Dallas’s police and firefighters are quitting in droves, wagering that financial-market losses are about to render their promised pensions too good to be true.
With the city considering benefit cuts to help close a retirement-fund shortfall that grew by $1.2 billion last year, more than 200 workers have decided to retire or leave, about double the normal rate, said Mayor Pro Tem Erik Wilson, who sits on the Dallas Police and Fire Pension System’s board.
“I’ve had 40 to 50 officers in my office this week asking what they should do,” said James Parnell, 52, secretary-treasurer of the Dallas Police Association and 25-year veteran. “They’re very nervous about what is going to happen, they’re fearing a run on the money.”
In the year through June, U.S. state and local-government plans posted the smallest gains since 2009, leaving them with almost $2 trillion less than they will eventually need, according to data from the Wilshire Trust Universe Comparison Service and the Federal Reserve.
The squeeze on Dallas’s fund is even more acute because of a decision to divert money from stocks and bonds into Hawaiian villas, Uruguayan timber and undeveloped land in Arizona, among other non-traditional investments. The strategy, put in place under prior managers, backfired. The fund lost 12.6 percent in 2015 and 0.7 percent over the past three years.
On Monday, dozens of city employees and retirees packed into a meeting where officials discussed options for dealing with a possible liquidity crisis brought on by the increase in retirements.
The public-safety system has just 45 percent of the assets it needs to cover benefits, down from 64 percent at the end of 2014 and half what it was a decade ago. The pension could be out of cash in 15 years at the current rate of projected expenditures, according to a Segal Consulting report in July.
Officials don’t know if making changes to the deferred compensation plan “will be enough to keep it solvent” because the “program isn’t sustainable,” said Dallas City Councilwoman Jennifer Staubach Gates, who also is a member of the pension board.
“We’re trying to address some really alarming numbers,” said Gates.
Unlike Illinois whose pensions are in even worse shape, Texas specifically allows chapter 9 filings according to the Governing.Com article Municipal Bankruptcy State Laws.
The sensible solution is municipal bankruptcy coupled with big pension haircuts.
Before the pension fund implodes, the sensible action for Dallas police and firefighters is to retire ASAP and take a lump sum payment.
Point number two ensures that a run once started is likely to be fast and furious, which is where we are at today.