Citing "Great Recession," Dallas Police & Fire Pension Fund Trims Benefits For "New Hires"

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RichardTettamant.JPG
Richard Tettamant
Back in mid-June came The Big Announcement: The Dallas Police & Fire Pension System was ponying up the $200 million needed to build the long-stalled-out Museum Tower high-rise in the Arts District. That same day, you may recall, we revisited a blast from the past -- the system's $27-mil investment in Arizona, which, as of last summer, was worth close to nada. Then, just last month, the Dallas Police & Fire Pension System's name came up yet again -- this time, as an investor in Jack Matthews and NYLO's boutique hotel in the Cedars, next to the South Side.

In all, according to the most recent annual report available online (2009), the Dallas Police & Fire Pension System, which boasts a membership close to 9,100 (including active members and benefit recipients), has about a quarter of its close-to-$3-billion in assets tied up in real estate investments -- including several million in Fort Worth's So7 mixed-use development. That investment's presently tied up in litigation: After the jump you'll find a lawsuit filed in Dallas County District Court two weeks ago in which the fund alleges that the lender, a subsidiary of CapitalSource Inc., is holding up money tied to the development's finish-out. The fund, which has been fighting the lender for months, alleges it's lost $9 million so far.

"We have a firm that runs this investment for us, and they told me the bank has not responded to their calls," says pension fund administrator Richard Tettamant. "So they decided to sue to get them to respond. We put in a Chuy's over there, it's been very successful, and three or four [other restaurants] want to go in there, and they're being held up because the bank won't come up with the money."

DFPFbenefitpayments.jpg
Click to embiggen, from the 2009 DFPF annual report
I'd come across that suit yesterday morning, by accident, while looking for something unrelated on the county's website. But it was a particularly interesting find given recent rumors swirling around Dallas City Hall that the pension fund isn't faring well, prompting cuts to benefits for new and future hires. Tettamant dismisses this as "old news" before acknowledging that, yes, after receiving the 2010 Actuarial Report in October and after "more than several discussions," at the beginning of the month "88 percent of the membership" did indeed agree to "trim benefits to new hires."

I asked if the trims were significant. He said: Yes.

"I would say it's a significant trim," Tettamant acknowledges. "It puts the benefits back to where the fund was in the '70s. And, you know, when you're in the great recession we thought it was responsible to do that till the economy turns around. When you're hired, you're promised a lifetime of benefits, and our role is to make sure the fund is secure. Our job is to protect and secure the fund."

Tettamant, who has served as the fund's administrator since 1993, says "it's complicated" when asked about the trims; he says it's "tough to come up with a formula" to explain how it'll work. But he says perhaps the most significant change has to do with when benefits kick in: "Instead of being able to draw full benefits at 50, it's 55," he explains.

The fund -- which has on its board council members Dave Neumann, Sheffie Kadane and Jerry Allen -- has its billions tied up all over the place, from private-equity firms to dairy and timber companies. It's also an equity partner in the LBJ Project about to commence construction, which will turn a wide swatch of the freeway into managed toll lanes. Tettamant insists that the cuts have nothing at all to do with the fund's real estate investments.

"We are an over-$3-billion pension fund, and have more money invested in public securities -- a lot more -- than in real estate," he says. "The pension fund is well-diversified so there's not one investment that would cause anybody to look at trimming benefits. The whole thing is the great receccion happened. There's no getting around it. I heard this economist say there are 25 million Americans unemployed, and that's the problem. What we decided to do was trim the benefits to protect the funds for the future."

Kadane says he knows nothing about the fund being in trouble, and the administrator says that "if the economy turns around, the fund will be in good shape," and those new hires may one day receive the benefits previously given to their predecessors. Fingers crossed.

"Right now the fund is in very good condition," he says. "And the whole deal is we are looking to the future with 2008, 2009 in our rearview mirrors, and till this all gets settled we need to be very conservative. Our job is to protect the pension system, and we proposed [making the cuts], they bought off on it, and away we go."
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8 comments
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timej31
timej31

Not sustainable.  I've seen it before and its going to happen every where.

Biglar
Biglar

The fund is only 84% funded on a market value basis. And the assumed investment return is a pretty high 8.5%. I sure hope the market doesn't tank, because cutting benefits for new hires isn't going to have a substantial impact for a long time. In other words, Dallas has been totally screwed by its police and firefighters.

Wylie H.
Wylie H.

According to page 70 of the Fund's 2009 Annual Report, their target real estate allocation was 18% (relatively high), whereas their actual allocation was 24.7%. This was calculated BEFORE the commitments to Museum Tower and the boutique hotel on South Lamar-- which would appear to have taken the Fund's real estate allocation to well north of 30%.

Mark my words, something very untoward is going on at the Dallas Police & Fire Pension System.

Karl
Karl

Not much to say here - the story speaks for itself. Only a total rube with a major conflict of interest would have sunk those funds into the Museum Tower, not to mention that black hole out in Arizona.

Next thing we'll here is that no one could have predicted that condos in Dallas starting at around $1 million wouldn't sell. Really - no one could have seen that housing bubble either, or the Wall Street meltdown, etc. No one who was cleaning up on all the fraud that is.

Let me know when they indict the folks making these obviously crummy investments. Yeah, that won't happen unless they rip off a six pack at the 7-11. White collar crime definitely pays in the good ol' USA.

Tea Patriot
Tea Patriot

Great reporting and thanks Mr.Wilonsky!

This situation at the pension fund is just like Enron, Madoff and the Wall Street mess because this has been a ticking financial time bomb that no one cared about during the good times. This has been the known “crazy uncle” that was in our kitchen and dining room feasting and not hidden in the basement. The police and fire pension fund had no business increasing their portfolio in real estate in 2010. Nationally many police and fire funds along with other govt pension funds invested too heavily into real estate, and laundered derivative funds (meaning hidden under legitimate fund names). State and local officials in partnership with police and fire unions conspired in these unholy investments since 2000 and began to burn their funds since 2007. They scratch each other’s backs.

Based on the following information out in the street since 2000, I would encourage you and others (“are you listening” police and fire union members?) to further investigate the following Police and Fire pension fund issues:

1. Look at all of the six figure staff salaries at the fund that do not have private sector investment license experiences (i.e. Mr. Richard Tettamant). Compare to other similar size public pension fund staff that actually do not have investment experience. Dallas is top heavy. 2. Check out all of the numerous trips taken by pension fund staff, Board of Trustees (especially city council members) and “other guests” since 2000 to very exotic and expensive places for “investment conferences”. Check out this 2009 Abu Dhabi story by WFAA http://www.wfaa.com/news/local.... Pension fund records will show lavish trips taken by city council members, city staff along with pension fund staff since 2000. 3. Check out which global financial service corporations wine and dined the pension board in the hopes of getting a piece of the investment pie. This is especially true in regards to making recent real estate “deals” without having to have public hearings etc like city council members have to. 4. Check out and compare the list of campaign contributions to city council members and to both police and fire political action committee coffers versus selected investment advisors, banks and real estate developers! 5. Check out the lavish spending for the various pension fund real estate office moves and new furniture and luxury items for senior staff. 6. Check out complaints by pension fund staff to the Dallas City Auditor about some of these issues and yet nothing happened. Why?7. There are probably more horror stories at the pension fund but we will not know until it is too late and the next “Inside Job” movie comes out.

Shame on the former Mayor and current councilmembers (especially those sitting on the Board) that do nothing to protect the interest of the taxpayers of Texas.

I say this because both the Dallas police and fire pension fund and the city of Dallas derive their powers from the State of Texas. If the pension investments bankrupt the fund but they still must payout their retirements, who will pick up the pieces? Dallas and then Texas taxpayers?

Mister_Mean
Mister_Mean

What about that arts distirct condo that the police and fireman's funds have sunk $200 million of pension funds into. Talk about a prudent investment. More like a self serving move on the city's part to validate a questionable investment at best.

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