Dallas sets public safety pension funding plan amid litigation

Dallas will contribute $11 billion to its Police and Fire Pension System over 30 years under a plan approved Wednesday by the city council to comply with a Texas law aimed at keeping the system, which is just 39% funded, with a $3.2 billion unfunded liability, solvent. 

The 14-1 vote came after the retirement system adopted its own plan and filed litigation to clarify which entity is authorized under the 2017 state law to submit to the state Pension Review Board by Nov. 1 a plan that meets statutory and amortization requirements.

Under the city’s plan, pension payments would ramp up over five years from $184 million this year to $282.6 million in 2029 and reach actuarially determined contribution levels starting in 2030.  

The pension system’s plan would ramp up contributions over three years, requiring city contributions totaling nearly $11 billion between 2025 and 2055. Additional payments to retirees in both plans would increase the city plan’s overall cost to $11.2 billion and the system’s to $11.6 billion, according to a presentation last month by Dallas’ chief financial officer.

The lawsuit led the city to withhold until the litigation is resolved a supplemental payment for retirees that is funded in the upcoming fiscal 2025 budget.

Jaime Castro, president of the Dallas Police Association, chastised the city for the last-minute move. 

 ”With what you will propose later today, you will essentially re-declare a pension war against all first responders,” he said. 

Mayor Eric Johnson pointed to concerns sparked by the litigation and the need to protect taxpayers. 

“We’re not solely in control of how we make this pension system solvent and funded,” he said. “What we’re trying to do is discharge our duty to our retirees and actives who are going to become retirees, while also maintaining a certain amount of flexibility given the uncertainty around what’s going to happen with respect to this litigation.”

The 2017 state law made several changes to Dallas public safety pensions, including increasing contribution rates by both the city and its employees and prohibiting cost-of-living increases until the system is 70% funded.

The law was spurred by the city’s projection that the system, which then had an unfunded liability of nearly $3.7 billion, would become insolvent within 10 years. The pension crisis led to downgrades of the city’s bond ratings.

Dallas, which is rated AA-minus by S&P Global Ratings and AA by Fitch Ratings, could face downgrades if its current pension funding troubles are not addressed, analysts at the two agencies warned ahead of an April city bond sale.