Dallas Mayor Mike Rawlings has requested that the $2.7 billion Dallas Police & Fire Pension System immediately suspend lump-sum DROP payments until the pension fund is on solid financial footing.
In a letter to the pension fund board Tuesday, Mr. Rawlings said the “continued DROP withdrawals will cripple the pension system's ability to make state constitutionally protected benefit payments — including pension payments — to the detriment of all current and future retirees and their beneficiaries,” and that DROP withdrawals “must immediately be stopped until such time as the pension system can be made stabilized and made viable.”
In his letter, Mr. Rawlings argued that recent high withdrawals from the Deferred Retirement Option Plan and the pension fund's decision to continue making lump-sum DROP payments totaling nearly $500 million over the past few months could bring insolvency in 10 years as opposed to the previously projected 15 years. “Unabated” DROP withdrawals could lead to a “liquidity crisis” for the pension fund in the next 90 days, he added.
Despite the recent high withdrawals, the pension fund voted in September not to make any changes that would limit or restrict DROP withdrawals. Sam Friar, pension fund board chairman, stood by that decision in a letter on the pension fund's website: “As we have stated publicly, the board considered financial, legal and practical considerations in deciding whether to place restrictions on DROP. The mayor's letter raises no new issues that the board has not considered in-depth. The fact that the mayor does not like the conclusion the board reached does not make that conclusion incorrect or a breach of the board's duty.”
This fall, the pension fund proposed a reform package that consisted of raising employee and city contributions, reducing cost-of-living adjustments and changing the retirement system's DROP program. A vote on the reform plan by participants, scheduled for earlier this month, was put on hold by a Dallas County district court. A hearing on the issue is scheduled for Dec. 1.
At the end of 2015, the pension fund reported about $6.9 billion in unfunded pension liabilities, a 40% increase from the previous year, due primarily to realized private equity and real estate losses, according to Fitch Ratings. Prior to the increase in DROP withdrawals, Segal Consulting projected that the pension fund would become insolvent in 2030, absent any changes to the fund's benefit provisions, or member or city contribution rates.
Kelly Gottschalk, executive director, was not immediately available for additional comment.
