Dallas Cops' Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid

Tyler Durden's picture

The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure.  According the the National Real Estate Investor, DPFP was once applauded for it's "diverse investment portfolio" but turns out it may have all been a fraud as the pension's former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%Guess it's pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your "discretion". 

To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP's administrator for a couple of decades right up until he was forced out in June 2014.  Starting in 2005, Tettamant oversaw a plan to "diversify" the pension into "hard assets" and away from the "risky" stock market...because there's no risk if you don't have to mark your book every day.  By the time the "diversification" was complete, Tettamant had invested half of the DPFP's assets in, effectively, the housing bubble.  Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa. 

Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets "performed" remarkably well throughout the "great recession."  But as it turns out, Tettamant's "performance" was only as good as the illiquidity of his investments.  We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have "discretion" over how they're valued. 

In 2015, after Tettamant's ouster, $600mm of DPFP real estate assets were transferred to new managers away from the fund's prior real estate manager, CDK Realty Advisors.  Turns out the new managers were not "comfortable" with CDK's asset valuations and the mark downs started.  According to the Dallas Morning News,
one such questionable real estate investment involved a piece of undeveloped land in the Arizona desert near Tucson which was purchased for $27mm in 2006 and subsequently sold in 2014 for $7.5mm.  Per the DPFP 2015 Annual Report:

In August 2014, the Board initiated a real estate portfolio reallocation process with goals of more broadly diversifying the investment manager base and adding third party fiduciary management of separate account and direct investment real estate assets where an investment manager was previously not in place. The reallocation process resulted in the transfer of approximately $600 million in DPFP real estate investments to four new investment managers during 2015. The newly appointed managers conducted detailed asset-level reviews of their takeover portfolios and reported their findings and strategic recommendations to the Board over the course of 2015 and into 2016. A significant portion of the real estate losses in 2015 were a direct result of the new managers’ evaluations of the assets.

Then the plot thickened when, in April 2016, according the Dallas Morning News, FBI raided the offices of the pension's former investment manager, CDK Realty Advisors.  There has been little disclosure on the reason for the FBI raid but one could speculate that it might have something to do with all the markdowns the pension was forced to take in 2015 on its real estate book.  At it's peak, CDK managed $750mm if assets for the DPFP.

With that background, it's not that difficult to believe that DPFP's actuary recently found the plan to be in serious trouble with a funding level of only 45.1%.  At that level the actuary figures DPFP will be completely insolvent within the next 15 years.  Plan actuaries estimate that in order to make the plan whole participants and/or the City of Dallas would need to contribute 73% of workers' total comp for the next 40 years into the plan...seems reasonable.

According to an article published by Bloomberg, a subcommittee of the pension's board recently submitted a proposal that would at least help prolong the life of the fund.  The subcommittee proposal calls for cost of living adjustments to be reduced from 4% to 2% while participants would be expected to increase their contributions to the plan.  Of course, taxpayers were asked to also provide "their fair share" equal to roughly $4mm in extra plan contributions per year, a request that would likely require the approval of the Texas legislature.  If approved, the proposal is anticipated to keep the plan solvent through 2046...at which point we assume they'll go back to taxpayers for more money?

A quick look at the plan's 2015 financial reports paints a pretty clear picture of the plan's issues. 

Starting on the asset side of the balance sheet, and per our discussion above, DPFP was forced to mark down it's entire real estate book by 32% in 2015. Private Equity investments were also marked down over 20%. 

Dallas Pension


This came as over 50% of the assets were diverted into illiquid real estate and private equity investments back in 2006. 

Wards Data


But asset devaluations aren't the only problem plaguing the DPFP.  As we recently discussed at great length in a post entitled "Pension Duration Dilemma - Why Pension Funds Are Driving The Biggest Bond Bubble In History," another issue is DPFP's exposure to declining interest rates.  Per the table below, a 1% reduction in the rate used to discount future liabilities would result in the net funded position of the plan increasing by $1.7BN. 

Dallas Pension


And of course the typical pension ponzi, whereby in order to stay afloat the plan is paying out $2.11 for every $1.00 it collects from members and the City of Dallas effectively borrowing from assets reserved to cover future liabilities (which are likely impaired) to cover current claims in full.  This "kick the can down the road" strategy typically ends badly for someone...like most public pension ponzis we suspect this one will be most detrimental to Dallas taxpayers. 

Dallas Pension


All of which leaves the DPFP massively underfunded...an "infinite" funding period seems like a really long time, right?

Dallas Pension


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Bill of Rights's picture

No worries the COPS will be there when you dial 911 Obama told me so....

Stroke's picture

All these cops dream about is their pensions


I'll be in my lawn chair w/ popcorn watching the pension crisis unfold enjoying a cold beer


Imagine the whining & crying & knashing of teeth.....LMFAO

PT's picture

I tried to warn them, I did.  Well, I tried to warn one of them.  I tried to warn a cop.  I'm not sure if he would have been affected by this particular fund.  I can't remember the exact wording but it was something along the lines of:

"What do you call an abo (or other minority) in a Porsche?  A thief."  Why is that joke funny?  Well at the time of its conception, there were a lot of Porsches being stolen by said minority and most could not afford to buy one.  As a cop, you walk down the street, you see an "income-distressed" demographic and he's wearing fancy clothes or driving a Ferrari.  Your first thought?  "How one earth can he afford that legally?"  (Don't bullshit me.  At one stage we did have an aboriginal that was a doctor and he did drive a Porsche that he bought with his own money and he did get pulled over by curious cops all the time and the story was published in the newspaper of the day ... unless newspapers LIE !!!).  Errr, this time I am digressing more than last time.

Anyways, I said.  Mr Policeman.  Look at the price of housing.  Look at the incomes of the people who live in that area.  BIT OF A MISMATCH, DON'T YOU THINK???  How about you investigate that!  Or if the maths is too hard then get one of your white-collar detectives to investigate.

Perhaps this guy lived in a different area.  Or perhaps he didn't bother to investigate.  Either way, I tried to warn him.  I can't remember if I told him that the final result might be attached to his pension fund.  I usually attach that kind of warning but I may have forgot.

Government needs you to pay taxes's picture

Looks like civil asset forfeitures in the Dallas area are about to hockey-stick 'up and to the right'.

JohnGaltUk's picture

Make sure you only have enough change in your ash tray for the parking meter

MalteseFalcon's picture

The Dallas police are just getting here early.

They'll have plenty of company later.

Company like every single city, town, state and private pension fund.

Federal?  They have the FED.

And so does SS.

Countrybunkererd's picture

Just raise the taxes on everything.  It is so simple.  Just print more, raise waged to $45 an hour, taxes will pull in so much money they can fix it.

A MASSIVE issue is on the horizon that CANNOT BE FIXED.  Thanks for all your government service.  Your IRA's, 401k's and whatnot WILL BECOME A HUGE POOL OF TAXABLE MONEY when they decide to change the rules on you right before you plan on sitting on the porch.

83_vf_1100_c's picture

I'll be sitting on the porch, behind a wall of sandbags with my .308, 12 ga and 5.56 deterring starving FSA members. Add starving pensioners and former middle class working folks to the target rich environment. 401k's etc are gonna go tits up dead in the water just like everything else. If you haven't prepped, yer fucked. Probably fucked even then but you get to eat a few weeks longer than the rest. Note to self - change the oil in the tractor, can't leave the bodies in the front yard. it's unhealthy.

The Blank Stare's picture

Didn't these fuckers do the same thing to Hostess? Maybe leveraged a bit more.

PT's picture

I always said, when the average cop earns more than the average yob, that breeds resentment.
When the average cop can't afford to feed and clothe his wife and kids, the HONEST cops either take on a second and third job or they quit and go somewhere they can make more money.  They WILL protect their families and why wouldn't they.

Is that enough information?

To the honest cops that are willing to be a door-mat even if it means losing their marriage:  Is that really what you signed up for???
To the honest citizens and the honest cops that serve them:  Try to remember / understand who the real enemy is.  There is more than one solution to your problems.

azusgm's picture

We have one highly regarded state DPS supervisor here who has been working as a roofer (in the Texas heat) on his days off for many years. The man has a reputation for fairness in his dealings and, oh BTW, he is black.

knukles's picture

This is the very same obfuscation that goes on in the CalPers and CalStrs funds I've been told. 
Lots of bad deals, real estate in particular, held at book costs which have not done very well, as in should have been marked down, as of some years ago.

Then with all public plans in general, the discount rates and assumed returns on portfolios are too high (making the things look better funded than they are) plus, they carry liabilities at accrued (accumulated) basis as opposed to an ongoing projected basis.

Nobody really has a clue how badly underfunded public plans really are.

Personal experience:  Having manged numerous public plans, I have rarely been the least bit impressed (and most often a bit disturbed) by the quality of staffs assigned to the funds.  They're not actuaries, investment managers and the like.  They really are out of their environments. 
All terribly sad.

Free Robert Citron



The dude found out that there are "no hedges"

Gazooks's picture

they just need to legalize cannabis in Texas..

..then invest the residual cop pension $ into it




everybody wins




General Admission's picture

Exactly. I've been saying that for years.  You could tax it as much as you want and it would still sell.

Cover all budget shortfall AND kick the cartels in the nuts. Win-win.

Rainman's picture

+1 ...  Citron IS free ..  he dead.

More Ammo's picture

The point you are trying to make is that "cops are cops because they can't don anything else."


My brother worked Maint Dept at a local county sheriffs dept and we knew a lot of them and they world readily admit that they had no skills to do anything else....

lasvegaspersona's picture

The only data you need to show cops are overpaid is the number of applicants who show up for the job.

When hundreds show up for a few positions you would (if you were a rational manager, consider reducing the salary until the number of applicants dropped.....but 'rational' don't cut it in to day's world.

Offthebeach's picture

Cops=Union Welfare of Security.

Don't need'm. I don't rob, rape or steal. I can protect myself, kin and friends, likewise.

Cops protect criminals. No cops, 6 months, nu criminals, save forgers at the Federal Reserve

Scuba Steve's picture

Yep, the pension shitshow is just in its infancy ...

Its going to get real interesting when the blue collars start losing pension/401k value .... thats why I think ol' Curious George will hightail it out of the country 

when his term is up in January.

Boris Alatovkrap's picture

911, police on scene in minute when second is count.

Handful of Dust's picture

Obama will fix it. No worries Mon.

SomethingSomethingDarkSide's picture

LTCM that shit and be done with it.  The Plebs will be more than happy to throw away another 10% of their Purchasing Power.  They still get Kim Kardashian and Pokemons, right?

Lorca's Novena's picture

Relying on a Pension = absolute moron. 

I guess the cops are going to need to start confiscating more cash from people in traffic stops.


TheVillageIdiot's picture

Too bad that Civil Asset Forfeiture is not a part of the Bill of Rights or Constitution. That way it too would never be upheld... funny how that works.

Raymond K Hessel's picture

You'd be right if we didn't have the III, IV, V, and VIII Amendments which clearly states the Government can't take your property "just because".

More Ammo's picture

Very clearly and yet the II'nd is not being invoked against the "criminals with a badge" and "judges"...  Oh, Wait!

monad's picture

There are those with guns, and those who dig.

You dig?

Testudo321's picture

It is scary how the words "civil forfeiture" was literally the first thing flashing through my mind when I read the title...


GunnerySgtHartman's picture

Exactly, and these people who keep saying that all private pension plans need to be dismantled and taken over by the government because private pensions cannot be trusted (ask Illinois about that!) need to be flogged.


The only person you can trust to take care of you is ... you.

tarsubil's picture

There are plenty of boomers that made out big on pensions. Their kids? Not so much as these pensions will go tits up in 20 years or so when most of the boomers are dead. This is all due to the virtue of the boomers of course. You'd know if you only listened to them.

Scuba Steve's picture

Hahah, 20 years? lmfao ... it is going to happen a helluva lot sooner than that.

Where is this magical investment spectrum for these pensions you speak of that is not a manipulated market across the globe across the board?

Throw in the fact that hyper-inflation has to occur with the printing press and you have a self-fulfilling prophecy that'll happen at warp speed

1) Less workers putting into it

2) No compounding investments that was the basis of the pension assumptions, in fact capital losses are occuring.

3) More and more retirees pulling from the pension funds

The perfect storm coming to an area near you !!!

Philo Beddoe's picture

Get me a tissue. 

falconer's picture
falconer (not verified) Philo Beddoe Aug 19, 2016 9:41 AM

Illinois State Cops get $100K pensions at 50YO after riding around and writing speeding tickets for 20 years.

Government needs you to pay taxes's picture

Pennies on the dollar, how much those pensioners gonna get AFTER IL's pension system goes BK?

Blankenstein's picture

They earn top 10% incomes and then get top 1% pensions.  All paid for by people who get limited pensions or no pensions at all.  And who also earned less than these assholes for their working careers.  The teachers are like this also. 

Paying government workers more than the taxpayers who foot the bill?  NOT GONNA WORK!  It really deserves to go broke in Illinois with all the braindead morons running everything, who couldn't even pass a 4th grade math test if their lives depended on it.



sharonsj's picture

How come corporations are never asked to pay their fair share, only taxpayers?

Raymond K Hessel's picture

How come your first thoughts about theft through taxes isn't about how no one has a "fair share" obligation?

More Ammo's picture

Why are Corporations "citizens" is the question...

Blankenstein's picture

Those taxes would be passed on to the consumers, who are us taxpayers.  So we would be paying more taxes on top of the huge amount we already do now.  Bad idea.

How about the government cutting back? 

cowdiddly's picture

shold have invested in Krispy Kreme. DUH

Seasmoke's picture

HA HA HA. This may be my all time favorite ZH article of all time !!! Stupid clowns dressed in costumes getting what Karma they deserve. 

Phillyguy's picture

Guess who will be expected to “bailout” this pension fund when I goes completely broke? Taxpayers of course.

robertocarlos's picture

And when this snowballs who will bail out the taxpayers?

PT's picture

I suggest you try and find a good local, copper, get really friendly with him and cut out the middle man (govt) and give him his share directly.  Sure, some would call it "bribery" and it certainly has a third-world feel about it but at least he'll start remembering who his REAL pay-master is.  At the moment he thinks he works directly for the govt.  He doesn't see the association between his pay packet and your sweat and labour.  What was that line from Rambo 4?  "God didn't save you.  We did."  How about, "You saw what govt gave you.  But govt didn't pay you.  We did."

Well, that's the theory, anyhow.  Now we just gotta figure out who is gonna put the bell on the cat.


wisehiney's picture

Don't mess with Texas.

Or they will send us another yankee president.

augustusgloop's picture

Retire at 55 & then get a sinecure position at a private security firm w/ contracts with the city....

Termin8or's picture

when you are part of the borg (union) and leave it to others to manage your future,  you get what you deserve.

PT's picture

It's called "Specialization".  It used to be quite trendy.  Some guy called Henry Ford made a few bucks out of it.  But yeah, I s'pose it got a bit out of hand.

(Oh, hang on.  Ford made his money by being a generalist and paying everyone else to be specialists.)

robertocarlos's picture

When this whole financial system blows up it is going to be a laugh a minute. I laugh at the stupid pigs.