Note: This article has been updated to include a higher total contribution estimate for the Dallas CFO.
As the Dallas Police Department and Fire Department rush to solve the Austin case, who is really saving the day? Not you and me.
Despite Mayor Mike Rawlings' earlier complaints about “tax bailouts,” the plan through the Legislature would have public safety workers shouldering most of the burden.
Dallas police and firefighters will be responsible for about 75% of the cost of pension relief, given the steep reductions in benefits, increased paycheck contributions, and possible revocation.
This is a surprising share, even if the split seems justified given the fund's history of mismanagement and deception.
It is important to recognize the level of common sacrifice in Dallas. Too often police and firefighters are criticized for the bad behavior of pensioners. They too are victims of this problem and will have to pay a high price to make things right.
It's also likely that this pension adjustment won't be the last for the Dallas Fund. So if city leaders and officials have to revisit this issue, everyone should remember how much the police and fire departments have sacrificed this round. Next time, taxpayers may have to spend even more money.
Until then, there is work to be done to restore trust between first responders and the mayor and others who supported the pension overhaul. Police and firefighters deserve respect not only for the work they do, but also for agreeing to take on the heavy burden of rescue.
In other regions, civil servants strongly resisted pension changes. According to reports, half of the police officers walking the streets and patrolling neighborhoods called out sick people to protest in 2014 after an outbreak of the “blue flu” in Memphis.
More than 250 police officers and firefighters have retired after the city of Memphis ended their traditional pensions. The police association has rented a sign to call for the reinstatement of benefits this year.
“Welcome to Memphis: 228 Murders in 2016,” it read. “He killed over 500 police officers.”
Dallas' leading figures have lobbied hard in Austin on pension legislation and held protests in Dallas, but they haven't been very active in public. And they agreed to make a “life-changing decision,” said Jim McDade, president of the Dallas Firefighters Association.
“We recognize the importance of defined benefit plans and are willing to accept cuts to make them work,” McDade said. “You have to do that to save the fund. Then in the future you can start building it.”
The proposed cuts amount to $1.4 billion over 30 years. These include raising the retirement age, reducing benefit multipliers and reducing the maximum payout from 96% of salary to 90%.
As another data point, consider the impact on retirement benefits. When the 40-year-old Dallas police officer retires in 2035, he will face a 13 percent benefit cut in current dollars. The pension system estimates that by age 70, benefits will decrease by 40%.
By comparison, Detroit city employees had their pensions cut by 4.5% after the city went into bankruptcy.
Dallas police and firefighters will also contribute more of their paychecks to their pensions. Currently, most employees contribute 8.5 percent, while employees participating in a deferred retirement plan known as DROP contribute 4 percent. Under the proposal, all police and fire departments would receive 13.5% of their salaries.
Summer Loveland, chief financial officer of the Dallas Police and Fire Pension Plan, said this equates to more than $1 billion in additional contributions over the next 30 years.
The pension bill allows future boards to recover a portion of excess profits deposited into the DROP account. These clawbacks, which the city calls equity adjustments, could be worth more than $500 million, but only if they are pursued and survive legal challenges.
Together, these factors would cover about three-quarters of the pension's $3.7 billion unfunded liability. Loveland estimated that the increased contribution from the city would bring the total to about $700 million.
Dallas' CFO estimated it would cost both the city and workers an additional $200 million over 30 years.
Experts say there is no standard proportion for sharing the cost of fixing state pensions. However, the greater burden usually falls on the public sector. One reason is that problems often begin with external events, such as recessions or financial failures. Dallas is different.
“What's unusual about Dallas is that a significant portion of the unfunded liability is due to very specific management decisions,” said Greg Menis, who leads work on public sector retirement plans for the Pew Charitable Trusts. talk.
Most of the shortfall is due to paying excessive interest on DROP accounts and high cost of living increases. The fund also invested heavily in real estate and other alternatives, which deepened the hole.
For many years, DROP accounts paid a guaranteed interest rate of nearly 9% per year and allowed members to stay for 15 years or more. Pew compared 27 plans across the country and found that DROP accounts pay an average of 2% and are limited to a term of five years.
Kelly Gottschalk, the fund's executive director, said in March that former pension administrators made the problem worse by not making a fuss over the years. She said inappropriate investments were not properly valued and the audit firm used assumptions that “hidden the truth”.
“A lot of things were done on purpose not to show the reality of the situation,” Gottschalk said.
This history helps explain why the revision was so tilted. Responsibility comes with responsibility. While pension leaders created the crisis, first responders must rush to the rescue.
share the pain
To rescue their pensions, Dallas police and firefighters will receive $1.4 billion in benefit cuts, including:
• Virtually eliminate cost of living increases
• Termination of lump sum payment of DROP account
•Zero interest on future deferrals to DROP
•Increase full retirement age to 58 years old
•Low multiplier in pension formula
• Elimination of future healthcare supplements
•Final average salary below formula
•Reduction of early retirement allowance
•Reducing the maximum retirement allowance from 96% of salary to 90%
Source: Dallas Police and Fire Pension System
