LA City Workers.com – City of LA Blog

That the Committee recommend to the Board that the Unfunded Actuarial Accrued Liability associated with the City’s proposed Early Retirement Incentive Program (ERIP) be amortized over a time period that matches the actuarially-calculated salary savings period from the ERIP – 5 years (Method 2).

 Method 2 – Match the Amortization Period to the Actuarially-calculated Average Salary Savings Periods

Description of Method: The GFOA’s Recommended Practice on “Evaluating Use of Early Retirement Incentives – 2004”, in part, states that: The incremental costs of an ERI should be amortized over a short-term payback period, such as three to five years. This payback period should match the period in which the savings are realized (emphasis added).

This is one of two proposed methods (the other being Method 3) that attempts to match the amortization period to a definable period of salary savings. Under the ERIP, the City would realize short-term salary savings associated with the decrease in the City’s active member payroll due to increased retirements. This savings period is short-term in that it only lasts until the time ERIP members would have retired anyway. Under this method, the amortization period for the ERIP costs would match this actuarially-calculated average salary savings period.

For example, a member who, according to actuarial assumption, would have retired 3 years from now takes the ERIP offer and retires immediately; the City’s salary for this member will be eliminated. However, the salary savings for this now-retired member will last for only 3 years because the member presumably would have retired in 3 years anyway, even if the ERIP did not exist.

At staff’s request, Segal calculated the average number of years of the salaries that will be eliminated and thus saved as a result of the ERIP – beginning from the early retirement date in the report through the actuarially-determined retirement date without the ERIP. The calculation indicates that the savings brought by the ERIP on salaries will last for an average of 4.3 to 5.1 years for Alternative 1 and 4.7 to 5.4 years for Alternative 2.

The emerging industry best practice points toward a short amortization period for costs of benefit enhancements resulting from early retirement incentives. One evidence of this emerging best practice is that, in its response to the Government Accounting Standard Board’s (GASB) Invitation to Comment on Pension Accounting and Financial Reporting (Attachment 11, Page 20) dated July 31, 2009, a group of public sector actuaries commented on this issue as follows: For early retirement incentives or other termination benefits which take the form of enhanced pensions, we would support amortizing the change over a substantially shorter period, possibly as short as five years. Resulting Amortization Period: 5 years.

Advantages of this Method:

• The ERIP liability is paid off during the time period that LACERS is expecting to payout a relatively high percentage of the ERIP-related benefits (Attachment 10) and is the only proposed method other than Method 1 (0-year amortization) that provides sufficient cash inflows to fully cover the expected benefit payments throughout the amortization period.

• This method is consistent with the model practices contained in the actuarial community’s comments to GASB and the recommended practice from GFOA. Disadvantage of this Method:

• This method creates larger City payments over the short-term than some of the other methods. Actuary’s Opinion on Method

Paying for the Costs of the ERIP

The fact that the City agreed to terms with the Coalition for the recoupment of some of the additional contributions (including the period over which that recoupment would occur) is a separate issue from the amortization period over which the City pays for the enhanced benefits. In fact, there will be an inherent mismatch between the employee contributions, if found to be permissible, and the City’s obligation to LACERS because the amount of the employee contributions are not sufficient to cover the full, estimated cost of the ERIP under either take rate scenario.

Visit the Discussion Forums for the Full Report!

Los Angeles Prepares for Layoffs Erip R.I.P.

With the very real possibility of furloughs getting rescinded after a federal appeals judge ruled unconstitutional the Furlough plan implemented by Prince George County.

General Managers are now tasked with making new financial assumptions or resorting to previous layoff lists established to meet the current budgets savings.

Departments have made assumptions on personnel prior to the ERIP savings, it is unknown if there will be additional names and classifications posted to this list and if departments will be forced to generate new lists of classifications to notify for layoffs.  These Layoff Lists are available for download in the Forums section   for most departments.

Laying off employees would start at the top and work it’s way down, since the bumping rights of senior workers would take effect. Seniority will pay off for many workers who will see vacancies at the top open up with a normal attrition rate of workers retiring and with the layoffs. Layoff Process per classification takes nearly 6 months.

Workers with less then 1 year of service could be in jeopardy if there classification is chosen for layoffs, but then Proprietary departments may choose to absorb the best candidates from those laid off as seniority and proprietary hiring are not mutually inclusive. Proprietary departments will still maintain the right to review personnel folders of candidates from what we have learned unlike other city departments.

ERIP, R.I.P.   SEIU has sent out a desperate email to it’s members acknowledging the pending demise of the ERIP plan, you might remember there previous email clearly stated everything was fine and the Mayor CAO Council LACERS and Santa Claus were to blame for the mistakes, possibly misleading there members to hide the fact ERIP was so flawed and destined to fail or bankrupt LACERS.

If SEIU was so wrong on the state of the ERIP, and the outrage from it’s members could they actually publicly support a new Vote with individual options to select on how people would like to “share the sacrifice” run by the city clerk without there biased voting form and misleading propaganda?

We must work together on these issues we must have the facts and we must be allowed a free vote untarnished by the manipulation of the unions or the city.

Council should make a motion calling for the city clerk to prepare voting materials for all vested city employees clearly explaining the options and allowing the members to have a Real Vote on what our future holds.

If all members were given a voice we could actually stomach the sacrifices that lay ahead for us.

Recently several articles have come out bashing the early retirement plan and the risk to LACERS.

Enclosed a few links to some very interesting articles that bring up the point we all have, can we afford it?

Lacers is set to recommend it unless the pressure mounts.
Is this backroom CYA or more?

Citys pension debacle it is not us against them.

Keep your hands out of the cookie jar