Below I have reprinted a letter sent by the League of Women Voters of Los Angeles to the City Council.
It is very important to note, that the League of Women Voters has done several studies on the LACERS pension system and civil service in the City of Los Angeles.
There opinions are highly regarded and they are very well researched.
Here is some information on them.
We are writing on behalf of the League of Women Voters of Los Angeles with regard to the Early Retirement Incentive Program. As you consider the enabling ordinance for the Early Retirement Incentive Program (ERIP), we ask you to consider the following:
• There is a substantial risk that the .75% increase in the employee contribution rate will not survive legal challenge
This became clear at the City Council Meeting on Tuesday, August 4. Under questioning by Councilman Parks, the Assistant City Attorney indicated that the opinion of the City Attorney’s Office is that individual contractual rights (e.g., the right to a pension) cannot be negotiated away by a third party (e.g., the unions). This is in accordance with our understanding of California case law regarding public pensions. You may want to read discussion of this question by the law firm of Jones Day in this document ). The article states that courts have ruled that any change in pension benefits which results in a disadvantage to the employee (e.g., an increase in the contribution rate) must be offset by a comparable advantage. Our question is: what is the comparable advantage that is provided to each individual city employee who will be subject to the higher contribution rates required by the proposed ERIP?
At least one party – the Engineers and Architects Association – has already threatened a lawsuit.
The actuaries estimated the net present value of the .75% contribution to be about $150M. If the increased employee contribution rate is struck down by the courts, this plan could have a very different financial outcome than what has been envisioned.
• If the contribution rate increase is thrown out by the courts, the provisions in ERIP agreement for renegotiation to ensure cost-neutrality could lead to protracted discussions with the unions with no resolution guaranteed.
If the employee contribution rate increase is invalidated in the courts, the City’s agreement with the Unions requires renegotiation to try to ensure the cost neutrality of the ERIP. However, normal bargaining procedures cannot be invoked until 60 days after the City’s exhaustion of legal appeals, which would probably take years. The agreement is vague on what happens if negotiations fail.
• ERIP will be available to all LACERS members, including those employed by the Harbor and Airport Departments (about 20% of the total LACERS membership) – meaning that a portion of the salary savings will not affect the City’s general budget.
The Airport and Harbor Departments are proprietary departments, meaning they have independent sources of revenue and adopt their own budgets. Therefore, salary savings from Harbor and Airport employees’ retirements will not be reflected in the City’s General Fund because their salaries do not come from that pot of money. Has the Council received an analysis that separates potential Harbor and Airport retirement savings/costs from those associated with the non-proprietary retirements?
• There is a risk that the “take rates” for ERIP will not be as great as projected.
ERIP has the goal of 2400 retirements – almost as many as the total number of retirements (2481) of active members in the five year period from 2004-2008. In a shaky economy will the incentives offered be enough to attract this number of participants?
The League opposes using early retirements as a means of closing this year’s budget gap, because it will only add to the enormous unfunded liability of LACERS. If there is anything the recent financial crisis has illustrated, it is the perils of taking on debt that cannot be sustained. As you consider the difficult question of whether to ratify the MOU between the City and the Coalition of Los Angeles City Unions, we urge you to consider how best to maintain the financial solvency of the City in the long run. Each member of the Council must consider the probability of a lawsuit being filed against the City if it adopts and implements the ERIP and the probability of the City ultimately losing such a lawsuit. If there is a relatively high probability of both events, then there is a good chance that adoption of the ERIP will further increase the City’s fiscal difficulties over the next few years.
(Jane Goichman and Elizabeth Ralson are Co-chairs of the Los Angeles City
Retirement Benefits Action Committee of the League of Women Voters of Los Angeles.
The League of Women Voters of Los Angeles is a nonpartisan political organization encouraging informed and active participation in government. It influences public policy through education and advocacy.
Below you will find there unbiased letter reprinted with permission in regards to the proposed ERIP plan.
A big Thank You to the league and the author’s.
———————————
We are writing on behalf of the League of Women Voters of Los Angeles with regard to the Early Retirement Incentive Program. As you consider the enabling ordinance for the Early Retirement Incentive Program (ERIP), we ask you to consider the following:
• There is a substantial risk that the .75% increase in the employee contribution rate will not survive legal challenge
This became clear at the City Council Meeting on Tuesday, August 4. Under questioning by Councilman Parks, the Assistant City Attorney indicated that the opinion of the City Attorney’s Office is that individual contractual rights (e.g., the right to a pension) cannot be negotiated away by a third party (e.g., the unions). This is in accordance with our understanding of California case law regarding public pensions. You may want to read discussion of this question by the law firm of Jones Day in this document ). The article states that courts have ruled that any change in pension benefits which results in a disadvantage to the employee (e.g., an increase in the contribution rate) must be offset by a comparable advantage. Our question is: what is the comparable advantage that is provided to each individual city employee who will be subject to the higher contribution rates required by the proposed ERIP?
At least one party – the Engineers and Architects Association – has already threatened a lawsuit.
The actuaries estimated the net present value of the .75% contribution to be about $150M. If the increased employee contribution rate is struck down by the courts, this plan could have a very different financial outcome than what has been envisioned.
• If the contribution rate increase is thrown out by the courts, the provisions in ERIP agreement for renegotiation to ensure cost-neutrality could lead to protracted discussions with the unions with no resolution guaranteed.
If the employee contribution rate increase is invalidated in the courts, the City’s agreement with the Unions requires renegotiation to try to ensure the cost neutrality of the ERIP. However, normal bargaining procedures cannot be invoked until 60 days after the City’s exhaustion of legal appeals, which would probably take years. The agreement is vague on what happens if negotiations fail.
• ERIP will be available to all LACERS members, including those employed by the Harbor and Airport Departments (about 20% of the total LACERS membership) – meaning that a portion of the salary savings will not affect the City’s general budget.
The Airport and Harbor Departments are proprietary departments, meaning they have independent sources of revenue and adopt their own budgets. Therefore, salary savings from Harbor and Airport employees’ retirements will not be reflected in the City’s General Fund because their salaries do not come from that pot of money. Has the Council received an analysis that separates potential Harbor and Airport retirement savings/costs from those associated with the non-proprietary retirements?
• There is a risk that the “take rates” for ERIP will not be as great as projected.
ERIP has the goal of 2400 retirements – almost as many as the total number of retirements (2481) of active members in the five year period from 2004-2008. In a shaky economy will the incentives offered be enough to attract this number of participants?
The League opposes using early retirements as a means of closing this year’s budget gap, because it will only add to the enormous unfunded liability of LACERS. If there is anything the recent financial crisis has illustrated, it is the perils of taking on debt that cannot be sustained. As you consider the difficult question of whether to ratify the MOU between the City and the Coalition of Los Angeles City Unions, we urge you to consider how best to maintain the financial solvency of the City in the long run. Each member of the Council must consider the probability of a lawsuit being filed against the City if it adopts and implements the ERIP and the probability of the City ultimately losing such a lawsuit. If there is a relatively high probability of both events, then there is a good chance that adoption of the ERIP will further increase the City’s fiscal difficulties over the next few years.
(Jane Goichman and Elizabeth Ralson are Co-chairs of the Los Angeles City Retirement Benefits Action Committee of the League of Women Voters of Los Angeles.