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I was just watching a news story about the pension fund for the Dallas police and fire departments decision to cut off access by retirees to their retirement funds. The retirees protesting the decision are upset because the lost to ability to draw from those funds to pay for things like their children’s college educations, home improvements, etc. On the other side of the issue, the fund managers say they have to cut off that kind of access so that they can ensure that everyone who is vested is able to draw their regular pension payments.

I am 100% ignorant about what led up to this situation, and I was hoping that those who are familiar with it could explain the background to me. How did the fund get so threatened that they had to take this kind of action? Was it underfunded to begin with? Was it just poorly managed? Were the affected retirees using it like a bottomless piggy bank?

What’s the background here?

Financial issues are very common for many of the pension funds around the country. Increase in life expectancy and so many boomers retiring out are putting a real strain on the pension systems. It's happening with many private company pension funds also. Wouldn't surprise me if there wasn't a good dose of mismanagement involved also.

Nope, not surprised at all.

https://interactives.dallasnews.com/201 ... /pensions/

mojo84 wrote: ...
https://interactives.dallasnews.com/201 ... /pensions/

Lots of good information there. Somewhat on the verge of TL;DR ;)
Also
http://www.wfaa.com/article/news/local/ ... /470122283

Ya, you old people destroyed penstions for us young folk.

I don't know anything about their pension plan. I had a defined benefit plan, but we couldn't draw funds from it. We could borrow from our 401K plans (against our own contributions, not the matched funds). If you had an outstanding loan balance at the time of retirement it was considered a withdrawal and subject to all the rules for 401 withdrawals and IRS tax code. I am not familiar with civil service plans, but since it's the government I sure it's extremely favorable to retirees. If they can get to money put in by the city it's nonsensical to me, because retirement funds while earned, should not be payable prior to retirement. I couldn't take out money from SS before I was retirement age.

DocV wrote:

mojo84 wrote: ...
https://interactives.dallasnews.com/201 ... /pensions/

Lots of good information there. Somewhat on the verge of TL;DR ;)
Also
http://www.wfaa.com/article/news/local/ ... /470122283

This article only touches on a small part of the problem.

My neighbor is a retired Dallas fire fighter.
He was able to remove his money before they changed the rules.
Basically, the fund suffered from poor management that resulted in investments that were very risky and failed to make adequate returns. Lots of bad real estate investments.

This may fall in the category of too long to read for some but it gives some good insight into what is going on.

http://www.heritage.org/jobs-and-labor/ ... re-failing

They do not have the funds for the Police and Fireman who served the City, but they can build bridges and parks of the roads that are unnecessary, but I am not a very smart guy so maybe I just do t understand.

It is my understanding, that the root of the problem is that the pension fund benefits projected and expected, were based on unrealistic and unachievable returns on the fund's investments and were not sustainable. They promised more than they could deliver. They were paying out more money than they had coming in basically and finally had to admit that they would not be able to keep doing so.

carlson1 wrote:They do not have the funds for the Police and Fireman who served the City, but they can build bridges and parks of the roads that are unnecessary, but I am not a very smart guy so maybe I just do t understand.

The roads, bridges, parks, etc... are paid for by the taxpayers, with their tax dollars. The Police and Fire Pension Funds are strictly for the benefit of the Police and Fire Department employees and are managed independently of the other City employees benefit programs. They made risky investments that promised higher than normal market returns and based the promised benefits on achieving those higher rates of return. The fault lies with the DPFP's own management and has nothing to do with the other obligations of the city maintaining infrastructure and providing facilities and services to the rest of the population that has paid for them.

talltex wrote:It is my understanding, that the root of the problem is that the pension fund benefits projected and expected, were based on unrealistic and unachievable returns on the fund's investments and were not sustainable. They promised more than they could deliver. They were paying out more money than they had coming in basically and finally had to admit that they would not be able to keep doing so.

This exactly! Same thing they did here in Houston. Promise too much deliver too little. They make these crazy projections like year over year gains of 10% and then promise benefits based upon that. Problem is they never are able to deliver...

Although I am not speaking about Dallas specifically, look at Andrew McCaab. 49 years old and was about to retire at full pension. When you allow young people to retire with a relatively long life expectancy it is hard to keep any pension fund fully funded. Feds of course just go to the taxpayer but state and city government have a much harder time. Social Security at least you have to be in the 60's but police and fireman can be relatively young and therefore unless the plans are very profitable it appears to me that the pyramid scheme upon which they are founded can not be sustained.
What is the solution? Older retirement age, higher contribution by the individuals, lower plan payout or, a plan manager that can make a ton of money. Good luck with that. This is why the police and fireman associations support (or don't support) city council members in every election. Not necessarily for a better individual but one that supports their salary and pension. I can not argue against that philosophy but it is like a government union, not a good deal for the taxpayer.

talltex wrote:The roads, bridges, parks, etc... are paid for by the taxpayers, with their tax dollars. The Police and Fire Pension Funds are strictly for the benefit of the Police and Fire Department employees and are managed independently of the other City employees benefit programs. They made risky investments that promised higher than normal market returns and based the promised benefits on achieving those higher rates of return. The fault lies with the DPFP's own management and has nothing to do with the other obligations of the city maintaining infrastructure and providing facilities and services to the rest of the population that has paid for them.

If the government - really the taxpayers - made the contributions to the pension fund when the public servant was serving the public, the taxpayers have already paid once. Why should they pay twice? If a construction company is paid by the government - really the taxpayers - to build or repair bridges or roads, they have been paid. If the construction company's pension fund has problems, they shouldn't be able to go back to the taxpayers and demand we pay twice.

The problem is many municipal pension funds are mismanaged. They promise more than they can deliver. They let their people retire 20 years earlier than the taxpayers. They let their people borrow from the fund, without having to pay back the principal plus the fund's required rate or return - whether that's 8, 10, 12 percent that the fund needs to stay solvent. The fund managers and the fund beneficiaries dug themselves into a hole and they need to stop digging. Throwing more money into a money pit doesn't fix problems.

TL;DR - socialism works great until you run out of other people's money