In Search of a Fix (When None is Possible): What Happens?
As I pointed out long ago, there is no possible fix to the Dallas pension mess except massive haircuts to pension payouts.
Given The pension board does not want to admit that, nor the mayor, nor the city council, it was inevitable talks would disintegrate into finger-pointing and lawsuits.
That's precisely what happened.
The story is a bit convoluted and hard to follow without the background so for those unfamiliar here are some articles to bring the story up-to-date.
December 31, 2016: Criminal Witch Hunt in Dallas Pension Fiasco
With the background out of the way, please consider 'Politics of intimidation,' or family feud? Anger grows as Dallas Police and Fire Pension System looks for fix.
As the Dallas Police and Fire Pension Board braced for possible legal action from four of its own trustees, frustrated Chairman Sam Friar sought retribution.
Friar, in his personal capacity, circulated a resolution among police and fire associations. The document proposed to permanently ban the associations from giving any endorsements or other political support for the council members on the board for their "despicable action."
Both his maneuver and the council members' request to have a court take control of the pension system have added more friction to the deeply strained relationship between City Hall and active and retired police and firefighters.
Some hope still remains that they'll find a way to save the pension system from insolvency. But so far, talks have gone nowhere, and tensions are running high.
Council member Scott Griggs said Friar engaged in "the politics of intimidation." He said the fact Friar spent time and energy on the resolution underscored why the fund needs an independent court-appointed receiver making decisions.
Deputy Mayor Pro Tem Erik Wilson said he understands why Friar drafted the resolution, even though he was "taken aback" by it.
Mata said Friar had "good intentions," but that the idea wasn't "appropriate nor in the best interest of the DPA and the city."
Dallas Firefighters Association President Jim McDade agreed but believes city officials are disingenuous.
"They're trying to point fingers at us, but they need to look at themselves and ask whether they are even trying to negotiate a settlement in some way," he said. "Clearly, they're not."
State House Pensions Committee Chairman Dan Flynn and his staff are looking at a proposal that would pay out the lump-sum payments as annuities over retirees' projected lifespan. The retirees might also be able to sell their stream of payments to private financial institutions in exchange for a lump sum. But it would save the pension fund from losing nearly half its value and save retirees from seeing the interest they earned disappear.
But the board still expressed some reservations about the idea. Still, none disagreed that it would be better than the city's plan.
That is, if the numbers work.
Numbers Don't Work
The source of the bickering is clear: The numbers don't work.
- The plan assumes 8% returns plus an extra 2% COLA in some cases.
- Projected salary increases are a "modest" 3.5% to 18.0%.
- The plan uses 5-year smoothed averages. That means the great recession was already factored out.
The Dallas police and firefighters pension fund has just 45% of the money it needs to cover benefits. The fund rates to be out of money in 15 years at the current rate of withdrawals.
Threatening lawsuits against the pension board will not change the numbers. Nor will targeting "Those Who Got Rich From the System"
To get the pension plan a mere 70% funded would require a taxpayer bailout of $1.1 billion dollars. Of course, that assumes stock prices keep rising.
Taxpayers on the Hook?
Taxpayers should not be on the hook for this mess. The promises were bound to fail from the get go.
The fault for this mess is squarely in the hands of politicians, not those running the fund.
Nearly every public pension plan in the nation is severely underfunded. There is nothing special about Dallas.
The witch hunt is on.
There is only one practical solution: cancel the plan for future employees while slashing benefits accrued.
No one wants to admit that, so lawsuits and pamphlets are flying.
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.
This is going to get interesting in a hurry.
By the Way
By the way, please note we have these problems with the stock market at an all-time high. Dallas is not unique. The entire state of Illinois is in an even worse predicament. Even a flat
Even flat market performance for a number of years will bankrupt nearly every public pension plan in the country given 7.5% to 8.0% pension plan assumptions.