That Firefighter Brotherly Love?
The Dallas Police and Fire Pension Fund needs a $1.1 billion dollar bailout from the city in order to avoid insolvency as a result of a combination of actions all rooted in fiduciary recklessness over a 23-year period.
From a guaranteed 8.5% annual interest rate on DROP accounts to pie-in-the-sky investment assumptions to wacky real estate portfolio decisions the Fund is teetering on the brink of collapse.
Attempts to develop a solution short of a Dallas bankruptcy filing have so far resulted in a state court ruling that accrued benefits cannot be diminished as they are protected by the Texas Constitution, a finding that may not be worth the paper it is written on in a Federal bankruptcy proceeding.
In the Stockton, California, bankruptcy filing, a federal court judge knocked down the argument of a benefits contract between the state and employees being inviolable.
Indeed, the judge pointed out that a filing under the federal bankruptcy clause “necessarily authorizes Congress to make laws which would impair contracts.  It has long been understood that bankruptcy law entails impairment of contracts.”
While there is, of course, no guarantee that a Texas Federal District judge would adopt the same argument, it does provide a rationale for voiding accrued benefits.
Constitutional Protection?
Some accrued benefits are currently protected in the Texas Constitution.
A judge in searching for a rationale to stave off insolvency could find that the section of the Texas Constitution protecting pensions (Article 16, General Provisions,  Section 66) is in conflict with another section such as Article 1, Bill or Rights, which includes equal protection clauses.
The Texas Constitution argument is troublesome for any number of reasons.
The benefits protection section allows exemptions (San Antonio is exempted) and it could presumably be amended to either add others or to weaken the current intent.
Section 67, however, seems to offer the greatest potential problem: “Benefits under these systems must be reasonably related to participant tenure and contributions.”
Can the argument rationally be made that DROP balances, subject to many years of compounded interest at a guaranteed 8.5% rate, are “reasonably related” to original contributions?
(Woe to all concerned if the 8.5% scam is tagged as just another form of pension “spiking”, which, in fact, it is.)
It seems that the Texas Constitutional argument isn’t so rosy after all.
Bets Off?
Things become even less rosy if Dallas files for bankruptcy in US District Court; in that case, all bets are off.
In the Central Falls, R.I., case, Reuters reports that the overseer slashed retiree benefits by as much as 55%.
The state then passed legislation to make up some of the lost benefits, but not much.
Would the state of Texas step in to help with a bailout?
If they did, it would only be after fixing the current rat’s nest of fake assumptions and gross DROP guarantees.
Fiduciary Ethics
A cardinal tenet of fiduciary responsibility is to administer the system in such a way that it can achieve its core mission in perpetuity.
Those who voted for or supported the fake assumptions and the golden guarantees abrogated that responsibility.
So much for the often heralded brotherly and sisterly firefighter love.
Dallas has managed to turn the concept of sustainable, basic and modest retirement income security right on its head.
There are two major sets of legitimate victims here and they do not include anyone receiving or set to receive a DROP payment under the guaranteed 8.5% compounded interest provision.
They are the citizens of the city of Dallas who trusted leaders to operate ethically and relatively new public safety officers who are left holding the bag of a tainted pension system and diminished benefits.
Unfortunately, as is always the case in these affairs, it’s the newest members who get the shaft while they also have to clean up the mess.