Pension reform could force dozens of Dallas firefighters, cops to retire
A new state law limits the amount of time police and firefighters can continue to receive credit in the Deferred Retirement Option Plan
By Tristan Hallman
The Dallas Morning News
DALLAS — At 64, Jim Aulbaugh has long been eligible to retire from Dallas Fire-Rescue. He loved working too much to call it quits, but he says he might have to now.
A new state law aimed at fixing the ailing pension fund contains a provision — a vestigial part of the original proposed fix — that could cause him and dozens of other police and firefighters to finally leave their shrinking departments in January.
The provision limits the amount of time police and firefighters can continue to receive credit in the Deferred Retirement Option Plan, known as DROP, to 10 years as of Jan. 1. That means first responders like Aulbaugh, who has 12 years in DROP, will continue to pay a chunk of their paychecks into the pension while receiving no additional credit for it.
For police and firefighters, it's one of many uncomfortable new parts of the law, which pared back the pension system's unusually lucrative benefits. But the real impact of this provision is that 51 firefighters and 28 police will have spent more than 10 years in DROP as of Jan. 1 and might retire, pension officials say.
A few other portions of the law could have been the final straw for Aulbaugh and the others in DROP. Their pension contribution rate more than tripled as part of a new state law intended to save the ailing retirement fund. They could have retired in 2016, like many others did, and cash out of DROP.
But Aulbaugh said he loves working too much.
"I've been so lucky to have had this career. I just stumbled into it," he said. "How many people go to work every day looking forward to their job?"
The retirements would pile on the police and fire departments' mass exodus in recent years. The last fiscal year, which ended Sept. 30, 458 police officers left the Police Department and Dallas Fire-Rescue lost 190 firefighters. That's more than double the usual attrition numbers for both departments.
DROP and the pension crisis were major causes. Previously, DROP allowed veteran police and firefighters to retire on paper while they stayed on the job. The pension checks they would have received were then credited to an individual account, allowing those in DROP to build up a lump sum to supplement their monthly pension checks when they actually did call it quits.
Hundreds of police and firefighters became millionaires from DROP because it also guaranteed compound interest rates of at least 8 percent for years.
Such benefits, combined with heavy investments in risky and overvalued real estate, put the fund on a fast track to insolvency. DROP's lack of limits on time in the fund and withdrawals exacerbated the problem. The fund's members last year collectively yanked hundreds of millions of dollars out of the pension system in waves of panic.
At the time, pension officials had a good reason to propose limits on DROP as part of their fix. The pension board's original proposed changes significantly reduced, but did not do away with, the DROP interest rate. And members could still withdraw lump sums out of the fund.
The 10-year rule was meant to make the plan look more like a normal pension and cap DROP's growth. After multiple debates on the topic, the board settled on a 10-year DROP limit, knowing that it would likely force out some current employees.
But state Rep. Dan Flynn, R-Van, proposed more drastic changes. His bill eliminated the interest rate on DROP and amortized the funds to be paid monthly or annually over retirees' projected lifespans. Doing so effectively killed DROP, turning the perk into what was essentially a second pension payment with some exceptions.
Some — Aulbaugh won't qualify — will have a chance to wipe all their DROP money away and buy normal service credits back instead, but the board still has to decide whether to charge interest on the contributions they would've made in those years.
Regardless, once the amortization came into play and interest rates went to zero, the 10-year rule no longer added up. The pension system could theoretically be better off if the police and firefighters remain on the job and continue to pay 13.5 percent of their paychecks into the fund because DROP was no longer earning interest. While they continue to get service credit, the system can put that money to work.
The pension board's former chairman, Sam Friar, said association leaders and pension officials pushed Flynn to remove the provision during the legislative session, but got nowhere.
"I'm not sure they really understood it," said Friar, who is now back on the new-look board as the fire representative. "It did not make sense. It still doesn't make sense."
Pension officials gave up on it because they had much bigger and thornier issues still on their plate.
"We were just trying to get a bill passed," Friar said. "We had to pick our fights."
Flynn, through a spokesman, said he didn't recall debate over the provision in the complex and massive bill, but is willing to look at it again next session.
Aulbaugh last week implored pension board members to take matters into their own hands by using another provision of the law that allows the board to "correct any defect, supply any omission, and reconcile any inconsistency" in the language. He said he's "cautiously optimistic" about it.
But he probably shouldn't be. The board must abide by the law, and Dallas Police and Fire Pension System Executive Director Kelly Gottschalk said it's probably not a defect because it was intentional.
She doesn't believe the limit on DROP will make a big difference to the fund either way. She said the idea was to make some limit on DROP like other cities' pensions.
"It wasn't about the money," Gottschalk said. "It was about trying to be more consistent with the other DROP programs."
But, she added, "it is going to force retirements."
Ultimately, the police and firefighters could decide not to retire because they love their jobs or their paychecks, although their departments aren't counting on it.
Aulbaugh, who makes more than $50 an hour, said he hasn't decided for sure if he's going to leave yet.
"Nobody wants to be told to leave," Aulbaugh said. "Most of these guys that this is going to affect are some of the best, most knowledgeable people in the department."
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