The Dallas Police and Fire Pension System, after years of political and financial turmoil, won a major legal victory Friday from the Texas Supreme Court.
The state's highest civil court ruled against retirees who had filed suit contending that the retirement fund violated their constitutional rights when it reduced the interest rate of their Deferred Retirement Option Plan accounts — known as DROP — in 2014.
The lawsuit had cast a shadow over the retirement fund in recent years. An opinion in the plaintiffs' favor could have been devastating for the pension system, which is now on shaky-but-stable ground.
The system's executive director, Kelly Gottschalk, said the decision was "an important piece in the solvency of the plan."
And while she felt confident in the system's legal footing, Gottschalk said, "you always take a risk when you're in front of the court."
The plaintiffs' attorneys did not immediately respond to requests for comment Friday.
The two sides presented oral arguments before the court in October and had awaited the ruling since then.
At issue in the years-long case were system changes in 2014 meant to shore up the fund as DROP began to threaten the system's finances.
DROP allowed officers and firefighters to retire on paper while continuing to work. Participants who qualified stopped accruing credit toward their monthly pension benefit, but the benefit checks they would have received were credited to a DROP account, which for years accrued guaranteed interest rates of at least 8 percent.
The system's members voted on relatively modest and gradual reductions in the DROP rate, which had far outpaced the fund's increasingly dismal investment returns. Dallas Fire Fighters Association president Jim McDade said the changes were needed "to make the pension more sustainable."
But those changes were too little and far too late in the face of a massive problem that was concealed for years. In subsequent years, a new administration wrote down the system's costly and unusual alternative investments at market values rather than the cost of the investments.
And the system plunged further toward insolvency in 2016 and 2017 as police and fire retirees yanked hundreds of millions of dollars out of DROP, which had few restrictions on withdrawals.
The Legislature completely overhauled DROP and the pension system in spring of 2017 after months of political maneuvering and debate. The pension system now disburses the DROP funds as annuities — effectively adding to the monthly benefit — and ended lump-sum withdrawals except in emergencies.
The plaintiffs — led by former pension trustee Larry Eddington, who helped create DROP in Dallas — continued with their suit and argued that the DROP interest rate was a protected benefit under the state Constitution.
The court, in an opinion delivered by Chief Justice Nathan Hecht, ruled that the interest rate was no such thing. The rate change was "prospective only and did not impact benefits accrued or granted within the meaning of the constitutional provision," the opinion says.
Hecht's opinion affirmed the Fifth Court of Appeals' 2016 decision in the case.
McDade said that any time one of the cases is resolved, the system and members at least get a sense of stability.
Friday's ruling figures to play a role in future cases, too. Other cities, including Fort Worth, filed amicus curiae briefs in support of the Dallas pension system.
"We think it not only helps the system with respect to its solvency but probably becomes something other pension systems around the state will consider when determining how to deal with funding issues they've got," said Josh Mond, the pension system's general counsel.
Mond said the ruling could help the Dallas system in other lawsuits, too, including one it is fighting in federal court related to the system's closure of DROP withdrawals.
"It's fair to say we were confident to begin with," Mond said. "We're certainly not less confident now."
