The Dallas police and firefighters pension fund has just 45% of the money it needs to cover benefits. The fund rates to be out of money in 15 years at the current rate of withdrawals.
For those eligible, the sane thing to do is retire and take a lump sum payout before the money is all gone.
That’s precisely what’s happening, and it is further pressuring the system.
Please consider Dallas Police See Exodus as Doubts Rise on Pension Promises.
Dallas’s police and firefighters are quitting in droves, wagering that financial-market losses are about to render their promised pensions too good to be true.
With the city considering benefit cuts to help close a retirement-fund shortfall that grew by $1.2 billion last year, more than 200 workers have decided to retire or leave, about double the normal rate, said Mayor Pro Tem Erik Wilson, who sits on the Dallas Police and Fire Pension System’s board.
“I’ve had 40 to 50 officers in my office this week asking what they should do,” said James Parnell, 52, secretary-treasurer of the Dallas Police Association and 25-year veteran. “They’re very nervous about what is going to happen, they’re fearing a run on the money.”
In the year through June, U.S. state and local-government plans posted the smallest gains since 2009, leaving them with almost $2 trillion less than they will eventually need, according to data from the Wilshire Trust Universe Comparison Service and the Federal Reserve.
The squeeze on Dallas’s fund is even more acute because of a decision to divert money from stocks and bonds into Hawaiian villas, Uruguayan timber and undeveloped land in Arizona, among other non-traditional investments. The strategy, put in place under prior managers, backfired. The fund lost 12.6 percent in 2015 and 0.7 percent over the past three years.
On Monday, dozens of city employees and retirees packed into a meeting where officials discussed options for dealing with a possible liquidity crisis brought on by the increase in retirements.
The public-safety system has just 45 percent of the assets it needs to cover benefits, down from 64 percent at the end of 2014 and half what it was a decade ago. The pension could be out of cash in 15 years at the current rate of projected expenditures, according to a Segal Consulting report in July.
Officials don’t know if making changes to the deferred compensation plan “will be enough to keep it solvent” because the “program isn’t sustainable,” said Dallas City Councilwoman Jennifer Staubach Gates, who also is a member of the pension board.
“We’re trying to address some really alarming numbers,” said Gates.
Bankruptcy Law
Unlike Illinois whose pensions are in even worse shape, Texas specifically allows chapter 9 filings according to the Governing.Com article Municipal Bankruptcy State Laws.
Sensible Actions
- The sensible solution is municipal bankruptcy coupled with big pension haircuts.
- Before the pension fund implodes, the sensible action for Dallas police and firefighters is to retire ASAP and take a lump sum payment.
- Point number two ensures that a run once started is likely to be fast and furious, which is where we are at today.
This is going to get interesting in a hurry.
Mike “Mish” Shedlock
To protect and serve … themselves.
It’s a rational response.
Everyone does.
Creating and supporting a “system” that pretends otherwise, just because it “feels good” to pretend one is somehow “nicer”, is where the problem lies.
moron
The rank and file are arguable underpaid in current dollars by promised (and largely unfunded) pension benefits in later years. It looks like the median salary in Dallas is actually less than the starting salary in other nearby cities. If they were counting on the pension to make up the difference, then it is perfectly understandable if they want to retire/quit if that is at risk and make more salary somewhere else (or as a contractor in Dallas).
Mish.
You correctly note ill annoy and that friend is exactly why I moved outta there 2.5 months ago. Nothing more for mad again to do but raise taxes beyond the moon. I had had enough!!
OMG you escaped! I saw the writing on the bankrupt IL wall and escaped 11 years ago.
Ha ha, non IL people will think “mad again” was some kind of typo.
non il people who don’t read mish regularly. i knew it was mike madigan after a moment of thought.
If I were them, I would quit and take whatever lump I could get. Then I would apply to get rehired. They will probably be hiring. I never counted on a pension and never had any.
I should qualify that, I do get social security, until it goes bust. I paid a lot into it, but would not have if I had a choice.
When u leave and take any money from the plan, you are blocked by law from ever taking a state or municipal job again.
Wrong!
heh. Last one to the exit loses.
I hope the stampede collapses on itself.
They all have each other to blame.
Basic human greed.
Reminds me of that old Bogart movie “The Treasure of the Sierra Madre”.
Common sense is coming out.
anyone who believes they can get paid $200k for a Blue collar Job ( Police & Fire ) and retire with full pension at age 45 is delusional.
These so called promises will never be made. Never
But they are heroes and they deserve.
And any one who claims otherwise is a “cop hater”.
At least that’s what I’ve been told.
In a world where some get paid $200 million for sitting around like a chicklets, squawking about how the world will “collapse” lest Yellen freely drops money stolen from others down their throats, delusionality is the new reality. Can blame anyone else for wanting in on the game as well.
The important part, is to not drag third parties in. As in, no taxpayer topups, “shared sacrifice,” or other nonsense. The officers were promised a certain pile of goods, and they’re hardly evil for expecting those promises to be honored. But the ones required to honor them, are the ones who made them. Not a bunch of “taxpayers”, many/most who weren’t even born yet when the deals were made.
It may sound harsh, but it is literally a better outcome that every officer, all their kids and spouses, and everyone who are in any way dependent on them, die the most gruesome death from outright starvation in the streets, than for the government to take one fractional penny, from one single person, who was not a party to this whole mess. Since once that “thin blue line” is crossed, it’s open season on anyone’s future.
“The officers were promised a certain pile of goods, and they’re hardly evil for expecting those promises to be honored.”
Yeah, but a LOT of pension gaming going on … and not a recent trend.
I recall back around 1999 or 2000 The Washington Post ran a story on DC homicide detectives “gaming”. Then, their pension was based on 80% of average of last 3 years of salary. The detectives were working 100 hour weeks … and with over time making $200K/yr.
Of course, the question begs why their supervisors allowed this?? …. (rhetorical)
“Then, their pension was based on 80% of average of last 3 years of salary. The detectives were working 100 hour weeks … and with over time making $200K/yr.”
Which ends up destroying the system in the down phase of the cycle
Not so at all if one integrates the policies of a directly distributed/gifted universal dividend and a general discount to retail prices that is fully gifted back to the merchants who gifted the discount to the consumer. These policies wisely and pin pointedly resolve the problems you correctly identify, do not add a cost to the system which already creates a greater rate of flow of costs/prices than it does a rate of flow of individual incomes, are unobtrusive on enterprise, are universally shared and correctly make the system reflect its abundant nature rather than enforce an arbitrary, enslaving and moralistically puritanical austerity on it
Thank you Mish.
Considering they are also being targeted for assassination by White Lives Don’t Matter and Cop Lives Don’t Matter types, really should be a no-brainer to take the money and move onto another job. Worrying about money and getting shot, a lot of stress.
But not all of them will have enough years of service to exodus now, and pension funds could get cash infusions in various ways. 15 years is a long time, and a lot can happen. Investments in the red now could be big winners a decade from now; happens all the time.
If you take risk into account, I wonder what the free market cost of a fire fighter is?
Anyone care to guess or work it out vs a comparable in he private sector?
Did the people setting up the system ever do that?
Where I live the AVERAGE firefighter makes over $230,000 in compensation annually.
Retire at 50.
2 day workweek. 3 with overtime.
Gym workouts while on the clock.
Grocery shopping. 6 of them pushing a cart down the aisle. I’ve seen that with my own eyes.
Do you know the educational requirement to take the test? A high school diploma or the equivalent (GED).
Is it any wonder why there is so much overlapping DNA with the fire ranks? Try to find an urban firefighter who doesn’t have a firefighter dad, brother, uncle, etc….
A firefighter hasn’t lost his life in the line of duty where I live in 40 years.
The firefighter job in not even ranked in the top 10 most dangerous jobs in America.
But they are heroes and they deserve.
i saw a lackadaisical response as i watched my father’s workshop burning to the ground. maybe that particular group would’ve cared more had it been their livelihood on fire…
The AVERAGE firefighter here in NW Montana makes ZERO per year. They are all VOLUNTEERS and maybe get their fuel and training expenses paid. A small pension (few hundred $ per month) at retirement age.
They carry a radio on their regular day job (carpenters, loggers, grocery store employees, etc.) and respond when called.
Having a hard time finding younger guys to VOLUNTEER these days. This is true all across the rural areas of the country.
The urban fire department that I referred to in my previous comment used to have a handful (maybe 3%- 5%) of volunteers in their ranks. I think they called them “reserves”. The reserves cost the taxpayers virtually nothing. But the firefighter’s union waged a propaganda war against the reserves and had them eliminated – replacing them with full-time regular firefighters who ON AVERAGE are annually compensated over $230,000. The politicians approved getting rid of the reserves because the politicians are getting paid off and endorsed by the safety unions. Their firefighter’s pension fund also has a huge unfunded liability that actuaries don’t expect to survive more than 5-7 years.
I understand this same scenario is occurrng all over the country while the intelligentsia continues to whistle past the graveyard.
Just need to know insurance payout for death and then multiply by a very low percentage (mortality is less than .009 of 1% – and I think population is large enough to look at this from a simple actuarial standpoint). So even if you valued it at 20 million for a death, that would be about $1,800 Fair Value added per year for the added risk of being a firefighter.
The bank is eliminating city pensions, just like the bank has already eliminated most corporate pensions. Printing is the bank’s war on their elders.
“If you’re going to panic,panic early”
Airline pilots always took pension cash outs before the airlines crashed and burned, financially speaking.
at least in TX there are permissive hand gun carry laws so everyone can defend themselves
No way a cop is going to make enough in the market with his pension payout. I’d leave the money in the program and push the city to fix the problem. There is risk either way, but I’d rather take a moderate haircut as a group than starve alone.
what’s that old saying, misery loves company?
I can hear the footsteps, of those running towards the top tiers of a pyramid scheme.
Logic would say, WHY do any “pension plans” allow drawing money out after only 20 years of work – and then PAY YOU the balance of your life. OK,. you want a pension after only 20 years, fine by me, but REDUCED amount, starting payments at age 65. AND NO HEALTHCARE benefit. Be like the people PAYING your overpriced salary and benefits.
There is no logic. It is purely a function of political power.
Have you seen the Zapruder film?
Take a minute to watch it and then ask yourself :
“Do I want to trust my pension to these… ”
Nah, gimme the lump sum!
But Mish, the formula says interest rate reduction is necessary! The formula is never wrong! People acting irrationally need to be brought in line with what the formula tells us to do!
Go to Exhibit B-2 … as of December 31st, 2015
Computational pay for someone with 25yrs service … $87K/yr … 40years+ … $95K/yr
https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_Act_Val_as_of_1_1_2016.pdf
BLS stats say police & firefighters are not included in the top 10 most dangerous jobs.
Commercial fishermen and loggers are most dangerous. Let’s compare their payscale, perks and pensions.
I doubt most fishermen and loggers are unionized. It sucks not having any bargaining power.
Which is, as Mish has pointed out many times, why FDR refused to allow the corrupt collusion of government unions and politicians. I used to think JFK was pretty smart until I found out he was the one who let it begin.
This is what happens in the down phase of a cycle. Things collapse.
Dallas Police are FOLLOWING THE LEAD of their Police Chief:
“His retirement was originally to be Oct. 22, but Brown MOVED THE DATE UP to ‘take advantage of some TIME SENSITIVE OPPORTUNITIES that have been presented,’ WFAA.com reported.”
Selected quote from “Dallas police chief retires today, ending 33-year career with city”
http://www.star-telegram.com/news/local/community/dallas/article105832682.html
“Brown’s departure coinciding with when the pension board meets was also a factor in the decision, sources said early in the day.”
Selected quote from “Dallas chief David Brown to retire early”
http://www.wfaa.com/news/local/dallas-county/dallas-chief-david-brown-to-retire-early/319185455
Many Dallas Police are transferring to Ft. Worth for better pay and working conditions.
The Dallas Police and Fire Pension is about $2.5 Billion (with a B) in the hole.
The Dallas Civilian Employees Pension is about $2 Billion in the hole.
Dallas is proposing an $800 million bond package for 2017 for street repair JUST TO KEEP THE STREETS FROM GETTING WORSE. It doesn’t “fix” anything, just maintains the crappy streets at the current level of crappy.
Detroit. Chicago. Illinois. Alaska. California. The list goes on.
It’s gonna get ugly.
Alaska was doing quite well with income from taxes on oil production until recently. The oil price slide has hurt that; seems they just didn’t see it coming and budget for it.
Pension plans have morphed into guaranteed instruments of confiscation. Cash out now and put the money near term into a laddered Treasury Direct account that is linked with several of your local banks. The future of pensions is smaller/limited payouts, loss of principal, and higher tax rates. What’s to like?
Hello Mish, this is no surprise. Are you familiar with Dallas’ Museum Tower fiasco? Please read the following article and you will learn more about the Dallas Police and Fire Pension System’s complete incompetence…
http://www.dallasnews.com/arts/arts/2012/04/08/developer-john-sughrue-admits-heartbreak-in-dallas-museum-tower-controversy
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If these retirees are expecting their pension plans to run out of money, then do they also expect other pension plans to run out of money?
How can these retirees hope to make money in a market that should fall as more retirees across the country take out lump-sum pension payments? (They won’t)
Do they expect their 401k’s or personal portfolios to be safe despite downward pressures on the financial markets?
I don’t believe many have thought this through.
Just offer the lump sum on a severely deflated pro-rata basis. It should pay to remain as a annuitant. It should cost you something to leave. You may leave, but you’ll not leave whole. Capeesh?
More and more people are beginning to realize that Defined Benefit plans like public pensions are not sustainable, including the private sector which has more or less done away with them. Here is my solution to this looming crisis that is only going to get worse without any correction of course:
https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk
Please help spread the word…
There are no SS assets they are a fictional entity – the money has been spent.
Yes that’s exactly why we should shore it up with all of the taxpayer contributions to public pensions comma at least then Social Security will have a fighting chance of survival.
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