LA WATCHDOG--The four Garcetti appointed trustees of the Board of Administration of the Los Angeles City Employees’ Retirement System (“LACERS”) have demonstrated that they have placed their personal interests ahead of those of the almost 43,000 members who are dependent on LACERS for their retirement benefits.
At its meeting on Tuesday, the Board of Administration approved lowering the investment rate assumption to 7.25% from 7.5%, following the example of the Fire and Police Pension Plans which made the adjustment in June. But this approval was not the case recommended by the system’s actuary or the pension plan’s staff who called for a 7% investment rate assumption.
The Board’s decision, after three months of delays, was influenced in large part by the impact on the City’s budget. Under the recommended plan, the City’s annual contribution to the underfunded LACERS would increase by approximately $100 million as opposed to only $40 million under the plan approved by the Board.
Of course, this decision was helped along by some not so subtle arm twisting by the Mayor’s Chief of Staff who was seen in the side hall talking to two politically appointed trustees during a break prior to the final vote by the previously deadlocked Board. This pressure must be viewed in the context that the Mayor has undated letters of resignation from his politically appointed trustees, a clear violation of the trustees’ primary duty to the system’s participants and their beneficiaries.
The threat of removal is real as Board President Roberta Conroy was bounced in October, 2011 as a result of the Board lowering the investment rate assumption despite a letter from Mayor Villaraigosa, then City Council president Eric Garcetti and the three other members of the City Council requesting that the current rate of 8% be retained so not to increase the City’s pension contribution and the City’s budget deficit.
The LACERS Board has also been derelict in that has not addressed the financial health of LACERS and whether it is a sustainable pension plan.
As of June 30, 2016, the date of the last actuary report, LACERS was underfunded by $6.3 billion based on the market value of its $14 billion investment portfolio, representing a funded ratio of only 69%. But if we relied on Warren Buffett’s investment rate assumption of 6%, the unfunded pension liability would soar to over $10 billion and the funded ratio would dip to below 60%.
Under the Buffett scenario, the City is shortchanging LACERS by an estimated $300 million a year.
In 2014, the LA 2020 Commission that was formed at the suggestion of City Council President Herb Wesson recommended that the City form a Committee on Retirement Security to review the City’s retirement obligations and the investment rate assumptions and make concrete recommendations on how to achieve equilibrium on retirement costs.
In February of this year, the management of LACERS hosted a symposium to review the current status of the pension plan and its sustainability. As a result, significant doubts were raised in the minds of many about the long term viability of this pension plan that covers the City’s civilian employees.
But what has the negligent Board done to address the $10 billion unfunded pension liability, the City’s low ball contributions that rely on unrealistic assumptions, and the long term prospects of LACERS.
The four politically appointed trustees and the three trustees elected by the active and retired members have a fiduciary responsibility to the 43,000 participants and their beneficiaries to make sure that LACERS is and will continue to be a viable pension plan that will provide the promised benefits to its members, both now and into the future.
While LACERS is able to deliver on its promises today, the future is in doubt. It is time for the trustees get their act together and represent the best interests of the members, even if this means telling Mayor Garcetti, the City Council, and the leaders of the City’s civilian unions to buzz off.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: firstname.lastname@example.org.)
Tags: Jack Humphreville, LA Watchdog, LACERS, pension, budget, Mayor Garcetti, unions, civilian unions, Roberta Conroy