Miguel Santana

LOS ANGELES — A hearing officer is recommending that new pension rules enacted last summer by Los Angeles be thrown out.

Hearing officer Luella Nelson sent a 28-page report to the city's Employee Relations Board members on Monday saying that city leaders violated a section of the Employee Relations Ordinance by enacting new retirement plans without consulting workers.

The rules have a "significant and adverse" effect on employees' working conditions and terms, Nelson said in the report.

Los Angeles officials have estimated they will save roughly $4 billion as a result of the pension reforms. In the offering documents for the city's recent $1.3 billion tax and anticipation note, the city used actuarial tables to show that the current system, which includes pension reforms enacted last summer, will enable the city to resolve its structural deficit by fiscal 2017-18.

At issue are pension reforms adopted by the City Council in 2012. The changes include ratcheting up the retirement age for newly hired employees from 55 to 65. The council also reduced the amount that new employees receive in retirement and changed the rules so that spouses of retired workers no long receive city funded health insurance.

The board is slated to discuss the report at its July 28 meeting. The parties received a copy and response dates for written exceptions are July 7; rebuttals to the exceptions are due July 14, according to an ERB spokeswoman.

Unlike San Diego and San Jose, which have had pension system alterations challenged in court, Los Angeles is early in the process, according to City Administrative Officer Miguel Santana.

The city actually won the first few rounds when employee unions tried to challenge the reform measures saying that the city failed to adhere to the meet-and-confer process whereby it negotiates with the union before enacting changes.

City officials have contended that the city does not have to negotiate with employee unions before enacting changes that impact future, not existing employees.

The budget assumptions that would resolve the structural deficit in three years are based on pension and OPEB savings resulting from the two-tiered structure implemented in the final months of Los Angeles Mayor Antonio Villaraigosa's time in office. Current Mayor Eric Garcetti led negotiations with the unions at the time in his role as City Council president.

"We will consider all the options (if the board recommends the city adhere to the meet-and-confer process), but the city is committed to the new pension tier," Santana said.

The new tier actually costs new employees less, because they are contributing 10% of their income to the pension fund, while pre-existing employees contribute 11%, Santana said.

The anticipated pushback from new employees, who would be receiving lesser benefits - like not being able to retire at the age of 55 - has not materialized, according to Santana.

"The new employees know what the benefits are when they sign up," Santana said.

"This is going to go through a number of endings, if you will," Santana said. "In the first round, the city got the ruling they wanted from the same hearing officer."

The hearing officer found that the union failed to file in a timely manner at that juncture, he said.

The board didn't accept the hearing officer's recommendation and sent it back to her for her to consider the issues on the merits. Based on the merits, she issued her latest opinion, he said.

"This going to go through many rounds," Santana said. "We were ahead on the first few rounds. It is going to take many steps before the city would contemplate rescinding it."

He added that "this is evolving case law, so we aren't surprised there is still ambiguity to these issues. Different jurisdictions around the state and country are challenging the assumptions around pensions."

The city argues that "no one should want pension reform more than the current employees, because it ensures the city will be able to live up to its pension promises if the pension system is sustainable and not in jeopardy."

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