A Texas appeals court affirmed Tuesday that changes approved to the DROP interest rate and distribution policy at the Dallas Police & Fire Pension System in 2014 were constitutional.
In October 2014, the pension fund board and 88% of active participants approved reducing the future interest rate paid on DROP accounts from 8% to 7% in 2015, 6% in 2016, 5% in 2017 and potentially lower thereafter. Changes to the DROP distribution policy were also approved to prohibit members from maintaining their accounts indefinitely.
Shortly after the changes were approved, several active and retired Dallas police officers sued the $2.7 billion pension fund, arguing that the changes violated the state’s constitutional clause that retirement system benefits should not be reduced or impaired.
A trial court ruled in favor of the plaintiffs in 2014 and reversed its decision in 2015, ruling that changes were constitutional.
Tuesday’s opinion affirms the trial court’s 2015 decision and comes almost a week after the pension fund board voted to halt withdrawals from the Deferred Retirement Option Plan. The pension plan’s funding ratio is currently estimated at 36% and recent high DROP withdrawals, totaling nearly $500 million over the past few months, have been projected to make the pension fund insolvent in 10 years as opposed to the previously projected 15 years.
Member voting on a reform package proposed by the pension fund, which includes changes to the DROP program, higher employee and city contributions and reduced cost-of-living adjustments, is ongoing.