city has accomplished that goal. If the board finds that the city’s plans are not satisfactory, state lawmakers could mandate additional reforms when they meet in 2025.
The recommendations. In last week’s meeting, Chief Financial Officer Jack Ireland’s recommendations included raising the city’s yearly contributions to both funds, which would require voter approval.
The staff also largely agrees with the recommendations of actuary firm Cheiron. Those include moving from a fixed rate contribution to one that is “actuarially determined.” The firm also recommended that the city consider adopting a cost of living adjustment sooner. That is only allowed when the systems are 70 percent funded, which means the city will need to figure out a way to reach that level sooner, possibly by selling some of the city’s properties and using the proceeds.
A study group formed by Mayor Eric Johnson that included former DPFPS board members Bill Quinn and Rob Walters recommended that the city make additional contributions in addition to its current annual contribution while phasing in a move to actuarially determined contributions.
The concerns of council members. Cara Mendelsohn and Gay Donnell Willis asked if other retirement funding options could be explored for civilian staff in particular, such as 401k programs. Mendelsohn said she thought the city should take more time to explore those options and prioritize the more glaring shortfall in the fire and police pension. Paula Blackmon said she’d like to see more oversight built into the pensions’ boards and called for an independent review of both pensions.
At one point, the discussion between Mendelsohn and Ireland prompted Mayor Pro Tem Tennell Atkins to admonish his colleague for interrupting the city’s top financial employee.
“We’re going to be very professional, OK?” Atkins said. “One person speaks, the other person listens, vice versa, OK?
Mendelsohn also accused the city staff of not exploring other retirement funding options for civilian staffers because they were also contributing to the pension as employees, creating “a circle to protect it.”
City Manager T.C. Broadnax bristled at that assertion and called it “not factual.”
“All employees that work for the city work for me. So I’m vested in making sure that they—whether on the police and fire side or general employee side— their pensions are met,” he said. “I appreciate the comment, but it’s offensive to think that we can’t do both.”
The time constraints. The council is on the clock to make a decision, as some of the options to fill the pension gaps require voter approval. The council has until Valentine’s Day to decide if they want those options on the May ballot.
The city staff has provided the council with several scenarios. Given that there is no agreed-upon path for a 30-year plan, it seems more likely that the council is on pace to continue to discuss and finalize a preliminary plan next month and then work over the spring to come up with a final plan in June.
If that plan includes changing the way the city contributes to those funds, it would require voter approval. That would put it on an already crowded November presidential election ballot that could include a city bond election and amendments to the city’s charter.
Ireland will present his updates and recommendations to the full council in a special called briefing on Friday at 1 p.m.
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