DROP Lawsuit: Judge Rules Against Cops
In breaking news out of Dallas, a federal judge has dismissed a lawsuit brought by six retired Dallas police officers. The suit, filed in January 2017, argued that the city’s decision to freeze lump-sum withdrawals from their Deferred Retirement Option Plan—known as DROP—was unconstitutional.
U.S. District Judge David Godbey wrote in his 26-page order that the plaintiffs had no constitutional claims because they ultimately “will receive every dollar of their DROP funds.” He also wrote that the board’s decision to freeze the lump sum withdrawals was “certainly legitimate” because the fund “was projected to become insolvent within the next decade if the Texas legislature and the Board did not act.”
DROP threatened the entire system and drove much of the urgency for a pension fix in 2016 and 2017. DROP allowed the city’s veteran police and firefighters to retire on paper and continue working while the pension checks they would have received went to an individual account. That account, which had few restrictions on withdrawals, grew at interest rates of at least eight percent for years. Some retirees became millionaires.
The guaranteed interest rates proved unsustainable when the system’s investments—many of which were unusual, risky, and hard to sell—failed to return enough to pay for the promised benefits. The system’s previous administration tried to rein in the interest rates over time, leading to a separate, still-pending challenge in state court.
As the system’s financial position grew more precarious and the board proposed more changes to the benefits structure, officers and firefighters pulled out hundreds of millions of dollars. More money came out after Mayor Mike Rawlings publicly called on the board to shut down withdrawals.
Rawlings then filed a lawsuit in state court to halt the withdrawals, prompting $154 million more in withdrawal requests. That money wasn’t paid, however, after pension officials froze DROP to help keep the fund afloat which prompted the officers to file the lawsuit.
Months of bruising negotiations and stinging political rhetoric culminated in a legislative fix in May 2017. The law, now in effect, essentially killed DROP by requiring the system to pay out the DROP money over the projected lifespan of the retirees, except in extreme circumstances.
The attorney for the cops, David Feldman, said the annuitization is unjust. “We had some difficulty understanding the court’s reasoning,” he said.
The money, he says, belongs to his clients. “Now they can’t have access to it other than spread out over the years remaining in their life, based on actuarial tables. They relied on having access to those funds well before that.”
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