Overview of DPFP

• Origin and Purpose: DPFP was created in 1916 and is an independently governed entity of the City of Dallas (City) and serves to provide retirement, death, and disability benefits to police officers and firefighters employed by the City.  
• Plans: Two defined benefit pension plans – Regular Plan and Supplemental Plan.  The Supplemental Plan was created by City ordinance in 1973. The Supplemental Plan intends to provide additional retirement benefits to those members holding a rank higher than the highest corresponding civil service rank as provided in the Combined Pension Plan. 
• Investment Approach: The assets of the Combined Pension Plan and the Supplemental Plan are co-invested through a Group Master Trust.  Administrative and professional expenses of DPFP are allocated in equal portions to each plan. 
• Governance and Financial Management: The Board of the DPFP oversees its operations and includes several committees like the Investment Advisory Committee and Nominations Committee. They have regular meetings, the agendas and minutes of which are available on the website

DPFP Funding Status as of January 1, 2023

• Funded Percentage: 39.1% (Market Value).
• Total Actuarial Accrued Liability: $5.3 billion.
• Market Value of Assets: $1.8 billion.
• Unfunded Liability: $3.2 billion.
  
• Projected Full Funding: 2105 based on current assumptions. 
• Assumptions: City Hiring Plan, 6.5% assumed rate of return.

Contribution Rates and Plan Changes

• City Actuarial Determined Contribution (ADC): 52.30% (23-year funding plan). The ADC is the percentage rate the city will contribute to the DPFP, calculated based on various financial feasibility and risk factors.
  
• City Contribution Rate (2022): 34.5% of current pay, plus an additional $13 million annually.
• Employee Contribution Rate: 13.50% of regular pay each pay period.
• Paid Benefits: DPFD paid $100 million more (received $224 million but paid $324 million) in contributions in 2022.
• Historical Plan Changes: Notable amendments to DPFD occurred in 2006, 2011, and 2017 (HB 3158) impacting tiers, COLAs, and liabilities.

Required Future Actions

• 2024 Analysis & Changes: HB 3158 mandates that an independent actuary must analyze the value of the fund and risks before July 1, 2024. The DPFP Board must adopt a plan complying with funding and schedule of payments that is in line with the funding guidelines set by the Texas Pension Review Board. The plan must detail how the system will be funded in a period of less than 30 years.
• Adopt a Revised Funding Plan: The City must devise and recommend a funding plan that satisfies the mandates of HB3158 and Chapter 802 of the Texas Government Code.
  

Causes of DPFP's Challenges

• Poor Real Estate Investments (2005-2009): Over $1 billion, significantly impacting during the 2008-2009 decline. The deals included ultra-luxury homes in Hawaii, Aspen and California and the $200 million museum tower in Downtown Dallas.
• Deferred Retirement Option Plan (DROP) Structure Issues: High-interest rates and a 'run-on-the-bank' scenario in 2016 led to members making substantial withdrawals from the DROP program. DROP allowed uniform employees to work past retirement age while continuing to earn and draw down employer contributions.
  

The 2017 Legislation: HB 3158

• Response and Impact: The DPFD Board reduced unfunded liability by $1 billion, and increased the funding ratio to 49%.
• Governance Change: Board structure alteration to include mayoral appointees and member-elected trustees to ensure they work together, regardless of whether the trustees were appointed or elected to the Board.
• Mandate for Analysis: Requirement of independent actuarial analysis and plan changes before the 2025 legislative session.

DPFP Board's Actions Since 2017

• Implementing HB 3158 Mandates: Over 30 specific requirements fulfilled.
• Portfolio Management: Transitioned away from an underperforming, highly illiquid investment portfolio to a more typical public pension investment strategy. Other actions and accomplishments include:
•  The Board lowered the assumed rate of return to 6.5%, to ensure the funding status is a more realistic estimate. 
• $900M in private market distributions were received from the sale of complicated and unique investments. Assets were sold to maximize the long-term value for DPFP. The legacy portfolio has three material assets remaining.
• Private market proceeds have covered over 105% of net benefit outflows since 2017. Restructured the portfolio from having over 65% in private market assets and less than 10% in public equities to a portfolio that now has 70% of assets or ~$1.3B in liquid, public markets assets (public equity and fixed income).
• Public markets assets (which are the portion the Board can control) have outperformed their benchmark by 1.1% annually since 2018.
• Established an Investment Advisory Committee with a majority of outside investment professionals with considerable investment experience.
• Revised the asset allocation, hired new consultants, modified the Investment Policy Statement, developed a thorough investment managers search and due diligence process, liquidated $135 million of high-cost GAA funds, and modified fee arrangements.

• Risk Management: Given the high level of monthly outflows (~$10M), the Board created a safety reserve comprised of cash and short-term bonds to serve as the primary liquidity source during periods of market distress or economic downturns.

Recommendations provided by Citizen Experts to the Ad Hoc Committee

• Additional Fixed Contributions: The City would make contributions in addition to its current annual contributions of 34.5% of regular pay plus $13 million. The City's additional contributions would begin with fixed incremental payments that increase by $20 million per year over the initial three years of the plan period in the following amounts: 
• FY 2024-2025: $20 million
• FY 2025-2026: $40 million
• FY 2026 to 2027: $60 million
• City-Owned Asset Monetization: The City could explore opportunities to fund DPFP through the monetization of certain city assets. Examples included but were not limited to City land and real estate, parking structures, waste, and landfill assets, underutilized city-owned facilities, aviation assets and airports. 
• Bonding Authority and Sales Tax Proceeds:  The City could use a percentage of its sales tax proceeds or bonding authority to fund DPFD.
• Actuarially Determined Contributions (ADCs): Starting FY 2027-2028, subject to limitations, the city could move away from a fixed contribution rate to an Actuarially Determined Contribution (ADC) for the balance necessary to reach statutory funding.
  
• No Adjustments to Pension Benefits were recommended and no COLA is recommended until DPFD is 70% funded.