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The Dallas Police and Fire Pension system and the city will have to be a lot more cooperative if they want to fix a $3 billion shortfall, a pension expert told council members Wednesday.
Dory Wiley, CEO of Commerce Street Holdings, said the city would benefit from hiring a consultant who can act as an emissary between city staff and the pension funds and can catch red flags if investment decisions run the risk of going awry.
“You need eyes and ears,” Wiley said.
The Dallas City Council is a week away from adopting plans to solve shortfalls in the retirement funds of $3 billion for uniform employees and $1 billion for non-uniform employees. Once finalized, the city is expected to pump billions of taxpayer dollars into the funds over the next three decades.
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Council members said Wednesday that they wanted more oversight on how the system manages its investments. The system has a 2% return on its books, one of the lowest in Texas, with most of it resulting from bad financial decisions between 2005 and 2008 that have dragged the pension’s investments down.
The pension system, whose current management inherited the issues, has worked to sell bad assets for the last seven years and recovered nearly $1.4 billion. But it’s still stuck with problem assets.
Experts have said additional funding from the city and boosting investment in assets like private equities and private credit can pay more dividends. City Council member Gay Donnell Willis said that’s important because if the pension performs well, it can shoulder some of the financial burden in closing the funding gap.
The pension system told The Dallas Morning News previously it has hired a consultant, Albourne, an investment advisory firm, to shore up its private market portfolio. “I think this fund has some really bright days ahead of it,” Wiley said.
Council member Tennell Atkins, chair of the ad hoc committee on pensions, encouraged his colleagues to engage continuously with the pension fund.
“You never throw your child out in the dishwasher. Keep the child in the house,” Atkins said. “We’ve got to work together.”
Still, the road ahead appears murky.
Last month, DPFP took the city to court to decide who gets the final say in approving solutions. The legal action caught city officials off-guard. During Wednesday’s briefing, many council members voiced concerns about how they’d repair the relationship with a lawsuit pitting the two entities against each other.
The pension system wants the city to begin filling the hole with a three-year phase-in, requiring the city to contribute $419 million more than the city recommends over 30 years. The system’s plan also gives retirees a partial cost-of-living adjustment by factoring in inflation and funding levels. If the change in the consumer price index is 2% and the funded ratio is 40%, then retirees would get a 0.8% increase in benefits.
The pension system also disagreed with the city’s request to have a bigger role in the fund’s oversight.
The city, which has built this year’s budget around the pension system, says it can only afford to increase contributions over five years or it would be forced to cut services. This year’s budget proposal has already put a northeast Dallas library branch on the chopping block.
City officials proposed giving retirees an extra end-of-year paycheck for DPFP beneficiaries and adding a one-time 1% payment to retirees’ pension base in 2025 to bridge the COLA gap until the system reaches 70% funding. They have also suggested an additional 1% stipend a year 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.
Council members Paula Blackmon and Jaynie Schultz said that ultimately the problem is the pension fund has no incentive to perform better and the city has no leverage to negotiate even as it is opening the checkbook.
Council member Paul Ridley said he couldn’t fully support the city’s plan to give stipends as it would cost $136 million more, especially as a lawsuit hangs over the relationship.
“It’s become very apparent that the council has no direct influence over the management of this fund, that we need to have an incentive built in for them to have superior performance,” he said, adding that the supplemental pay should come in if the fund can achieve its goals of getting more than 6.5% in returns.
That suggestion drew opposition from council member Kathy Stewart.
“I think by taking [the stipend] away, we are not going to get the influence we want, and we are just going to punish some people who I don’t think have influence over this,” Stewart said.
The council will vote on the plan Sept. 11.