Corina Lee
March, 2010
Recently, the City notified all labor organizations of its intention to create a new retirement tier for all future city employees. These changes, if enacted, would only apply to employees hired after a future date yet to be determined — not to current employees.
New tiers are proposed for all three pension systems: LACERS, L.A. Fire and Police and DWP. In each case, the proposed changes would dramatically reduce retirement benefits. The specific proposal for future firefighters and police officers is a Tier 6 with a 70% cap, 55-year retirement age, 10% employee contribution rate and other drastic benefit rollbacks.
The City has taken the position that they only have to meet and consult, rather than meet and confer, with the LAPPL. As President Paul M. Weber discusses in his article, the League strongly believes that the City’s proposed changes to the wages, hours and other terms and conditions of employment of individuals who will be occupying job classifications represented by LAPPL is subject to the “meet and confer in good faith” process. The LAPPL, UFLAC, IBEW Local 18 (representing DWP workers) and all of our other partners in city labor immediately notified the City in writing of their legal obligation to meet and confer with us regarding any changes to the pension system. Additionally, we attended the meeting called by the City in order to hear their explanation and to put them on further notice regarding their legal obligation.
The League is in constant discussions with our fellow labor organizations and has scheduled meetings with each of them to strategize as to how best to proceed, in a unified way, toward our shared goal of preserving retirement security for future employees. Keep in mind that unlike civilian employees, the pension benefits for police officers and firefighters are contained in the city charter. Consequently, the changes being proposed by the City would ultimately have to go before the voters before going into effect. We will keep you informed as things progress — but please know that the fight over Tier 6 is still to come.
Actuarial Study Funding
Ironically, while trying to shove a new pension tier down our throats, the City had the audacity to request that the Department of Fire and Police Pensions fund an actuarial study to determine the financial impact of a Tier 6. The cost for an actuarial will be approximately $30,000–$50,000 dollars, which would be paid out of our retirement pension fund! The LAFPP Board declined to fund the study.
The excuse the city provided was that it does not currently have the funding for such a study. The City is not concerned about the current funding levels and the long-term financial health of the Fire and Police Pension Fund — they are only concerned about their political agenda and using the pension issue as a scapegoat to avoid resolving the real underlying cause of the financial fiasco. The fact is, the pension is currently funded at 96.2%, a very strong financial position.
Like other labor organizations, we are strongly opposed to using pension money for the study, as it seriously compromises interest-based bargaining. During contract negotiations, the City asked that pension discussions be tabled until a later date and the League was told that we would meet and confer on any new changes or modifications to our pension system. Once again, the City was disingenuous, attempting to circumvent the process by serving us with this new proposed pension tier at the last possible moment and hiding behind an opinion of a city attorney. The City conceded that they had this new pension-tier documentation and chose not to disclose it during contract negotiations. And the City wonders why we don’t trust them or buy into their rhetoric.
To further add insult to the labor unions, the City wanted DWP to pay $4 million to fund a special election in June for this new pension tier. Make no mistake, the first opportunity the City has, they will put a ballot measure on for the next election.
Pension Holiday
We often hear the opponents of pensions talk about how in the late 1990s, before the 2001 dot-com bubble burst, state and local governments raised pension benefits for employees. What is never discussed is that one of the contributing factors to the current pension concerns is that many state and local governments halted their pension contributions by taking a “pension holiday” when the stock market was going gangbusters. They substituted the earnings of the pension funds for their required contributions, thereby depriving the pension systems of money that was needed and could have been successfully invested. During those years, the pension haters of today remained silent as the City shirked its pension obligation and helped create the problem we see today. (See the chart on page 10.) The City’s contribution was calculated per the charter, which allows a credit for an actuarial-acrued surplus and a charge when there is an unfunded status, as there is now.
DROP and Pensions
I am often asked about the status of LAPD officers who are in DROP. If you are currently in DROP, you are considered retired. Pensions promised current employees and retirees are regarded as vested rights, protected by contract law, that cannot be reduced without providing something of equal value.
Proposed Initiatives
As I have mentioned for months, there are three proposed initiatives to alter public-employee pensions which are being circulated in an effort to be put on the November 2010 ballot. One would cap annual pensions at $100,000. The other two would create a two-tiered system, in which future public employees wouldn’t receive the same level of benefits as current employees.
If these measures make the ballot, we will have a fight on our hands in order to educate voters. Last October, The Field Poll said a majority of California voters would support changing pension benefits for newly hired state and government workers. Fifty-one percent favored making the pension-setting rules “less generous,” while 60% said they would favor a cap on retirement benefits. A third option, replacing the current benefit system with a 401k-style savings plan, was supported by 56% of the voters.
Around the State
There are currently proposals on the table around the state that would roll back the pension benefits of city employees. In Bakersfield, they have a proposal to scale back retirement benefits for newly hired city employees. In Bakersfield, new general employee hires currently get 2.7% of their salary, with retirement at age 55. The current city proposal would make it two percent with retirement at age 55. Police and firefighters currently get three percent at 50. They want to cut that to two percent at age 50.
In Sacramento, Jon Hamm, the president of the California Association of Highway Patrolmen, said he is thinking about negotiating lower pension benefits for new hires because he is concerned about “pension envy.” Hamm also said that public employee unions are becoming villains because some are playing on public fears. Like many people, Jon also believes that that economic growth will return to normal and generate the substantial pension investment earnings we have seen in the past.
The League has serious concerns about creating a two-tier system. What is not pointed out is that the significant savings promised will take decades to achieve because no one will see the impact of the lower benefits until employees begin to retire. A lot can happen between now and then.
Paperless Annual Los Angeles Fire and Police Pension Statements
To reduce costs and the risk of identity theft, starting in 2010, your LAFPP annual statement will no longer be mailed to you. Instead, LAFPP will continue to provide quick and efficient access to your information online at www.lafpp.com. A postcard will be sent to you prior to May 2010 letting you know that the 2009 statement can be viewed. To view the annual statements currently available online, take the following steps:
1. Log onto www.lafpp.com.
2. Click on the Plan Details link in the left panel.
3. Next, click on the sub-link to
Your Personal Information.
4. Read instructions for accessing OnPoint (user ID and PIN).
5. Log into OnPoint (link at the bottom of the page).
6. Click on the Benefit Statements link in the left panel to view your past statements.
While logged in, you may also want to take advantage of the calculators that will estimate a service pension, DROP entry/exit or a public service purchase (for military or government time).
Please note that at this time, semi-annual DROP statements will continue to be mailed. Contact LAFPP Active Member Services at (213) 978-4522 for information about your annual statement(s).
Please contact me with questions at corinalee@lappl.org. Be safe.
