LOS ANGELES -- Los Angeles City Councilmembers will discuss on Tuesday a pension reform plan that could save the city $50 million to $70 million over the next five years – and up to $4.3 billion over the next 30 years.
The pension reform plan creates a new tier for future city employees that would increase the retirement age from 55 to 65, cap the maximum retirement allowance at 75% of an employees’ final compensation instead of up to 100% and prevent pension spiking by basing the pension on a three-year salary average as opposed to one-year.
It also requires employees to share the cost of investment losses so that employees would contribute a portion of their salary at 75% of normal costs plus 50% of any future unfunded liabilities.
The reductions to future employee pension plans are necessary, city administrative officer Miguel Santana said in his report, because the city remains in “dire fiscal condition,” despite measures the city has taken over the last three years to reduce costs. The city already has laid off nearly 5,000 people, increased active member pension contributions from 7% to 11%, and lowered the new hire salary for sworn officers by 20%, Santana said.
Despite the steps already taken, the city will spend $848 million this year on pensions and retiree health care costs. By fiscal 2016-17, it is anticipated that these costs will grow to $1.3 billion — nearly 26%of the general fund. This is an increase of $442 million over FY 2012-2013.
The proposal impacts new employees who fall under the Los Angeles City Employees’ Retirement System (LACERS) and would take effect on July 1, 2013.
Los Angeles Mayor Antonio Villaraigosa and City Council President Herb Wesson and five others from the 15-person council held a press conference on Wednesday in support of the proposal.
“Some will say this plan goes too far, others will say it doesn’t go far enough,” Villaraigosa said in statement. “But I believe this is the right plan for Los Angeles because it finds the middle ground.”
The mayor had originally proposed that the retirement age be increased to 67.
“Every dollar we spend on pensions is a dollar we can’t spend on core city services like public safety, parks and filling potholes,” Villaraigosa said.
In a statement, L.A. Area Chamber president and chief executive officer Gary Toebben called the proposed ordinance “a great stride in dealing with the city’s long-term pension challenges,” but added more needs to be done.
“We support this critical action, but want to make it clear that though this is another important step, our work is not done and we must do more to deal with the financial crush of our immediate, mid- and long-term pension obligations,” Toebben said.
In mid-August, Toebben and former Los Angeles mayor Richard Riordan told the City Council it should place a charter amendment on the ballot “that would transfer the power over civilian pension plan design back to the voters as it was prior to 1972.” The business coalition that included Toebben and Riordan also recommended that the city control increasing pension costs by controlling salary increases.
Toebben wasn’t available to comment on whether the business coalition plans to pursue the initiative.
Ed Johnson, Wesson’s spokesman, said the city could not include current employee pensions in the proposal because they are vested by the State Constitution.
The reform proposal “is something Councilman Wesson wanted to do sooner rather than later, because the longer we wait the more severe the remedy will have to be,” Johnson said.