DROP Policy Addendum adopted by the Board of Trustees for the Dallas Police and Fire Pension System (January 2017)
Type of reform:
Police officers and firefighters in Dallas were allowed to participate in a Deferred Retirement Option Plan (DROP) and remain employed as their pension checks were deferred and held in special accounts to accrue interest. The funds in the DROP account were distributed following the employee’s retirement.
Over time, the city’s retirement fund became underfunded and individuals began pulling their savings out of the system. On Dec. 5, 2016, Dallas Mayor Michael Rawlings filed a lawsuit against the Dallas Police and Firefighter Pension System in his individual capacity, seeking an injunction to prevent further withdrawals from the DROP accounts. On Feb. 8, 2017, four city council members—who are also four of the 12 trustees on the pension board—filed pleadings to join Mayor Rawlings’ lawsuit.
In an effort to reduce withdrawals, on Jan. 12, 2017, the Board of Trustees for the Dallas Police and Fire Pension System adopted a DROP Policy Addendum providing that—with the exception of mandatory withdrawals and unforeseeable emergency withdrawals—there would be no withdrawals available before March 31, 2017.
Degan v. Board of Trustees of the Dallas Police and Fire Pension System et al., Case No. 4:17-cv-66 (E.D. Tx) (January 2017)
Status of litigation:
The plaintiffs are retired police officers with DROP accounts. They filed a lawsuit alleging that the limitation on their right to withdraw funds from their DROP accounts is a deprivation of property without due process in violation of the Fourteenth Amendment of the United States Constitution. The plaintiffs allege that their right to their pension funds in the DROP accounts are vested and provided for in the Texas Constitution. The Texas Constitution provides:
(d) On or after the effective date of this section, a change in service or disability retirement benefits … may not reduce or otherwise impair benefits accrued by a person if the person: (1) could have terminated employment or has terminated employment before the effective date of the change; and (2) would have been eligible for those benefits, without accumulating additional service under the retirement system, on any date on or after the effective date of the change had the change not occurred.
(e) Benefits granted to a retiree or other annuitant before the effective date of this section and in effect on that date may not be reduced or otherwise impaired.
(f) The political subdivision or subdivision and the retirement systems that finance benefits under the retirement system are jointly responsible for ensuring that benefits under this section are not reduced or otherwise impaired.
Tex. Const. Art. XVI § 66.
The plaintiffs allege that under section 66 of the Texas Constitution they have a vested legal right to the funds in their DROP accounts and the Pension Board’s limitation and suspension of withdrawals is an unconstitutional deprivation of property under the U.S. Constitution’s Fourteenth Amendment.
The plaintiffs seek an injunction preventing the implementation of the resolution passed by the Board. Further, the plaintiffs seek damages including fees, expenses, and punitive damages against defendants. The case was before United States District Judge Amos Mazzant, III. The court issued summonses to all defendants on Feb. 7, 2017.
On May 19, 2017, the District Court granted defendants’ motion for a change of venue and transferred the case to the United States District Court for the Northern District of Texas, where it was docketed as Case No. 3:17-cv-01596.
On March 14, 2018, the U.S. District Court Judge David Godbey dismissed the plaintiffs’ lawsuit finding that the DROP changes did not deprive plaintiffs of property or rights, but merely altered the timing of when they would receive their pension benefits. Additionally, the District Judge considered the legislature’s actions appropriate given that absent any action the pension funds would become insolvent in a short amount of time.
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