Bully for the Mayor
Don’t you just hate it when someone starts off an article by defining a word?
Sorry, here goes.
pen·sion (penSHÉ™n/): a regular payment made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life.
They have entirely forgotten that in Dallas and elsewhere where the Deferred Retirement Option Plan (DROP) is so constructed that it swamps, tsunami like, the financial health of the system.
Rather than going for a soundly financed and fiscally responsible pension benefit, vested members opted for the DROP Get Rich Quick scheme propped up by pie-in-the-sky investment return assumptions and an 8% guaranteed interest rate on savings balances.
A Fourth-Grade Math Problem
To hear pension trustees talk, they never saw the disaster coming.
This, despite the fact that the required math is hardly complicated:
(Plan assets, returns) – (Accrued benefits) = Required Funding
Assets could be investments, and city and member contributions.
Accrued benefits would be the total payout for current and future plan members.
As the required funding increases, responsible trustees would be tasked with either altering assumptions, investments, benefits, or all three.
Rocket science, it ain’t.
The Mayor Weighs In
Mayor Rawlings
Dallas Mayor Mike Rawlings is the bad guy of the moment for filing a court action to halt $154,000,000 in lump sum payouts for this week alone.
His detractors say he caused the run on the bank by his lawsuit, an interpretation right up there with blaming the engineer of the Titanic for closing water-tight hatches to buy time.
All Rawlings did was play “trustee for a day” doing what they should have done a long time ago.
If pensions are to be saved, drastic action is the only answer, and quickly.
Getting Serious About Saving Pensions
CNN
The Daily News recently reported a story of a man in New York who, with exquisite timing, stole an 84-pound bucket of gold bars from the back of an armored truck, thus becoming an apt metaphor for some Dallas plan members.
In Dallas though, the armored truck is the City Treasury and the taxpayers.
But, help is on the way.
The Dallas Morning News says, “The city proposal would wipe away the DROP interest over the years… or adjust future monthly benefits for those who already took their money out.
Now, we’re talking.
The Dallas DROP is simply a municipal Madoff Ponzi scheme and nothing more.
The million-dollar DROP balances aren’t worth the paper they are written on, something a federal district judge in a bankruptcy filing may eventually point out.
In Dallas, DROP was the great destroyer and it’s (way past) time to wade in and try to save the pension system.
The morbidly obese ogre called DROP should be slain on the altar of a healthy and sustainable pension.
The Pension Fund’s plan to reduce pension benefits to save DROP is just another disaster waiting in the wings.
Once the City lays waste to basic pension benefits they will be the ultimate winner though casualties were heavy on both sides.
Lessons Learned
A pension plan is for pensions.
A DROP is not a pension, but rather an added benefit that, if not properly managed, can have devastating consequences.
A consistently declining fund valuation deserves to be excruciatingly studied to see if critical changes are mandatory.
Kicking the can down the road is not an option.
Remember: Â If the City guts the pension benefit to save the DROP plan, they will be the ultimate winner.