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Regulation

Federal Judge ‘DROPs’ Police and Firefighter Pension System Lawsuit

Board froze DROP program due to insolvency woes.

By Chris Butera

A lawsuit concerning the Dallas Police and Fire Pension System’s (DPFP) pension option has been thrown out by a federal judge.

The Deferred Retirement Option Plan, otherwise known as DROP, allowed Dallas police officers and firefighters to retire on paper, receiving their pension checks while still working within their respective sectors. KERA News reports that the checks would go to an individual account with little withdrawal restrictions. The accounts also saw interest rate growths of at least 8% for years.

Following issues with insolvency due to DROP-related withdrawals and concerns, the DPFP board froze all DROP distributions in December 2016, leading to a lawsuit filed by six retired Dallas police officers last January. According to the DPFP’s 2016 Comprehensive Annual Financial Report, the plan’s net position decreased by more than $500 million as a result of payments from the DROP plan.

Although the filing officers claimed what the board did was unconstitutional, federal judge David Godbey felt otherwise Friday. KERA reports Godbey ruled in favor of the board because the fund would have faced swift insolvency without board and legislative intervention.

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Judge Godbey dismissed the case with prejudice, negating the officers from refiling. However, the publication reports that the plaintiff’s attorney seeks to appeal this ruling.

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Home > News > Newsmakers > Wisconsin Public Employee Pensions to Rise at Least 2.4%
Newsmakers

Wisconsin Public Employee Pensions to Rise at Least 2.4%

Dividend payments are a result of a 16.2% return for the state’s core fund.

By Michael Katz

A strong 2017 investment performance means Wisconsin Retirement System (WRS) retirees will see annuity increases of at least 2.4% beginning May 1, according to the state’s Department of Employee Trust Funds.

The 2.4% adjustment will be provided to all 203,000 WRS retirees, while approximately 41,000 of those retirees will also see the variable portion of their annuities increase by 17.0%.

That translates into an extra $560.66 a year for the average retiree, and $1,538.39 a year for the retirees who have part of their money in the Variable Trust Fund, agency spokesman Mark Lamkins said, according to the Wisconsin State Journal.

The dividends are a product of investment returns earned on the WRS’ assets. The Core Fund, which covers all participants in the WRS, had investment returns of 16.2%, and recorded its fifth straight year of positive gains, following five straight years of losses. Meanwhile, the Variable Trust Fund earned 23.2% for fiscal year 2017.

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The WRS does not offer guaranteed cost-of-living adjustments (COLAs), but instead provides annual annuity adjustments that are based on trust fund investment returns, and the funding needs of the WRS.

The State of Wisconsin Investment Board (SWIB) manages the Core Fund, which is heavily invested in stocks, but also has holdings in bonds, real estate, and private equity. Gains and losses are spread out over a five-year period to help keep annuity adjustments and WRS employer and employee contribution rates stable, which explains the large gap between the size of the returns and the size of the dividend payout.

The Variable Fund is only invested in domestic and international stocks, and gains and losses are not smoothed, which is why participants in this fund saw a significantly higher return. However, this also means those investors are exposed to a higher degree of risk.

Over the past five years, the Core Fund annuity adjustments have averaged 2.5% a year, according to the State Journal, compared to the US Consumer Price Index, which has risen an average of 1.4% a year during the same time period.

The Wisconsin Retirement System is the ninth-largest US public pension fund, with approximately $108 billion in assets. Last year, the WRS paid nearly $5.2 billion in retirement benefits.

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