The Dallas Police and Fire Pension System's Board of Trustees suspended lump-sum withdrawals from the pension fund Thursday, staving off a possible restraining order and stopping $154 million in withdrawal requests.
The system was set to pay out the weekly requests Friday. Pension officials said allowing the withdrawals would leave them without the liquid reserves required to sustain the $2.1 billion fund.
"Our situation is currently critical, and we took action," board chairman Sam Friar said.
Pension officials and many police and firefighters have blamed Dallas Mayor Mike Rawlings for forcing the latest run on the bank. Dozens of retirees rushed to request withdrawals after Rawlings filed a lawsuit Monday to stop the withdrawals.
By then, more than $500 million had already gushed from the fund since the board proposed benefit cuts in August.
Rawlings told a crowd gathered Thursday afternoon at a Dallas Regional Chamber that "the bleeding has stopped. We can turn this ship around."
The crowd responded with cheers after the mayor's announcement of the board's decision.
At the pension board meeting, the mood was more somber.
Council member Philip Kingston, a board trustee, said the mayor "unquestionably" forced the pension board's hand. He said Thursday was "the worst day I've had in public office."
"Unfortunately, financially, this had to happen," he said.
Kingston said the tough decision will be worth it if it means the pension, which is hurtling toward insolvency within the next decade or so, can be saved.
On Wednesday, the city officially unveiled its plan to save the fund. The biggest target was the lump-sum program officially called the Deferred Retirement Option Plan, or DROP.
That plan, originally intended as a retention perk for veterans, made hundreds of officers, firefighters and retirees into millionaires. DROP allowed them to retire on paper, continue working and meanwhile defer their pension benefit checks into a separate account. Once they actually retired, they could remain in DROP and continue deferring their checks.
For years, DROP guaranteed at least 8 percent interest on the money. That hurt the entire fund when the investment returns couldn't keep up. The problem was made worse when the pension's current administration revealed that their predecessors had significantly overvalued risky real estate investments.
The city proposal would wipe away the DROP interest over the years wiping it away from existing DROP accounts or adjusting future monthly benefits for those who already took their money out.
Pension system's request
Kingston had declined to comment on the plan Wednesday. But on Thursday, he called the city's plan "Draconian." But so is the pension system's request for a $1.1 billion taxpayer bailout, he said.
Both taxpayers and police and firefighters will have to share in the pain, he said.
But as the discussions about a fix continued, the pace of DROP withdrawals threatened to weaken the fund even further. While the money going out reduced future liabilities, the pace could have forced the system to sell off its assets.
The fund has about $729 million in liquid assets. It needs to keep about $600 million on hand, meaning the restrictions could have been coming at some point even without the mayor's actions. The withdrawal requests this week alone would have meant the fund would dip below that level.
The system will discuss a new withdrawal policy at January's meeting. The policy will probably include limits on withdrawals but would carve out an exception for hardships such as medical emergencies.
Until then, the only withdrawals allowed will be annual minimum required distributions for tax reasons.
Friar reminded members that the total restriction on DROP withdrawals is only temporary.
"We are not holding your money forever," Friar said. "This is your money."
But that did little to quell the retirees' frustrations. Several chastised board members and incorrectly stated that board members hadn't spoken out against the mayor's lawsuit.
One retired police sergeant, Pete Bailey, suggested a lawsuit could be in the offing if the system didn't pay out the requests that were made Tuesday. Friar understood that they might deal with more litigation.
"We may just have to deal with that, but that's what the board decides," Friar said. "We acted in the best interest of the pension fund today."
Deputy Mayor Pro Tem Erik Wilson, a member of the pension board, empathized with the retirees, but stood by his vote.
"I don't think everyone understood the severity beyond their own personal gain as opposed to looking at it with a global view," he said. "But I don't expect them to because they're looking out for their pension. It was difficult."
Retired Dallas police officer Jerry Rhodes, a pension meeting fixture, said he believed the board did what it had to do. Then he sarcastically lauded Rawlings.
"Merry Christmas, mayor," he said. "Hopefully you have a good Christmas because you have successfully screwed over the retirees, the firefighters and the police officers."
Retired Deputy Police Chief Julian Bernal said people who were withdrawing only a small amount to live off every month shouldn't be restricted from continuing to do so. Those people "played by the rules," he said.
"We're not the ones who created this problem," he said.
Josh Mond, the pension system's general counsel, pointed out that Bernal and others had profited off keeping their DROP accounts because he made money off the guaranteed interest rate. The rate is currently 6 percent.
Retirees will also continue to receive their monthly pension benefits.
But more than 400 retirees are still deferring at least part of their monthly checks into DROP. Executive Director Kelly Gottschalk said pension staff plans to reach out to those retirees and encourage them to stop deferring their money and take their monthly check instead. Dallas police and firefighters do not pay into Social Security nor receive any federal retirement benefits for their time in uniform.
The board's DROP decision comes in the middle of a members election to voluntarily cut benefits and cede some control back to the city. The measures need 65 percent support to pass.
But stopping the withdrawals will also provide stability for the system as they try to reconcile the city's plan with their own. Significant changes will have to be approved by the Legislature. And while both sides are far apart on some issues, they know they have a better chance if they come in with an agreement.
City officials were pleased with Thursday's step. City Manager A.C. Gonzalez praised the decision, saying it was "action desperately needed to be taken." Council member Adam McGough said he was likewise "thankful for the board's decision" and looked forward to solving the problems with the fund.
And Rawlings, who will keep his lawsuit pending, just in case, said the decision to restrict withdrawals was necessary to move forward.
"This thing was going down and all we were doing was rearranging some deck chairs," he said. "Now we've righted the ship. We can fix it and get it in good shape."