Dallas Police and Fire Pension: HB 3158, $11B Deal, and COLAs

The Dallas Police and Fire Pension is the defined benefit retirement plan for sworn police officers and firefighters employed by the City of Dallas. It covers roughly 5,600 active members and 5,300 retirees and beneficiaries, nearly collapsed in 2016, was restructured by the Texas Legislature in 2017, and is now operating under a 30-year, $11 billion funding agreement approved in December 2025 that still leaves the system only about 39% funded.¹²

The system (DPFP) operates primarily through its Combined Pension Plan, a single-employer defined benefit plan governed by Article 6243a-1 of the Texas civil statutes. A smaller Supplemental Plan, created by city ordinance in 1973, provides additional benefits to a narrow group of members holding ranks above the highest corresponding civil service rank. That supplemental plan covers 62 active members and 157 annuitants and is funded almost entirely by the city.³

How the Plan Nearly Collapsed

The governing statute, originally enacted in 1933, delegated broad authority to plan members to amend their own benefits. Over the years they approved increasingly generous provisions. In 1989, members added a 4% annual cost-of-living adjustment and a medical supplement. Between 1992 and 1993, they created a Deferred Retirement Option Plan (DROP), and in 1998–1999 expanded DROP to include retirees while authorizing guaranteed interest rates between 8% and 10% on DROP balances. Those guaranteed returns far exceeded what the fund’s actual investments were earning. The system averaged just 6.23% annually between 1994 and 2015.⁴

The pension board also pursued an unusually aggressive investment strategy. At one point, 68.4% of the fund’s assets were allocated to alternative and real estate investments, compared to about 22% for a typical state or local pension plan. Many of those were illiquid private equity and real estate holdings made between 2005 and 2008, concentrated in vehicles such as Lone Star, the Huff Energy Fund, and a real estate portfolio managed by AEW. When those assets were written down and actual returns fell short of projections, the gap between what the fund owed and what it owned widened fast. The funded ratio dropped from 72% in January 2011 to 45% by January 2016.⁵

By mid-2016, word had spread among members that benefit cuts were coming. Fear of losing their guaranteed DROP balances set off a run on the fund. Between August and December 2016, participants withdrew roughly $500 million to $600 million from their DROP accounts, about 23% of the plan’s $2.2 billion in net assets.⁶⁷ On December 5, 2016, Mayor Mike Rawlings sued to freeze withdrawals. Three days later, the DPFP Board of Trustees temporarily halted all distributions. The funded ratio had plunged to roughly 35%, and actuaries projected the system would exhaust its assets entirely by 2027 if nothing changed.⁵

In January 2017, the board replaced lump-sum DROP withdrawals with minimum monthly distributions. A member vote the month before on benefit cuts and higher contributions had failed to reach the required 65% threshold.⁷

What HB 3158 Changed in 2017

With internal reform stalled, the pension board and city officials turned to the Texas Legislature. House Bill 3158 passed the Texas House and Senate unanimously, was signed by Governor Greg Abbott on May 31, 2017, and took effect September 1 of that year. In the near term, the reforms reduced the system’s unfunded liability by approximately $1 billion and raised the funded ratio from about 37% to roughly 50%.⁷

The law rewrote almost every piece of the plan:

The board was restructured to 11 trustees: six appointed by the mayor in consultation with the city council, three elected by members and pensioners from a vetted slate, and one each elected by current or former police officers and firefighters. Trustees must demonstrate expertise in areas like finance, investment, or actuarial science, and are limited to six consecutive years of service.⁸
The pension multiplier was reduced to 2.5% of salary for all future service, down from 3% for officers hired before March 2011. The maximum benefit was capped at 90% of computation pay. Full retirement age was raised to 58, up from 50 or 55 depending on hire date.⁹
Employee contributions rose to 13.5% of pay, up from 8.5% for non-DROP participants and 4% for those in DROP. The city’s contribution was raised to 34.5% of payroll, plus an additional $13 million per year through 2024.⁹
DROP participation was capped at 10 years, lump-sum payouts were eliminated in favor of annuity distributions, and guaranteed interest payments on active balances were removed in favor of a Treasury-based rate.⁹
Future cost-of-living adjustments were barred until the plan reaches a 70% funded ratio and remain subject to board approval beyond that threshold.⁹

The 2025 $11 Billion Funding Agreement

HB 3158 set a critical deadline: by November 1, 2024, the pension board was required to adopt a plan bringing the system into compliance with state funding guidelines. The city and the pension board disagreed about who had the final say over that plan. The pension board argued state law gave trustees exclusive authority. The city countered that because taxpayers foot the bill, it had to approve any plan.¹⁰

The pension board filed suit in 2024. A Travis County judge ruled in favor of the pension board, and the city appealed.¹¹ The dispute was ultimately resolved through a negotiated funding agreement. The Dallas City Council approved the deal on December 10, 2025, and the pension board followed with a 6–5 vote the next day, ending the lawsuit through an agreed judgment.¹²

The agreement commits the city to approximately $11 billion in total contributions over 30 years, with full funding projected by 2053.¹⁰ It also authorized supplemental payments to retirees and beneficiaries, a significant concession because formal COLAs remain prohibited until the plan reaches 70% funding.¹³

What Retirees Get: COLAs and Supplemental Payments

Since 2017, retirees and beneficiaries have received no cost-of-living adjustments, and under HB 3158 none can be granted until the plan reaches 70% funding. That threshold may not be met for decades.

The 2025 funding agreement addressed the gap in part by authorizing supplemental payments beginning January 1, 2026. Retirees who were already receiving pensions before that date are entitled to an automatic supplemental payment equal to 1% of their annual pension benefit, excluding DROP. An additional 1% is payable to all pensioners in any year the fund posts a positive investment return. These payments continue until the system reaches 70% funding and can begin granting formal COLAs. The supplemental payments added an estimated $51 million to the plan’s total liability and $3.2 million to the annual contribution requirement.²

Current Benefit Tiers and Contributions

Retirement eligibility and benefit formulas in the Combined Plan vary by hire date. Officers hired before March 2011 who accrued service before September 2017 receive a blended formula: 3% of final average salary per year for pre-reform service and 2.5% per year afterward, capped at 90%. Those hired on or after March 2011 earn 2.5% per year, with full retirement at age 58 and a final average salary based on the highest consecutive 60 months of pay.¹

All active members contribute 13.5% of computation pay. Under the funding agreement, the city’s contribution rate now exceeds 38% of payroll. For the fiscal year beginning October 2026, the actuarially determined city contribution is $286 million, or about 44.6% of projected payroll, while the actual contribution owed under the funding agreement is $247 million.² Actuaries have flagged that the shortfall between the agreed contribution and the calculated need could threaten the system’s ability to reach full funding by 2053 if assumptions aren’t met consistently.¹⁴

DPFP’s Supplemental Plan is a separate matter and applies only to that small group of higher-ranking members. For that plan, the employer contribution rate is 146% of pay.³

Where the Fund Stands Today

Despite the reforms, DPFP remains one of the most poorly funded major pension systems in the country. The January 1, 2026, actuarial valuation showed a funded ratio of 39.08% on a market-value basis and 35.17% on an actuarial-value basis. The total actuarial accrued liability stood at $5.76 billion against actuarial assets of about $2.03 billion, leaving an unfunded liability of $3.73 billion.²

Investment returns have been improving. The fund earned a 15.49% market-value return in 2025 and 9.25% in 2024, both well above the 6.5% assumed rate of return.² But the system still pays out more in benefits than it receives in contributions, a dynamic that forces asset sales and limits portfolio flexibility. In 2024, total contributions rose 9.5% year over year while benefit payments grew only 1.2%, narrowing the gap somewhat, though the fund’s net position still depends on investment gains to offset the cash-flow imbalance.¹⁵

The investment portfolio itself is in transition. Legacy private equity and real estate holdings from the pre-crisis era still account for roughly 22% of assets, down from over 65%, with a target of 5% each for real estate and private equity. The fund has sold off about $1.4 billion in problematic private-market assets over the past several years. Fund officials have acknowledged that the 10-year return record, about 2% as of 2024, is among the poorest in the state, and expect that figure to improve as the remaining legacy assets cycle out of the measurement window.¹⁶

The active-to-retiree ratio is roughly 1 to 1, with about 5,600 active members supporting 5,300 annuitants, which compounds the cash-flow challenge because contributions from current workers barely offset the monthly benefit payments flowing out.¹ The plan is solvent, the contribution path through 2053 is set, and benefits are being paid, but the system will be climbing out of its hole for the working careers of nearly every officer and firefighter now on the force.

1
Texas Pension Review Board. Dallas Police and Fire Pension System – Combined Plan
2
Dallas Police and Fire Pension System. January 1, 2026 Actuarial Valuation Report – Board Agenda
3
Texas Pension Review Board. Dallas Police and Fire Pension System – Supplemental Plan
4
City of Dallas. Dallas Police and Fire Pension and Related Pay Referendum Issues
5
Center for Retirement Research at Boston College. Dallas Police and Fire Pension Saga Is a Cautionary Tale for Others
6
Los Angeles Fire and Police Pensions. Dallas Freezes Deferred Retirement Option Plan (DROP) Withdrawals
7
Dallas Police and Fire Pension System. 2017 Comprehensive Annual Financial Report
8
Texas Legislature. HB 3158 Enrolled Bill Text
9
Center for Retirement Research at Boston College. Dallas Police and Fire Pension Problems Addressed
10
Fox 4 News. Dallas Council Approves $11B Pension Deal, Fate Now Rests on Board Vote
11
City of Dallas. File No. 25-2490A – Funding Agreement for DPFP
12
Dallas Police and Fire Pension System. DPFP Board Approves Funding Agreement
13
The Bond Buyer. Dallas Public Safety Pension Funding Agreement Approved
14
Dallas Police and Fire Pension System. Actuarial Valuation and Review as of January 1, 2025
15
Dallas Police and Fire Pension System. 2024 Annual Comprehensive Financial Report
16
The Dallas Morning News. Dallas Pension Investments Have Taken a Hit, but the Fund Says That’s Not the Whole Story