Response to “A Time for Action”
On April 9, 2014, the Los Angeles 2020 Commission released its
second and final report offering solutions to the problems
identified in its January report, “A Time for Truth.” The report,
“A Time for Action” proposes ways to help improve government and
the economy in the City of Los Angeles. Specifically, the report
focuses on how the City can:
Enhance transparency and accountability in City Hall;
Improve the budget process to move towards a path of fiscal stability; and
Renew job creation.
Among other things, the first report heavily criticized the City’s long-term funding policy employed by its three pension systems stating, “Today’s workers are paying into a system whose benefits they are increasingly unlikely to see.” “A Time for Action” noted that defined benefit pensions should be preserved as “…they help the City maintain a stable and experienced workforce.” However, it was also recommended that the assumed rate of investment earnings should adhere to Warren Buffett’s rule and be lowered to 6.0%.
Additional specifics on how the City might address pension reform were not included in the report because “…a careful, detailed look at retirement costs” is required. Instead, the report recommended that a five-member “Commission for Retirement Security” be temporarily established to conduct a detailed analysis to determine: 1) the total lifetime cost of an employee to the City, and 2) the total compensation to the employee. The Commission would operate independent of the City’s existing pension boards and its members would be appointed by the Mayor, City Council and Controller. Within 120 days, the Commission would be required to produce a report with specific recommendations on how the City could achieve balanced retirement costs by 2020.
Los Angeles Fire and Police Pensions
The Board of Fire and Police Pension Commissioners is very aware of the issues surrounding public pension funding, especially in light of the Great Recession. Almost all public pension systems are dealing with similar issues and most do not pre-fund retiree healthcare benefits as the City has done since 1989. Although the Commission’s report refers to a long-term discount rate of only 6%, our Pension fund exceeded our assumed investment rate of return of 7.75% and earned over 13% for the year ending as of June 30, 2013. Over the long term, LAFPP’s total investment return for the 20-year period ending June 30, 2013 is 8.01%. The Plan’s funded ratio is now 77.3% for pension and retiree healthcare benefits combined.
We will continue to update members regarding any potential action by the City or if the 2020 Commission releases any additional report or recommendations.