Dallas Fire, Police Pension Wins Suit Over $3B Shortfall

Dallas may have to come up with nearly $13 million more than planned to fund the Dallas Police and Fire Pension System.

A state court judge sided with the pension system and said the city needs to abide by the plan adopted by the system’s board, which calls for the city to ramp up spending to fix a $3 billion funding shortfall over three years, instead of the city’s preferred window of five, according to a Tuesday ruling. That means the city must pay about $215 million in the first year.

The fight is far from over and could roll into the upcoming legislative session.

A city spokesperson said in a statement Thursday evening: “The city is aware of the court’s decision. Because the litigation is ongoing, the city has no additional comment at this time.”

In August, pension officials took the city to court to clarify who gets the final say on the funding plan to solve the shortfall in the pension system, which impacts over 10,000 current and retired firest responders.

Lawyers for the city and the pension system argued their positions in a Travis County court on Oct. 30.

Pension system leaders have said the legislative action that rescued the plan from the brink of collapse in 2017 gave the board exclusive authority to approve the plan so long as it complies with state regulatory requirements. The city, in rebuttal, invoked another state law, which says if the time it takes to fund a pension system exceeds 30 years, then the city and the fund must develop a funding restoration plan together.

In court documents, the city referred to the pension system’s stance as “extreme” and said it “would also risk creating a precedent authorizing pension systems across Texas to raid city coffers (i.e., resident tax dollars) without so much as involving the cities in these decisions.”

The pension system said the city’s core argument “is, respectfully, a pyromaniac in a field of straw men.” 

The system has also said the city has representation in the board’s decision since the 2017 law gives the mayor the power to pick a majority of its board members. It also argued the 2017 law doesn’t mention the city’s involvement in coming up with a plan.

Why the lawsuit?

The difference of opinion is rooted in how fast the city will contribute an “actuarially determined” amount to pay benefits and a backlog of expenses to ensure the pension system is fully funded in 30 years. The pension system also wants to give its members cost-of-living adjustments as soon possible. State law says the system can give its beneficiaries COLAs once it is 70% funded, but the new ruling and possible infusion of dollars can kickstart COLAs as early as October 2025.

An August report from Cheiron said the pension system is only 34% funded. Currently, the benefits paid out to retirees are significantly larger than the contributions coming into the system. The report also says the system needs to make COLA provisions soon to avoid further underfunding and recommends five scenarios that will get the system to full funding by 2055.

City officials have said they want to adopt a five-year step-up program, starting with investing about $20 million more in yearly contributions and a year-end stipend. The city plans to contribute $11.2 billion over three decades.

The pension system’s board adopted a plan based on the three-year step-up, which is anticipated to cost the city $400 million more.

The pension system will also give retirees a partial COLA by factoring in inflation and funding levels. For instance, if the change in the consumer price index is 2% and the funded ratio is 40%, then retirees will get a 0.8% increase in benefits. The increase, however, cannot go beyond 1.5%.

Jack Ireland, the city’s chief financial officer, has said the five-year step is the only funding plan the city can commit to without cutting services in a difficult budget year.

City officials plan to give an extra end-of-year paycheck to beneficiaries and add a one-time 1% payment to retirees’ pension base in 2025 to bridge the COLA gap until the system reaches 70% funding. It also plans to provide an additional 1% yearly stipend based on how the pension fund’s investment returns perform. This means an employee with a $60,000 annual paycheck may see a 13th paycheck worth $600 at the end of the year.

But the plan to provide supplementary dollars was put on hold amid the legal fight.

In November, voters also approved Proposition U, which mandates the city allocate 50% of any excess revenue year-over-year to the pension system and spend any leftover money on other public safety initiatives, including recruitment. In a Nov. 15 memo, interim City Manager Kimberly Bizor Tolbert said the city had already given more than 50% of its excess revenue to DPFP and public safety objectives in this year’s budget, indicating that extra funding due through the proposition may come next year.

“Staff is continuing to evaluate the financial impact of Proposition U,” she said.

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