Dallas Mayor Sues to Stop Public Pension "Run On The Bank"

The Dallas mayor said he is acting in his private capacity as a Dallas taxpayer and paying for the suit himself. In a Monday court filing, Mr. Rawlings asks a Dallas County judge for a restraining order that temporarily halts withdrawals from the Dallas Police and Fire Pension Fund.

The revolt by members of the $2.27 billion fund heightens the risk that a major U.S. pension fund could run out of money. It also offers an extreme case of what can happen when a pension wagers on lucrative returns to cover funding shortfalls.

Many pension funds took on more risk in recent years to fill mounting funding gaps, hurt in part by declining bond yields that damped returns. Between 2007 and 2015, the average percentage of assets large pension plans parked in alternative investments or real estate grew to 17.6% from 10.1%, according to the Wilshire Trust Universe Comparison Service.

But Dallas is in a class by itself. The withdrawals since August represent an 18% drop in the fund's total assets, seriously reducing the fund's ability to earn money through investment.

"This particular circumstance is more akin to runs on the bank that you saw at the beginning of the Depression because people were afraid they weren't going to get their money," said Robert Klausner, an attorney who represents public pension funds.

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Officers say they are pulling their retirement savings because of concerns about the fund's finances. 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, leaving the fund with enough to pay just 45% of future benefits. Officials are warning the pension could go broke by 2027.

Dallas adopted its more aggressive strategy before the crisis, adding luxury homes and shopping centers in Hawaii, student housing in Texas, and raw land in Idaho and Colorado, records show.

The strategy appeared to be working, with Dallas returns often beating national medians. But that success received scrutiny in 2013 when the Dallas Morning News reported that many properties hadn't been appraised for years. Instead, certain holdings were valued based on their purchase price and in some cases by also adding development and operating expenses, said Chief Financial Officer Summer Loveland, who joined the fund in November 2013.