• 271 days Could Crypto Overtake Traditional Investment?
  • 276 days Americans Still Quitting Jobs At Record Pace
  • 278 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 281 days Is The Dollar Too Strong?
  • 281 days Big Tech Disappoints Investors on Earnings Calls
  • 282 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 284 days China Is Quietly Trying To Distance Itself From Russia
  • 284 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 288 days Crypto Investors Won Big In 2021
  • 288 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 289 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 291 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 292 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 295 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 296 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 296 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 298 days Are NFTs About To Take Over Gaming?
  • 299 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 302 days What’s Causing Inflation In The United States?
  • 303 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

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.

  1. October 16, 2016: Dallas Police Retiring in Droves, Taking Lump Sum Pensions, Fearing the Money Isn't There (And It Isn't)

  2. November 22, 2016: Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time (For Dallas, Houston, LA, Oakland, Chicago, etc)

  3. December 5, 2016: Dallas Pension Showdown: Mayor Seeks to "Target Those Who Got Rich From System"

  4. 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.

Decline in Funded Ratio of Dallas Police and Pension System

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.


Bankruptcy Law

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.


Sensible Actions

  1. The sensible solution is municipal bankruptcy coupled with big pension haircuts.
  2. Before the pension fund implodes, the sensible action for Dallas police and firefighters is to retire ASAP and take a lump sum payment.
  3. 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.

 

Back to homepage

Leave a comment

Leave a comment