PENSIONS UPDATE:       June 2008

Public Service Purchase Program Update

On March 6, 2007, the Public Service Purchase (PSP) Program was passed by the voters of the City of Los Angeles -- Charter Amendment M. The PSP Program allows sworn members of the Los Angeles Fire and Police Pension System, who served in the military or other public agencies to purchase service credit, subject to requirements and limitations established by the City Council.

On April 8, 2008, the ordinance was adopted by Council and later became effective April 22, 2008.

Cost of the PSP Program

The PSP Program was negotiated by the labor organizations and the City. One of the key provisions is that the program must be cost neutral. This means that in addition to the normal pension contribution rate of 7, 8 or 9%, the member is responsible for paying the full cost of each additional year of service that is purchased.

For example, Tier 5 members currently pay 9% of salary in pension contributions, while the City contributes approximately 19% of sworn payroll toward the pension system. The two amounts combined total approximately 30% per year to fund the pension system. However, the member's cost to purchase service may be higher than the combined cost due to having to pay the full cost of benefits that would have normally been subsidized by the City.

The actuarial assumptions used to determine the cost for each year of service purchased are the same as those used to establish the City's contribution to the pension system.

The cost factors used to establish the cost for PSP include:

1. Projected retirement date;
   
   
2. Projected years of service at retirement;
   
   
3. Projected salary at retirement; and,
   
   
4. Number and type of eligible survivors at the time of retirement, e.g. difference in age between member and surviving spouse/domestic partner, and/or number of minor or dependent children.

The following is an example of a comparison of pension benefits for a Tier 5 member with a final average salary of $8,000 per month and 25 years of service, who purchases four years under the PSP program:

In the above example, under the PSP Program the member is responsible for paying the full cost of the increased pension and survivor benefits gained from the additional years of service purchased.

Implementation

The Department is currently finalizing the process to begin accepting applications and processing purchases. A PSP Calculator for cost estimates is currently available. Prior to your purchase we strongly encourage you to obtain a cost estimate and consult a financial adviser to determine if this purchase will be beneficial for you. For information on the application process, please review PSP: Steps to Purchase Public Service.

If you have any questions, please contact our Active Member Services Section at (213) 978-4522 or (800) 787-2489, ext. 84522.