Federal judge tosses retirees' DROP lawsuit against Dallas Police and Fire Pension System
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A federal judge has dismissed a lawsuit that could have put the Dallas Police and Fire Pension System back into deep financial trouble.

Six retired Dallas police officers filed the case in January 2017, arguing that the board'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 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."

Executive Director Kelly Gottschalk said Godbey's ruling, signed Wednesday, was important and is "something we can build on" as the still-troubled system finds its footing.

"We're very pleased," she said. "It's just another step forward in our path to solvency."

The judge's dismissal was with prejudice, meaning the plaintiffs cannot refile the case. But Godbey's decision could still be appealed, and the plaintiffs' attorney vowed it will be.

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 8 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.

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.

Gottschalk has said 183 people also took advantage of the opportunity to "undo" their election to DROP in favor of a larger monthly benefit based on their years in the police or fire department.

The plaintiffs had amended their complaint to include the board's implementation of the law. But Godbey argued they didn't prove they had been deprived of their property. 

However, the plaintiffs' attorney, David Feldman, said the annuitization is unjust. 

"We had some difficulty understanding the court's reasoning," he said.

The money belongs to his clients, Feldman said. 

READ COURT ORDER

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