The Dallas Police and Firefighter pension system is a mess. As with many big-city pensions that run the risk of bankruptcy, there are many factors that have contributed to the underfunding of the pension system:
- A generous system that allows workers to take lump sums from their pensions while remaining on the job (this is the Deferred Retirement Option Plan, otherwise known as DROP)
- Pension benefits that begin as early as age 50
- A board that guaranteed an 8 percent return on investment, considering the fact that there were some highly questionable investments.
From looking at the pension fund’s asset targets, it appears, in my humble opinion, that the fund was too top heavy on real assets (land and infrastructure), international investments (including equities and debts), and low on basic domestic growth and dividend stocks. In fact, in 2006, the pension board invested in a land deal (one of several) to replace traditional investments that were considered “too risky.” The result? A loss of over $20 million on a speculative Arizona land deal that was purchased at the height of the real estate boom.
Dallas is not alone in the mismanagement of its pension fund that could leave taxpayers on the hook for a whopping $1.1 billion. Pension funds all over the country are going broke or bleeding profusely:
- CalSTRS, California’s teachers’ pension fund, lost $125 million on a Florida land investment two years ago.
- Chicago’s Municipal Employees pensions fund is bleeding $1 billion, forcing taxpayers to pony up via a new water and sewer tax.
- Even South Carolina’s state employee pension fund is facing a $24.1 billion shortfall due largely to “buy high, sell low” stock investments.
It’s time to scrap pension funds for future workers and allow them — actually, require them, to set aside their own 401(k)-type accounts with contributions matched by employers. Let workers manage their own money as private employees around the country do every day. If you are a public employee and that prospect sounds frightening, please reread the horrific examples above of how “experts” have handled your money and ask yourself if you couldn’t do a better job. I am betting you could. If you still have doubts, select your investments by hiring a chimpanzee to throw darts . Seriously.