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Federal judge dismisses suit over Dallas Police & Fire’s DROP withdrawal changes

A 2017 lawsuit over the $2.1 billion Dallas Police & Fire Pension System's revised DROP withdrawal policy was dismissed by a federal judge.

In January 2017, a group of retired Dallas police officers sued the pension fund's board of trustees following the board's vote to change the timing of distributions from its deferred retirement option plan. The reason for the change was to protect the fund's liquidity after a record $523 million was withdrawn from DROP over the course of four months, the pension fund said. The pension fund had initially voted to suspend monthly DROP withdrawals altogether but lifted the suspension prior to the filing of the lawsuit.

In May, the Texas Legislature passed a pension reform law that mandated starting Sept. 1, DROP funds be paid out as annuities upon retirement rather than lump sums, and the interest paid be based on a Treasury-based rate determined by the pension fund board as opposed to a guaranteed interest rate, which was 6% at the time, and was once as high as 10%.

Plaintiffs argued that the changes were unconstitutional.

On Wednesday, U.S. District Court Judge David C. Godbey in Dallas dismissed the plaintiffs' claims, ruling that the DROP policy changes "merely alter the timing of when plaintiffs receive their funds," and not the value of their funds.

Mr. Godbey added: "Given that the pension system was projected to become insolvent within the next decade if the Texas Legislature and the board did not act, the board's asserted interests were certainly legitimate."

Kelly Gottschalk, executive director, said the pension fund was pleased with the ruling, which validated that the annuitization of the DROP money. "If it had gone the other way, (the DROP money) would have left the system, and (the pension fund) would have been in an insolvent situation," Ms. Gottshalk said. The plaintiffs' attorney, David Feldman, said that forcing participants to take an annuity was wrong and that he expected the decision would be appealed