(Reuters) - The Dallas Police and Fire Pension System’s board has halted withdrawals from a deferred retirement plan following a lawsuit by the city’s mayor, who claimed withdrawals were accelerating the $2.7 billion pension system’s descent into insolvency.
The board on Thursday put a stop to most payments and withdrawals from the Deferred Retirement Option Plan (DROP), a program that allows members who have passed retirement age to keep working and transfer their benefits into an account that has historically guaranteed a generous 8 percent rate of return.
Nearly $500 million has been withdrawn from the DROP plan over the last few months when changes to the program were first floated. The board’s decision stops about $154 million in withdrawal requests, according to the fund.
Because of the large withdrawals, the pension system’s ability to pay its members’ future benefits before becoming insolvent has been reduced from 15 years to 10 years, Dallas Mayor Mike Rawlings said in a letter to the board last month.
He called for an immediate halt to withdrawals from those accounts in the letter and filed a lawsuit against the board on Monday to force a stop to the withdrawals.
“You have knowingly allowed DROP funds to be withdrawn at record levels, cognizant that doing so is irreparably harming the Pension System’s solvency and liquidity,” Rawlings said in the letter.
The judge in the case backed Rawlings, saying the system is in the midst of a financial crisis.
Rawlings has previously said that pension problems threaten to bankrupt the city.
The board is scheduled to consider policy changes to the DROP program at a meeting on Jan. 12.
A court hearing on the case is scheduled for Jan. 17.
Reporting by Rory Carroll in San Francisco; Editing by Bernard Orr