The pension crisis in Dallas, Texas, is starting to create panic among beneficiaries – and the situation is beginning to balloon out of control.
Panicked local retirees have pulled $220 million from the fund for police officers and firefighters – in a six-week period between August and September – following a recommendation that they no longer be allowed to take out large blocks of money.
The fund is now near collapse and is seeking a massive bailout. The Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas’ entire general-fund budget.
But it’s not even close to what the pension fund needs to be fully funded.
How could this happen when Dallas is one of the largest and fastest-growing cities in the country?
The answer is simple: Mismanagement and unrealistic expectations.
The Dallas Police and Fire Pension System was, at one time, well regarded in the pension world for its diversity among asset classes. But a series of aggressive real estate bets from Hawaii to Paris and a conflict over the value of those properties triggered more than $500 million in losses. That left the fund with enough to pay just 45% of future benefits.
Yes, you read that right: The fund can only afford to pay less than half of its future benefits.
Officials are warning that without major changes, the pension could go broke by 2027. What’s more concerning is that the plan is reportedly $7 billion in debt. And if a court ordered the city to cover that debt, it couldn’t. And that could send the city into bankruptcy.
So who’s on the hook for the shortfall? That’s right, you, the taxpayer.
Think about this: To pay just the one-time $1.1 billion cash infusion, they would have to increase the property tax rate by 130%. Yikes!
This is a massive crisis ready to spread throughout the nation. And besides mismanagement and unrealistic expectations, America’s aging demographic is also exacerbating the problem, with fewer workers paying for benefits.
What is happening in Dallas is an extreme example of what’s happening in many other places around the country.
Dallas is not alone: California, Connecticut, Illinois, and New Jersey all face similar problems.
In fact, S&P Global Ratings recently cut its rating on New Jersey’s general-obligation-bonds, citing the state’s rising pension liabilities as the main catalyst for the downgrade.
I have been warning of a looming pension crisis for years, and 2017 looks to be the tipping point.
And don’t forget: The pension crisis – like the approaching sovereign debt crisis – is not just a U.S. problem. It’s a global problem.
I am putting together a full Wave analysis report on the looming pension crisis, so be on the lookout for it early next year.
Stay safe and best wishes,