Dallas voters approved a ballot initiative to reform the $3.3 billion Dallas Employees' Retirement Fund, while San Jose, Calif., voters approved a referendum that restores pension benefits on Tuesday.
The Dallas initiative, which applies only to employees hired on or after Jan. 1, reduces cost-of-living adjustments and survivor benefits, raises the retirement age to 65 from 60 and discontinues a monthly health benefit supplement of up to $125. The COLA will be reduced to a maximum 3% from 5%.Dallas city code required that the changes be approved by residents, the pension fund board and City Council. It had already been approved by the board and City Council.
The pension fund has estimated that the changes, approved by 69% of voters, will reduce long-term liabilities by roughly $2.15 billion over the next 30 years.
In October, Moody's Investors Service and Fitch Ratings lowered Dallas' general obligation bond rating over the city's exposure to unfunded pension liabilities and high withdrawals from the police and fire system's DROP program. Unfunded liabilities at ERF more than doubled in 2015 to $2.2 billion, according to Fitch Ratings. The $2.8 billion Dallas Police & Fire Pension System, which is separate from ERF, reported about $6.9 billion in unfunded pension liabilities at the end of 2015, a 40% increase from the previous year, due primarily to realized private equity and real estate losses, according to Fitch.
Moody's said Wednesday that voters' approval of changes is a credit positive for the city.
Moody's also said the San Jose referendum was a credit positive for the city. Voters approved a referendum by more than a 60% margin that restores pension benefits and settles a five-year fight over vested pension benefits for the city's police and other employees.
Measure F, as it is called, ratifies the settlement San Jose negotiated with its unions last year, ending the battle over former Mayor Chuck Reed's ambitious pension reform measure to reduce defined benefit plan benefits. The voter-approved funding package will help pay for retirement benefits by eliminating retirees' health-care benefits, part of a compromise between the municipal unions and the mayor.
Almost 70% of the voters approved Mr. Reed's 2012 measure, which gave current employees an option to pay more to keep their existing retirement plan, or switch to a plan with reduced benefits and a higher retirement age.
Key parts of the 2012 measure were thrown out in 2013 by a Santa Clara County Superior Court judge who upheld employees' vested right to the specific benefits and contribution levels but appeals of the decision were continuing.
Mayor Sam Liccardo, who took office in 2015, proposed the new measure as a way to end the legal battle over pension benefits and as part of an effort to attract new officers to the city's police department. More than 500 police officers were laid following budget reductions or had left voluntarily following pension reductions, leaving the department with 800 active duty officers.
Measure F affects participants in the $3 billion San Jose Police & Fire Department Retirement Plan and the $2 billion San Jose Federated City Employees Retirement System.
