As part of DPROA’s ongoing effort to keep our pension fight at the forefront and to safeguard our benefits, DPROA President David Elliston is periodically sending informational emails to the Mayor and Dallas City Council members to highlight our concerns and provide information regarding the health of the pension system and its performance. Below are emails #3 & 4.
This is the third installment of our campaign to inform our Mayor and Council on some of the history and status of the Dallas Police & Fire Pension System. In my previous message I discussed how House Bill 3158 in effect eliminated retirees’ Annual Adjustment and Benefit Supplement benefits. Today I will focus on the Deferred Retirement Option Plan (DROP). I have attached a letter that was a collaboration of 32 former command staff members of the Police Department and was sent in 2017 to every State Senator/Representative while HB 3158 was under construction. This letter very adequately describes the DROP and its benefits to the City. The DROP Plan was unanimously approved by the City Council in 1993 and implemented in 1994. Please note the highlighted sections of the attachment.
In addition, here is an example of how DROP worked. A member who joined the Police or Fire Service became eligible to retire with a full pension at age 50. Rather than retire and leave active service they could elect to enter DROP and continue working for as long as they desired, but their ability to earn additional pension credit ceased. Any additional raises, promotions, or even disability injury could not alter their pension. The pension earned before entering DROP was paid into an interest bearing and tax deferred trust account maintained by the Pension System. Members were told that upon leaving active service they could access their funds in a variety of ways, including lump sum distributions, monthly distributions or annuities. Essentially, DROP allowed members to have a savings account for the future and at the same time allowed the City to retain highly trained and experienced officers with a less than competitive salary structure. Members accepted a smaller pension percentage for total years worked in exchange for a guaranteed savings account.
HB 3158 enabled the pension system to lock down retirees DROP accounts without their consent and convert them into annuities to be paid out over a member’s expected life time. Imagine your life-long savings, money you planned to spend in retirement being seized and paid out to you over the next twenty years. Many of our members will be 85 or older before receiving THEIR money. Money they deposited into their individual accounts in their 50’s will be returned to them in their mid-80’s after receiving only minimal interest hovering around 2.5%, regardless of how well the systems’ investments perform. In the interim, DPFPS will use member’s funds to keep the system afloat while they try and invest their way back to solvency. The members have already paid for their benefits through their service and monthly contributions, it should not be their responsibility to pay for the benefits for future members.
This is the fourth installment of our informational campaign on the history and status of the Dallas Police & Fire Pension System. In my previous messages I have discussed how House Bill 3158 impacted retirees pension benefits. Today, I will focus on some of the changes impacting the active Police and Fire members. In my first message I told you about Executive Director Kelly Gottschalk reporting to members that approximately 80% of the fix to the pension in 2017 was borne by the active and retired members. That does not sound like a “shared sacrifice.” I think it’s important to note here that the problems of the pension system’s funding were greatly exacerbated by the fiery anti-public safety rhetoric heard from then-Mayor Mike Rawlings. Most of the money that left the fund during the “run on the bank” would still be in the fund today, plus earnings, if he had only publically communicated a rational approach to fixing the plan rather than predicting a doomsday failure. His repeated comments in the media about not trying to save the plan instilled fear in the minds of retirees, causing many to panic and rush to withdraw their DROP balances.
These are the four key changes that occurred with the passage of HB 3158:
- The “Benefit Multiplier.” This is the percentage of pension credit earned by each member per year of service. Prior to 3/1/2011 members earned 3% per year up to a maximum of 32 years of service. In March of 2011 the benefit multiplier was changed to 2% for the first 20 years, 2.5% for the next 5 years and 3% thereafter. After HB 3158 the benefit multiplier was set at 2.5% for all future credit.
- The retirement age was raised from 50 years for members employed prior to 3/1/2011 and 55 years hired after 3/2011, to 58 years.
- The Employees’ Contribution to the plan was increased from 8.5% for non-DROP members and 4% for DROP members to 13.5% per month.
- In addition to these modifications, just like retirees, the active members also lost their Annual Adjustment and Benefit Supplement benefits already earned and paid for through their contributions.
Current news reports say the City has budgeted to hire an additional 250 officers this fiscal year. We support this goal, but we also realize that recruitment of police officers across the country continues to be a challenge for all departments. As of September 2022, 27% or approximately 945 members of the Dallas Police Department were eligible to retire. At one time the DROP Plan was the anchor to retain tenured and experienced officers, but after the changes implemented in 2017, that is no longer the case and hiring 250 new officers may not keep up with attrition.
In my next article I will discuss the Actuarial Determined Contribution (ADC) and the “Normal Cost.” These two terms define how pension benefits are calculated and actuaries determine their cost. Thank you for all you do for our city and its employees. I wish for you and yours a very happy and joyful holiday season.
Dallas Police Retired Officers Association