Rookies Get the Shaft
As previously reported, the pension fund for Dallas firefighters is lurching towards insolvency because of bad decisions by the trustees, but they have a fix for that.
For those of us wishing to learn from their disaster, it’s crucial to note that a greedy and ethically unsupportable deferred retirement option plan (DROP) played an out-sized roll in the debacle.
The Dallas DROP, from the length of time you could be in it, to the cost-of-living-adjustments (COLA), to the 8.5% guaranteed interest rates, was a cesspool from the start.
Board trustees watched as the cesspool filled year after year until it slopped over and ruined the second part of the system, the traditional defined-benefit (DB) portion.
The Sh*t-Bucket Brigade
There’s a lot of crap to bail out of the cesspool, and, no surprise, newer members of the system will be doing most of the bailing.
Trustees are asking for all plan members to take a turn with the “bucket” in a series of proposed changes which will only begin to solve the crisis if the city of Dallas also agrees to pony up a rescue package.
The fund could be out of money as soon as 2027.
Employee contribution rates are set to increase from 8.5% for non-drop members and from 4% for those in DROP to 12% for both groups.
It’s astounding that DROP participants were only contributing 4% of base pay while their account balances, many over $1M, Â were receiving a guaranteed interest rate of 8.5%.
Even a bobble-head actuary would frown at those numbers.
Weighted down by the boulder-sized DROP fiasco, the defined-benefit will sink below the waves because the COLA will now be capped at 2% and will be arbitrarily tied to a Social Security benefit amount, a horrible solution.
Basically, now the entire benefit amount is subject to at least a simple COLA.
Under the suggested revision, only a portion would be subject to a COLA and the remainder, a sizable portion for many, would never receive an inflation adjustment.
That’s a kill shot to the defined-benefit.
Some members will eventually sustain a 37% reduction in their defined benefit amount.
Dallas DROP is a sleazy cash cow set to kill off the defined-benefit, the part that really matters.
It has been like crystal meth where they went for hits until all that is left is an emaciated and rotting corpse.
Vote Delayed
The vote on these changes proposed by the plan trustees, which requires a 66% affirmative vote to pass, was halted when a group of plan participants filed for and won a temporary restraining order.
The reason for the order?
That the board has been operating with either 11 or 12 trustees since 2001 when the controlling legislation allows only seven.
Even if the filers are correct it’s hard to see how that fact materially alters the circumstances or the need to act.
It is definitely an example of “fiddling while Rome burns.”
A moral to the Dallas story is the same old one: if it sounds to good to be true, it probably is.
It is a tragedy that the defined-benefit is about to be killed off on the altar of DROP greed.
