Changes to Los Angeles pensions, which move employees hired since 2012 to an older, more generous pension plan, are expected to cost $18 million in this year’s budget, City Administrative Officer Miguel Santana said.

LOS ANGELES — Los Angeles will roll back pension reform measures enacted in 2012.

The pension changes come in a four-year labor contract that the city council approved in a 12-0 vote on Tuesday.

A new Tier 3 benefits package will be created for future hires to replace the Tier 2 pension reform plan adopted in 2012, but the savings aren't as large for the city.

Employees hired since 2012 move back to the pre-2012 Tier 1 pension benefits, which will be more costly to the city.

The pension reform modification could also push out by a year, to fiscal 2019, the city's ability to close its structural deficit.

It is expected to cost $18 million in this year's budget to move the Tier 2 employees back to Tier 1, City Administrative Officer Miguel Santana said Monday during a City Council Budget & Finance Committee meeting.

California governments can't reduce the pension benefits of existing employees under state law, so any pension reforms only apply to new employees.

Though the agreement with city unions would eliminate the Tier 2 adopted in 2012, Santana said that the proposed Tier 3 pension proposal combined with salary reductions will save more than the 2012 pension reforms.

The 2012 pension reform was expected to save $6.9 billion over 30 years; the proposed Tier 3 plan is penciled in at $5.2 billion of savings over 30 years. But Santana said an agreement to not grant cost-of-living increases over the next three years and reductions in salary step raises will save $10.5 billion over 30 years for a total of $15.7 billion in savings.

Los Angeles Mayor Eric Garcetti and the City Council made a decision this summer to negotiate a new labor contract as negotiations dragged on and a strike seemed likely. The Coalition of L.A. City Unions also had filed a lawsuit against the city challenging the 2012 reforms and the city and unions had been unable to reach a settlement agreement.

Under the new Tier 3 plan, the retirement age would be 63, not 65 as enacted in 2012, but still higher than the Tier 1 plan's age 60. The new plan caps pensions for new hires at 80% of a retiree's salary, not the 75% in the Tier 2 plan, but less than the 100% cap for employees hired before 2012.

Los Angeles has $9 billion unfunded pension liability for its civilian, police and fire pension systems.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.