DALLAS, TX – City officials offered an explosive proposal Wednesday in their effort to save the Dallas Police and Fire Pension System: Don’t save it at all.
Chief Financial Officer Elizabeth Reich told the Dallas City Council that officials could create an entirely new retirement system called the Public Safety Employees Retirement Fund. Younger active employees would have the option to transfer to the new pension system, where they would get a traditional pension benefit as well as a 401k plan with a 5 percent city match on top of it.
Police and firefighters who transfer would take lower guaranteed benefits, but would be able to escape a system that is heading toward insolvency within the next 10 years.
And if city officials went that route, taxpayers would continue to pay a share of the pension contributions for police and firefighters who elect to stay in the existing system. But retirees who draw money from that pension system and many cops and firefighters would be left in limbo, and possibly without future payments once the fund runs out of money.
“In terms of the solution over the long term, the city would have to work with the pension,” Reich said. “But it would really be up to the pension to determine how to close out that plan.”
Reich presented the outline of such a plan as negotiations with the pension system’s board have stalled. But Reich said that creating a new system is only an alternative option, and that city officials are committed to reaching a deal to save the current pension system.
“Our first objective is to fix the Dallas police and fire pension system. That is our first goal,” Reich said. “However, it is prudent, it is the right thing to do to explore alternatives.”
And outgoing City Manager A.C. Gonzalez acknowledged that the creation of a new system might not be the best option because “there would still be a lot of problems that would still be unresolved.”
Chief among them is the fate of the 3,000 retirees living off their pensions and veteran officers and firefighters. Reich made clear that it’s up to the pension board, not the city, to make sure the retirees can make do with the $2.1 billion they have in the fund. The pension system paid out $285 million in benefits in 2015, meaning the money in the fund now wouldn’t last long.
Still, the city would likely face resistance from pension advocates and retirees if they cast off the old pension system to fend for itself.
Pension Board Chairman Sam Friar could not be reached for comment. But Max Patterson, executive director of the Texas Association of Public Employee Retirement Association, believes it’s the city’s responsibility to pick up the tab for retirees who can’t work anymore and don’t have Social Security to fall back on.
“The city can go out and create a whole new plan for future employees, but they’re still on the hook for the old plan,” Patterson said. “They can’t just say ‘I have no responsibility for the old plan.'”
Some of the responsibility would be mitigated by allowing active employees to transfer to the new plan, which would create a better financial situation for City Hall than the current mess.
Those who transfer would give up any claim to benefits accrued under the old pension system. The new system’s formula would determine their benefits instead.
The total cost to the city to bring over all the employees who qualify would be about $200 million, Reich said. The city would then pay a contribution rate of 14 percent of salaries into the pension system. Police and firefighters would also pay 14 percent.
Currently, the city is paying 27.5 percent on top of the police and fire salaries, which totaled about $124 million last fiscal year.
Even after the city paid the 5 percent match on the 401k accounts, taxpayers could save millions every year.
And City Hall could control the new system. Currently, the Dallas Police and Fire Pension System is governed by state law and a board of 12 trustees. Four are City Council members, but the rest are police and firefighters, both active and retired.
The Public Safety Employee Retirement Fund could also share some administrative expenses with the city’s civilian employee pension plan, known as the ERF.
Previously, some council members have suggested merging the police and fire pension system with the ERF. The ERF, which returned a robust 9 percent on its investments last year, is healthier financially than the Dallas Police and Fire Pension, which is on track to become insolvent within 10 years.
Unsustainable benefits and risky and overvalued real estate investments created the dire financial situation. The city can’t do much about the investments, but officials are trying to reclaim some of the benefits accrued over the years.
City and pension officials have spent weeks haggling over the details of that plan. The two sides are trying to reach a compromise and present a united front to the Legislature. But neither side is budging much, and they plan to go through mediation.
City Attorney Larry Casto said state Rep. Dan Flynn, R-Van, had drafted a bill that represented a compromise between the pension system and the city’s requests, but the numbers didn’t add up. So Flynn’s trying a new plan, Casto said.
Officials said they’ll explore other options, too, such as moving new employees to the ERF, or to a state system. Council member Lee Kleinman, who represents northern Dallas, also suggested city officials also consider switching police and firefighters to Social Security paired with a 401k, like most private sector plans.
Other council members offered little reaction to the actual proposal. And Mayor Mike Rawlings, who has taken the political lead on the issue, was out of town.
Dallas Police Association President Michael Mata said it’s a good thing that the city is “apparently trying to look at as many possible options as possible.”
But he said he worries that the plan isn’t well thought out and done in a time crunch with the Legislative session now under way.
“It’s not going to be able to be vetted like it should be,” he said. “The state wants something now.”
Mata is also worried about the retirees if the plan becomes reality. He hopes the two sides will work together on a solution before it comes to that point.
“I think there is a compromise somewhere,” he said.
From The Dallas Morning News via Firehouse.com