Dallas Public Pension Fund In Crisis
The Dallas pension fund is suffering a run with policemen and firefighters withdrawing money from the city's chronically underfunded plan.
The city's mayor, Mike Rawlings, worries that the mass withdrawal will exacerbate the financial peril of the Pension System. He filed a petition calling for a restraining order against the Board of Trustees of the Dallas Police and Fire Pension System.
The fire and police pension fund had $2.8 billion assets at the start of the year, and almost $600 million has been withdrawn since then. Of the said amount, almost $500 million has been taken out starting August 13.
The withdrawals recorded this year was alarming considering that last year's total withdrawals were just $81 million.
The underfunded plan was just 45% funded at the start of 2016. It was expected to be insolvent in 15 years.
Workers who withdrew money were able to get their full benefits. This resulted for a smaller amount left to be shared among the remaining members.
With the fund falling further, workers worried that their benefits will not be paid. The funded ratio of the plan was estimated to drop to 36% after the withdrawals.
The crisis arose primarily due to three linked issues such as overgenerous pension promises, the flawed nature of public-sector pension accounting in America, and bad investment decisions.
Two possible solutions to the crisis include putting more money into the fund or cutting benefits.
According to the 2015 scheme report, the annual contributions to the pension fund has to double in order to close the deficit. However, despite increasing the contribution 37.6% to 72.7%, it would still take 40 years to attain sufficient funds.
The pension scheme has asked for a one-time payment of $1.1 billion in 2018, but this would require the city to more than double the property taxes.
The city has instead proposed to roll back some of the accrued cost-of-living increases and interest payments on the DROP accounts. The pension board chairman, Sam Friar, however, called the plan a "non-starter."