Dallas Mayor Mike Rawlings said Wednesday that inaction by the Police and Fire Pension Board allowed a $500 million run on the fund this year, which threatens taxpayers and employee retirements.
“It’s basic Boy Scout stuff, OK? You stop the bleeding. You put a plan together, call for help and that’s the way you do it. But we can’t do it if we don’t stop the bleeding. And that’s why it’s critical,” Rawlings said.
A letter from Rawlings to the Police and Fire Pension Board Tuesday demanded a response within 48 hours on whether the board would immediately stop so-called “DROP” payments until soundness of the pension system is restored.
The Deferred Retirement Option Plan (DROP) was devised to encourage veteran employees to remain with the city by paying handsome interest on savings invested in the pension fund.
Now, officials say the interest was too generous and pension fund investments were too risky to generate the necessary returns. And the DROP money was combined with the pension fund that is also expected to pay traditional retirement pensions for police and firefighters.
“We’ve got to protect the base benefits for these officers and firefighters,” Rawlings said. “Making sure we save this fund is critical right now. That’s why it’s in the hands of the board to stop this.”
Pension Board Chairman Sam Friar, a 32-year-veteran of Dallas Fire-Rescue, said the board declined to block withdrawals this year to avoid scaring members. Friar said Rawlings and the Dallas city manager are partly to blame for the surge in retirement and DROP withdrawals that happened anyway because they refused requests to make public statements that would boost confidence in the fund.
“Had they done that, most of this money would not be gone. Simple, simple solution. But they refused to do that,” Friar said.
The chairman said Rawlings’ letter is making things worse.
“We have members that are coming to the pension office today because of the letter to get their money out. So yes, it’s very serious,” Friar said.
Members were to be asked to vote a list of benefit reductions and increased contributions to do their share in fixing the problems. But a judge blocked the pension election in a lawsuit that challenges the board’s authority. A hearing in that lawsuit is set for Thursday afternoon.
The fund has asked the city to contribute $1.1 billion to shore up the finances.
“We cannot do it ourselves,” Friar said. “Our younger members are very concerned because they’re concerned whether or not they’re going to have a pension.”
Rawlings said the $1 billion request is “ridiculous” but he does not rule out some support from citizens.
“No question, we’re going to all have to share and sacrifice. Taxpayers will play a role in this because we need our police and our firefighters,” Rawlings said.
As the run on the fund continues, the employee and taxpayer requirements increase to keep the fund solvent.
“The hole gets bigger and bigger and the taxpayers can’t fill those holes,” said Rawlings.
A Dallas City Council briefing and discussion of possible solutions is scheduled next week. Friar said the Pension Board could not comply with the mayor’s demand for response in 48 hours, but a Pension Board meeting is also scheduled next week where the letter will be reviewed.