The clock is ticking on the Dallas Police & Fire Pension System's solvency where poor investment decisions and plan design have both exacerbated the problem
Segal Consulting, the pension system's actuary, projected in July that the $2.1 billion pension fund would become insolvent in 2030, absent any changes to benefits or contributions. A record $523 million in withdrawals from the pension fund's Deferred Retirement Option Plan since then moved the date closer to 2027.
The pension fund has proposed raising member and city contributions and reducing cost-of-living adjustments and DROP benefits. Those changes, which would have moved the insolvency date back to 2030, were rejected by active participants in a two-week election that ended Dec. 17. There's still a chance for the reforms to be passed by the state Legislature. The pension fund is revising its proposals with input from the city to present to the Legislature. Discussions are still being held, but Kelly Gottschalk, the pension fund's executive director, anticipates greater benefit reductions and contribution increases will be necessary to bring the pension fund to full funding in 30 years up from the roughly 36% funding ratio currently.
“Everything is on the table,” Ms. Gottschalk said. Texas' legislative session starts Jan. 10.
Uncertainty over what the Legislature will or will not approve puts the pension fund's asset allocation up in the air, Ms. Gottschalk said. Also unclear is how long the pension fund will be able to restrict lump-sum withdrawals from its Deferred Retirement Option Plan.
To protect its liquidity, the pension fund board voted Dec. 8 to temporarily suspend DROP withdrawals. It will decide Dec. 29 whether to lift the suspension on monthly withdrawals. A hearing Jan. 17 could decide whether lump-sum withdrawals may once again be permitted.
The pension fund is in the process of selling a significant portion of its private equity portfolio to provide liquidity and bring the portfolio more in line with its target allocation for the asset class,which was reduced to 5% in March from 15%, Ms. Gottschalk said. (She declined to provide the size of the sale.)