The Truth About LACERS – Necessary Conversations

CITYWATCH SPECIAL REPORT--In 2001, the Los Angeles City Employees’ Retirement System or LACERS* was 100.4% funded, it had a surplus of $557.7 million (no unfunded liability), and its annual contribution from the City was approximately $70 million. 

In 2019 LACERS is 73.1% funded, its unfunded liability is $6.5 billion and its most recent annual contribution from the City was $676.7 million. (The Truth about LACERS is a series and will run weekly on Thursdays.) 

It is easy to find articles about public pension plans written from predetermined political perspectives.  On one extreme, some authors seem to believe all public pension funds are in near-term death spirals.  On the other extreme, some authors suggest public pension plans are in great shape and the only issue with them is the investment fees they pay to Wall Street shysters.

The truth is that LACERS is not currently in a death spiral, but neither is it without issues.  Some of those issues may be quite significant in the mid- to long-term if they are not addressed quickly and adequately.  Unfortunately, the City has shown no inclination to engage in such discussions. Having passed pension “reforms” that will prove to be woefully inadequate in the long-run, the City’s elected officials now seem content to ignore information and warnings regarding these burgeoning pension problems and, in some cases, even interfere with the proper funding of LACERS.

As the General Manager of LACERS, I had a fiduciary (legal) duty to the LACERS members and their beneficiaries.  That fiduciary duty is contained in both the State Constitution and City Charter.  I carried the weight of responsibility for over 46,000 members and beneficiaries with me every day I worked for LACERS and I still feel that responsibility, even though I retired from the City in January 2018, after a very rewarding and successful 35-year career – having risen from a Messenger Clerk at the Library Department to General Manager of LACERS.

I believe that very honest and frank conversations are needed to allow LACERS to continue to provide meaningful retirement benefits to City employees over the long-term.  The longer it takes the City to engage in these conversations, the more it risks its ability to provide adequate services to its residents or meaningful retirement benefits to its employees, as those benefits may well create more of a financial burden for the City than it cares to, or possibly, can afford.  It is crucial that these conversations start right away.  Delaying will only result in both the not well-funded LACERS and the structural deficit-prone City in worse financial condition and with fewer choices, especially when the inevitable recession hits.

Some articles, such as “The city of Los Angeles is not being realistic about its pensions” by former First Deputy Mayor Austin Beutner and “While LA Sleeps” by David Crane, former special advisor to the governor have attempted to draw attention to the growing pension challenges the City of Los Angeles faces.  CityWatch columnist Jack Humphreville also has attempted on numerous occasions to draw attention to this issue.  In its 2014 “A Time for Action” report Los Angeles 2020 Commission warned that the increasing retirement costs were creating a no-win situation pitting “honoring the bargain to pay for retirement costs versus paying for current City services.”

My hope is that my series of articles will add to these voices to help encourage the very urgent, honest, and frank conversations – that are necessary for the sake of the City’s residents who rely on the City to provide services and the City’s hardworking employees that are counting on their promised pensions in retirement. 

I am receiving no compensation for writing this series of articles – I am doing it out of a sense of duty.  If others attempt to attack my motives for writing the articles, I would simply ask that you ponder the motives they may have to continue to kick the can down the road on this very important issue.

As pension conversations can be very detailed and complex, I will try to avoid or explain industry-specific terms or, at least explain them. My goal is to bring attention to the issues that LACERS and the City, as LACERS plan sponsor, are facing and will continue to face for decades to come. It would be best if these issues were acknowledged and dealt with quickly, but as you will see, there are political reasons why they aren’t being dealt with adequately.

This series of articles is meant to be taken as a whole, with some references to prior articles and some recurring themes.

* LACERS is the City’s pension system for civilian employees other than those who work for the Department of Water and Power.

(Tom Moutes has served at LACERS for approximately sixteen years, the last seven of those years as the General Manager of the pension system.  He retired in 2018.  Tom can be reached at necessarypensionconversations@gmail.com.) THE TRUTH ABOUT LACERS is a series and will be posted weekly on Thursdays, in CityWatch.