The DPFP is one of 15 local pensions across the state that is under 50 percent funded — meaning it can only account for less than half of the benefits it has promised pensioners.
It has amassed over $2.5 billion in unfunded liabilities owed to its nearly 11,000 members. At the fund’s current rate of payments, it’d take 55 years to pay off its current debts.
The suit began in 2017, moving through the Dallas County District Court at a glacial pace as such cases are prone to do.
“In summary,” the pension’s original filing asserts, “Townsend failed to advise DPFP to diversify its investments to minimize risk of large losses, failed to assess the ‘value added’ by investment managers under Townsend’s watch, failed to disclose material information and advice to its client.”
The pension further alleges that under Townsend Financial’s advice, the pension’s assets were invested heavily in “high-risk, speculative, and undiversified investments.”
Pulling no punches, the plaintiffs added, “Despite touting itself as an expert in providing real estate investment consulting advice to public pension systems, Townsend repeatedly failed to adequately advise DPFP regarding its real estate investments.”
After making these risky investments, DPFP claims, Townsend chose to “quietly sit back” and let the poor financial decisions run their course so as to not lose the contract.
In the same suit, the pension also sued Gary Lawson, its former attorney, for similar claims of negligence.
The relationship between Townsend and DPFP began in 2001 and the pair’s contract was renewed in 2013. In their 15 years of business, Townsend was paid over $2.5 million by DPFP. The plaintiffs state that after the financial troubles were discovered, the Townsend contract was terminated in 2016.
Much of DPFP’s investments were made in real estate in Boise, Idaho through small outfit CDK Realty Advisors, which the pension says Townsend was tasked with overseeing.
In recent decades, pension funds have increased their holdings in real estate as compared to more traditional investment routes like stocks. BlackRock, the largest portfolio manager in the world, owned about $60 billion in real estate holdings as of last year.
The plaintiffs say the Boise-area investments resulted in losses of more than $133 million. Other areas of investment that lost money include Dallas and Phoenix, Arizona as well as Hawaii and California.
In its reply, Townsend categorically denied all the charges DPFP levied against it and said that the statute of limitations period — within which legal action must be brought — had passed. In addition to the denial, Townsend called “nonsensical” DPFP’s argument that it constitutes a “political subdivision” and is thus exempt from the statute of limitations.
Townsend then pointed to the recession of the late aughts and early 2010s to explain the pension’s losses and DPFP’s own negligence in assessing its investments.
“The Dallas Morning News and other media outlets wrote lengthy articles pointing out how [DPFP’s] aggressive and risky real estate strategy subjected retirees’ pensions to substantial swings in the market,” they stated.
“Yet, [DPFP] waited some 10 years before suing the Townsend Defendants.”
In its ruling, the jury found Townsend and Lawson not guilty on every charge of legal violations. They awarded zero dollars in damages to DPFP. On a couple of questions, the court did find DPFP, CDK, and Lawson to have been negligent in their services to the pension fund, and attributed 75 percent of the fault to the pension fund itself for not properly monitoring its own assets.
While the solvency of pension systems hinges in part on the success of their respective investments, public pensions across the state and nation face massive debts due substantially to the very structure under which they operate.
At root, the solvency of pensions depends on enough money being contributed to pay off its promised payments to current beneficiaries. That generally either comes from current pensioners but future beneficiaries, or outside cash flow from investments or payments from local governments.
But when the ability to pay off current debts — when the beneficiary load grows too large or the contribution influx shrinks — there arises a basic and unavoidable math problem. DPFP is one of many public pensions stuck between the rock of its hefty promises and the hard place of its financial realities.
DPFP is currently embroiled in another lawsuit, this one against the City of Dallas itself, which is accused of missing $2 million in payments into the pension. That suit was initially dismissed by the U.S. District Court for the Northern District of Texas but was appealed to the U.S. Fifth Circuit Court, where it still lingers.
An attorney for the Dallas Police & Fire Pension declined to comment on the case other than to say he is “looking forward to the Fifth Circuit appeal.” He added that the pension fund had made “prudent changes” to its policies to prevent financial losses going forward.
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Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.