Texas Gov. Greg Abbott signed off on a pension reform bill for the $2.1 billion Dallas Police & Fire Pension System on Wednesday, roughly a week after it passed the state Legislature.
The pension reform package, which is expected to bring the pension fund to full funding in 46 years, includes an increase in the retirement age to 58 from 55 (or 50 for those hired before March 1, 2011), a reduction in DROP benefits and the elimination of cost-of-living adjustments unless certain financial benchmarks are reached.
The pension fund was roughly 36% funded at the end of 2016.
Under the deferred retirement option plan changes, active workers eligible for retirement can participate in DROP for up to 10 years, and retirees cannot continue to defer payments. Previously, the participation period was unlimited. DROP payments will also be paid out as annuities upon retirement rather than lump sums, and the interest paid will be based on a Treasury-based rate determined by the pension fund board, opposed to a guaranteed interest rate, currently 6%, and once as high as 10%.
The bill also raises employees' payroll contributions to 13.5% from 8.5% (or 4% for active workers eligible for retirement and enrolled in the deferred retirement option plan) and raises the city's contribution to 34.5% of pay annually, from 27.5% of total pay, plus $13 million per year until 2024 when an actuarial analysis will be conducted to ensure funding is sufficient to meet the guidelines set by the Texas Pension Review Board.
The pension fund board could also decide under the bill to take back interest earned by DROP participants. Two-thirds of the pension fund board would have to approve the clawback.