Three facts you need to know about the Dallas Police and Fire Pension System's financial woes
Three facts you need to know to understand the Dallas Police and Fire Pension System's finanical woes
The financial trouble facing the Dallas Police and Fire Pension System has been the subject of a lot of discussions and the focus of news coverage statewide. Even some national news outlets have reported on the situation. With so much talk, some may have a few false impressions about the Dallas pension situation. TEXPERS has hashed out the top three misconceptions to help keep you informed.
Fact: Dallas Police and Fire Pension System is not indicative of problems in Texas. In fact, the root of the Dallas situation stems from its investments. Dallas P&F had almost 70 percent of its assets in alternatives and real estate investments compared to an average of 22 percent in these asset classes as reported by 160 state and local plans in a survey recently conducted by MarketWatch, an online investment website published by Dow Jones & Co.
The pension fund's investments resulted in large losses. The pension system also offers its beneficiaries a substantial Deferred Retirement Option Program, which accounted for 55 percent of plan assets in January 2016, according to the financial website's findings.
In a comparison to other Texas cities, “Dallas had the lowest funded ratio, the highest share of assets allocated to alternatives, and the highest ratio of DROP assets to total assets of any plan in the state.” That, the financial website states, made Dallas a singularity among public pensions within the state.
Myth No. 2: The city of Dallas is not responsible for pulling the pension system out of its financial debt.
Fact: Although some city officials have proposed not saving the Dallas P&F, it is the city's responsibility to keep paying pensions for retirees who can no longer work and do not have Social Security to support their financial needs.
One proposal by the city included creating a new retirement plan instead of saving the existing pension system. That idea, however, would provide police and firefighters who transfer to the new plan with lower guaranteed benefits. Also, retirees who continue to draw money from the current pension system – many police officers and firefighters – may not receive future payments once the existing fund depletes.
Not funding the pension system could impact 3,000 retirees living off their pensions and veteran officers and firefighters. Plus, the state's constitution outlines the city's responsibility regarding the matter, says Robert Klausner, principal of the law firm Klausner, Kaufman, Jensen and Levinson. The law firm specializes in representing retirement and benefit systems and related labor and employment relations matters.
Article 16, section 66 (f) of the Texas Constitution states, “The political subdivision or subdivisions and the retirement systems that finance benefits under the retirement system are jointly responsible for ensuring that benefits under this section are not reduced or otherwise impaired.”
Myth No. 3: Converting the Dallas P&F Pension System's deferred benefit plan to deferred contribution plan will save the city money.
Fact: Converting the system's DB plan to a DC plan will, in fact, cost the city more money. Not only will the city be paying a portion of the DC plan for each employee but the city will also have to continue its contributions to the DB plan. And once the DB plan runs out of money the city will be obligated to continue paying the remaining retirees their pension.