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Mayor's office clarifies lawsuit in police-fire pension matter

By Robert Lawson | Feb 8, 2017

Law money 06

DALLAS – The Dallas Mayor's office has clarified why it is seeking legal action to prevent funds from being withdrawn from a pension fund in crisis and stated its official position. 

In August, those in the Dallas Police and Fire Pension System withdrew around $500 million in what has been called a “run on the bank." Mayor Mike Rawlings fears this will accelerate problems with the pension fund, which is in crisis and at the current rate may become insolvent in the near future if reforms are not made. 

Rawlings filed a petition for writ of mandamus and application for a restraining order against the board of trustees of the Dallas Police and Fire Pension System last month. He brought the mandamus action to compel it to protect the system's statewide membership base and their benefits, which is state constitutionally protected. 

Though the basic benefit plan is protected, this is limited to the monthly pension of service retirement benefits post retirement. The constitution, according to Rawlings' office, does not protect the optional Deferred Retirement Option Plan (DROP). Rawlings argues the DROP funds withdrawals need to be reined in to protect the overall fund and its future beneficiaries. In a telephone call to the mayor's office, Spokeswoman Vena Hammond clarified the lawsuit and the intent behind it:

"There is a constitutionally protected plan that DROP does not fall into," Hammond said. "DROP is an incentive plan that was created by the board for tenured officers so they can stay onboard longer, in which case you can retire, but you still work. It was created to help them not officially retire and stay on longer."

Rawlings and his office stated in their suit that the board is "willfully failing to perform these ministerial duties" and "the Pension System, which the board oversees, is in the midst of a financial crisis.”

The board's own actuary stated that without major reform, the fund could be insolvent within 15 years - irrevocably eradicating the constitutionally protected service retirement benefits of police and firefighters and their beneficiaries, according to the suit. The suit states the board has known for months but taken no action. The suit stated that the system's $2.7 billion in assets would stay stable even though more than half were made up of DROP funds. Those funds can be withdrawn in lump sums on demand. Returns have not been made as projected either. When news of the possible insolvency filtered down to members, they began withdrawing DROP funds. 

“Over this three-month time period, the board has knowingly allowed DROP funds to continue to be withdrawn at record levels even though it is aware that doing so is irreparably harming the Pension System’s solvency and liquidity,” the suit states. “Lump-sum DROP withdrawals for 2016 are now on pace to be over 15 times higher than their historical average.”

Rawlings said the overall benefit system for all members is being harmed by these lump sum withdrawals and is endangering it to favor an option that is not protected constitutionally. Also, he argues that the withdrawals has brought the looming mark from 15 down to 10 years for possible insolvency. Rawlings said the board has the power to address these concerns and properly steer in a corrected course but they have willfully failed to do so. 

Rawlings is represented by Michael Gruber and Brian Hail, attorneys for the Gruber Elrod Johansen Hail Shank law firm in Dallas.

Filed in Dallas County District Court, case No. DC-16-15431

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Dallas Police and Fire Pension System