Tag Archives: erip

City of Los Angeles LACERS Board Approves 15 Year ERIP Repayment Plan

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City of Los Angeles Full Lacers Board voted 4-3 in favor of the 15-year repayment period.

ERIP to be voted on by Council Twice if Approved, the 45 Day Early Retirement  window will open and employees will begin filing for Retirement.

If Eligible please read the discussion forums area to make sure your classification has not been Excluded from participation or capped.

Executive employee relations committee Special Meeting on furloughs and ERIP

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If this isn’t the agenda of all agendas, Tuesday the most important group of people in city politics will get legal advice on overturning the furloughs and ending or accepting ERIP among other issues.

EXECUTIVE EMPLOYEE RELATIONS COMMITTEE
SPECIAL MEETING
TUESDAY, SEPTEMBER 1, 2009 at 8:00 A.M.
COUNCIL CHAMBER CONFERENCE ROOM 340, CITY HALL
200 NORTH MAIN STREET, LOS ANGELES, CA 90012
Section 4.870e (3) LAAC

Members: Antonio R. Villaraigosa, Mayor

Eric Garcetti, President of the Council
Jan Perry, President Pro Tempore
Bernard C. Parks, Chair, Budget and Finance Committee
Dennis P. Zine, Chair, Personnel Committee
(Any interested Council Member may attend)
City
Management
Representative: Miguel A. Santana, City Administrative Officer
AGENDA

  1. Public Comment
[NOTE: Agenda items to be considered in Executive (Closed) Session.]

The City Attorney requests Closed Session pursuant to Government Code Sections 54956.9(a) and/or (b) to allow the Committee to confer with its legal counsel subject to the attorney/client privilege on the following matters:

2. Legal Advice Relative to Status of Tentative Agreement with the Coalition of City Unions, Including the Early Retirement Incentive Program (ERIP)


3. Legal Advice Relative to Furloughs


Closed Session: Conference with Labor Negotiator / City Management Representation, or Designee, (pursuant to California Government Code § 54957.6) concerning consultations and discussions with representatives of the relevant employee organizations regarding:

4. Status Report and Instructions to Negotiators on Sworn Negotiations

5. Memorandum of Understanding Amendment for Fire Chief Officers


Sally Choi General Manager Report to Ad Hoc Committee

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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 Letter of Agreement indicates the City will recoup all costs associated with the ERIP from employees. Part of this recoupment will be accomplished by increasing the retirement contribution rate for all active LACERS members beginning July 1, 2011 by 0.75% of pay for a period not to exceed 15 years. This contribution increase alone will not pay for the estimated costs of the ERIP, as shown below:

Present Value of Estimated ERIP Costs

Alternative

(Retirements)

 

Estimated Costs to City*/Increase in UAAL (A)

 

Estimated Member Payment of ERIP Cost (B)**

 

Difference

(A-B)

 

1 (2,229)

 

$250 million

 

$157 million

 

$93 million

 

2 (2,763)

 

$354 million

 

$156 million

 

$198 million

 
Pursuant to the Letter of Agreement and the attached joint letter from the City Administrative Officer and the Chief Legislative Analyst (Attachment 8), the City is taking other factors into account to determine the cost neutrality of the ERIP to the City that is called for in the Letter of Agreement. The determination of cost neutrality between the City and the Coalition does not change the total cost 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!

League of Women Voters of LA opposes early retirement plan find out why.

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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.