Dallas will lock in rising annual payments for its police and fire pension system through 2030, then shift to a funding model tied to investment performance under a new 30-year plan to close a $3 billion shortfall.
Plan details:
The city will ramp up funding and will stick to the money it budgeted in the first five years.
In 2024, the city paid $202 million. This year, they’ll pay $220 million. This will continue until 2030 when “actuarially determined contributions” kick in.
That means that after the five-year ramp up, the city’s yearly contributions will become flexible. They will be dependent on how the pension system’s investments perform.
Political Points
If the pension system is able to raise more money through investments, then the city gets to contribute less. If it doesn’t, then the city will pay more.
The city has set caps on how much it’ll pay in a single year in case it finds itself in the midst of an economic downturn, and that cap is only applied on about 15% of the money the city is supposed to pay.
What it means:
The city will give about $288 million to the pension system in 2030. A majority of those payments – about 85% – is aimed at paying off the liabilities the pension system has accumulated so far, and those are fixed dollars the city will pay regardless.
The remaining dollars, which are subject to caps, will pre-fund benefits for active employees based on the city’s projected number of officers. That portion of the plan is designed to ensure first responders currently in service receive the benefits they were promised.
Those dollars, about $37 million, are expected to fluctuate with investment gains and losses. If they exceed the cap, set at 5% above or below projections, the city would spread the additional costs over as long as 20 years or until Jan. 1, 2053, whichever comes later.
Officials will reassess the contribution caps every five years, comparing actual investment returns with assumptions and factoring in changes in workforce size. If the city and the pension system differ on updated projections, an independent third-party financial expert will be used to break the impasse.
Supplemental pay
The Texas Legislature’s intervention in 2017, when the fund was nearing bankruptcy, froze cost-of-living adjustments until the fund reached 70% funding.
The fund is currently 32% funded. Until then, the city may pay supplemental checks to officers who retired before Jan. 1, 2026. The checks are based on 1% of a retirees’ total annual pension benefits. But those checks may not come into play if the pension system’s on-year return on investment is in the red.