Dallas Mayor Mike Rawlings filed a lawsuit against the $2.7 billion Dallas Police & Fire Pension System, arguing the pension fund is jeopardizing its solvency and liquidity by continuing to allow DROP withdrawals.
The lawsuit was filed in Dallas County District Court on Monday, almost a week after Mr. Rawlings issued a letter to the pension fund board requesting that the pension fund immediately suspend lump-sum DROP payments until the pension fund is on solid financial footing. A hearing on the lawsuit, which requests a court-ordered restriction on DROP withdrawals, is scheduled for Monday.
Like the Nov. 29 letter, the lawsuit argues 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, and that continued withdrawals “will further 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, including DROP participants themselves.”
The Deferred Retirement Option Plan is available to active employees who are eligible to retire with an immediate pension and elect to have an amount equal to their pension benefit credited to their DROP account with a guaranteed interest rate.
Last week, pension fund board Chairman Sam Friar stood by the board’s decision to not make any changes that would limit or restrict DROP withdrawals, despite the high withdrawals.
A reform package proposed by the pension fund this fall called for changes to the retirement system's DROP program along with raised employee and city contributions and reduced cost-of-living adjustments.
Dallas County District Court Judge Ken Molberg ruled on Dec. 2 that participant voting on the pension reform can continue. The voting, scheduled to start Nov. 14, was put on hold on by Mr. Molberg on Nov. 13 at the request of five members of the police and fire departments who are suing the retirement system for maintaining a board of 11 to 12 trustees, allegedly violating state law that calls for seven trustees.
Mr. Molberg on Dec. 2 denied plaintiffs’ request for a temporary injunction on the vote, writing that the plaintiffs failed to prove the vote posed imminent and irreparable harm.
A hearing on the lawsuit is scheduled for March 13.
At least 65% of members must approve the changes.
The pension fund reported about $6.9 billion in unfunded pension liabilities at the end of 2015.
Kelly Gottschalk, executive director of the pension fund, was not immediately available for additional comment.