The Dallas Police and fire pension fund was hit with an alleged “liquidity” crisis that forced the Dallas mayor Mike Rawlings to file a legal motion to halt withdrawals.
Acting in advance of the lawsuit, the pension board voluntarily killed withdrawals including $154 million in approved requests slated for Friday.
Those hoping to cash out were very upset, the rest breathed a sigh of relief. Make no mistake, this is a solvency crisis, not a liquidity crisis. Expect lawsuits.
The Dallas News reports Dallas Police and Fire Pension Board ends run on the bank.
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.
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.
Kingston [Philip Kingston, a board trustee] 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, Kingston said.
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.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.
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.”
Bandaids Cannot Stop This Ship From Sinking
On December 5 I wrote Dallas Pension Showdown: Mayor Seeks to “Target Those Who Got Rich From System”
The Dallas Police and Fire Pension plan is severely underfunded. Not even a $1.1 billion taxpayer bailout the plan officials request will make the plan whole.
Discussion of a possible freeze in lump sum payments led to a run on withdrawals. The board still has not suspended lump sum payouts.
On Saturday, Dallas Mayor Mike Rawlings proposed targeting those who got rich from the system. This is sure to accelerate the run on assets via lump sum withdrawals.
As background to this story, please consider my October 16 article: Dallas Police Retiring in Droves, Taking Lump Sum Pensions, Fearing the Money Isn’t There (And It Isn’t).
Sure enough, another $154 million in lump sum withdrawals came in in a week. Had it continued, there would have been no funds left.
Despite a massive surge in the stock market, the pension plan went from being 65% funded in March of 2009, to 45% funded at the end of 2015.
Undoubtedly, these lump sum withdrawals made matters worse.
Mayor Rawlings said “Now we’ve righted the ship. We can fix it and get it in good shape.” Who’s he fooling?
The only possible remedies are huge reductions in benefits, bankruptcy, or massive and repeating taxpayer bailouts which should not even be attempted.
Mike “Mish” Shedlock
