Dallas Police & Fire Pension System voted Thursday to suspend DROP withdrawals, a spokeswoman for Dallas Mayor Mike Rawlings said in an e-mail.
The decision comes three days after Mr. Rawlings filed a lawsuit against the $2.7 billion pension fund, arguing the pension fund is jeopardizing its solvency and liquidity by allowing withdrawals to continue from the Deferred Retirement Option Plan.
Echoing a letter he sent to the pension fund board on Nov. 29, the mayor’s lawsuit argued that recent high withdrawals from the DROP program 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.
The pension fund initially voted in September not to make any changes that would limit or restrict DROP withdrawals, despite the recent high volume.
DROP withdrawal requests increased after an August board meeting where reduced benefits were discussed by pension fund officials as a way to improve funding.
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. Retirees can also have their monthly pension benefit credited to their DROP account up to age 70.5.
The pension fund 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 Ratings. Fitch and Moody’s Investors Service downgraded Dallas' general obligation bond rating in October, citing the city's unfunded pension liabilities and high police and fire DROP withdrawals.
A follow-up hearing on Mr. Rawlings’ lawsuit is scheduled for Thursday afternoon. The mayor’s office declined to provide additional information on the pension fund’s decision until after the hearing.
Pension fund officials could not immediately be reached for additional information.
