Almost exactly one month after taking the unprecedented step of suspending withdrawals from the Dallas Police and Fire Pension (DPFP), the Dallas city council is looking to "clawback" what it views as ill-gotten interest payments made to pensioners to the tune of roughly $1 billion.
Of course, we have followed the epic meltdown of the DPFP closely over the past several months after a series of shady real estate deals brought the fund to, in the words of Dallas Mayor Mike Rawlings, "the verge of collapse" and resulted in an FBI raid of one of the funds largest real estate investors (see "Dallas Cops' Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid"). The discovery of the failed real estate deals led to a "run on the bank" as scared pensioners looked to withdraw as much as possible before the whole ponzi scheme collapsed (see "After A "Run On The Pension Fund" Dallas Mayor Demands Halt Of Withdrawals"). All of which culminated with the unprecedented decision last month to suspend withdrawals (see "In Unprecedented Move, Dallas Pension System Suspends Withdrawals") after nearly $500mm was removed from police accounts.
Now, according to a local ABC affiliate, the Dallas city council is frantically working with the DPFP board to close a $4 billion funding gap. While the city has agreed to throw an incremental $1 billion of taxpayer money at the problem over the next 30 years, that additional funding comes with some strings attached, which includes a $1 billion "clawback" of what the city views as ill-gotten gains from Police DROP accounts. The proposed "clawbacks" would come in the form of reduced future distributions for pensioners.
For those who haven't followed this story as closely, DROP, which was created in the early 90's, allowed police and firefighters in Dallas to retire while still on the job. Their monthly pension checks were then diverted into DROP accounts, which were guaranteed an 8-10% return regardless of how the overall fund performed. Unfortunately for DPFP pensioners, the Dallas City Council now views those guaranteed returns as an effort to defraud Dallas taxpayers of billions...we would tend to agree.
The city has agreed to put in an additional billion dollars over 30 years, but they're proposing a series of bitter pills to make up the rest of the nearly $4 billion shortfall.
The bitterest pill: A proposal to take back all of the interest police and firefighters earned on Deferred Option Retirement accounts, or DROP. That would amount to an additional billion dollars saved.
The city is calling it an "equity adjustment." Retirees call it an illegal "claw back."
Whatever you want to call it, it's outlined in a draft legislation being hammered out by the city and pension fund leaders. Pension fund representatives and the city have been meeting almost daily to try to come to an agreement on proposed legislation that they can take to the state capital to fix the failing fund.
Of course, anyone with half a brain probably should have realized that this ponzi on steroids was doomed to fail from the start. But, better late than never we suppose.
To add insult to injury, for Dallas taxpayers at least, the City Council also notes that the DPFP's artificially high annual cost of living adjustments have resulted in pension checks that are 20% higher than they would have been had they been tied to actual inflation levels instead.
News 8 obtained a copy of the legislation which says accounts would be "adjusted to zero percent of interest."
"It's very tough but the city wants to protect the monthly benefit," Kleinman said. "It's a restatement of their accounts."
The city is also seeking to "equity adjustment" on cost of living increases. The city says that pension checks are about 20 percent higher than they would have been if increases had been tied to inflation.
The city's proposing to freeze cost of living increases until it catches up to the inflation index.
DROP and the cost of living increases account for about half of the fund's liability, the city says.
For those retirees who have already taken the money out of DROP accounts, they'd garnish their future pension checks to recoup excess interest. Worried retirees have withdrawn in excess of $500 million from DROP accounts in recent months.
Meanwhile, all of these discussions have Dallas' police predictably upset.
"We used the rules they gave us now all of the sudden they're going to go back on the rules and say hey you don't get any of that," said Charles Hale, a retired police officer. "That's not fair."
Retirees promised they'd be suing if anybody tried to take back money they feel they've earned.
"It's acting like it was an underhanded Ponzi scheme that we pulled," said Joe Dunn, a retired police officer. "It's not fair."
Frankly, we too are shocked at the audacity of the Dallas City Council to suggest that public employees be forced to be compensated in a way somewhat more akin to private employees. It's just outrageous.