Tag Archives: pension

Paul Weber: Public employee pension ‘reforms’ recipe for disaster

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Paul Weber: Public employee pension ‘reforms’ recipe for disaster

Paul Weber
LA Daily News
Aug 29, 2010

RECENTLY many opportunistic politicians around the state have been on rant against public employee pensions and calling for draconian “reform.” A more accurate description of would be: “It’s about time public employees joined the race to the bottom.”

While many of the people, including the Daily News, calling for reform are acknowledging that private-sector workers have lost tremendous value on their retirement plans, incredibly they present that as a model for public-sector employees! Very rarely do those calling for change take the time to honestly discuss how a 401(k)-style plan would provide for a secure and dignified retirement for employees. That is not a surprise; the 401(k) approach to retirement savings is, and will continue to be, an absolute disaster for this country – leaving the workers who retire under its auspices with the choice of being penniless in retirement or working until they die.

Some politicians have been lining up to support the elimination of defined pension plans for new employees and force them into 401(k) plans. Strikingly, the reason is never given that the plan is better for the participant. Instead, the argument is that pension plans are unaffordable, and eliminating them will save the employer money.

The 401(k) program piecemealed into existence over the past 25 years has failed to provide retirement security for American workers. The past years have shown the fragility of the 401(k) scheme for funding retirements.

While public pension plans have also taken severe hits, they have a long-term investment outlook, and their obligations aren’t due in full in the next five, 10 or even 20 years. By contrast, people who are within five to 10 years of retirement will have great difficulty recovering the value of their accounts without greatly stretching their working lifetimes. Many who have recently retired under a 401(k) account will be forced back to work. Is this really the example that we want the public sector to follow?

The real crisis in this country is not largely self-supporting pensions, but reliance on the 401(k) plans for retirement that most private sector companies have set up for their employees. Tried-and-true pension plans for LAPD officers have been around since June 7, 1899. The Los Angeles Fire and Police Pension system, even after the economic downturn, is currently 96.2 percent funded. Members contribute up to 9 percent of their pay biweekly, which adds $120,287,911 for the 2010-2011 fiscal years. Even with this sizable amount, the majority of the money needed to fund the pension systems comes from their investments, not contributions by the city or police officers.

Politicians opposed to pension plans are fond of citing figures that show a tremendous rise in contribution rates to plans such as CalPERS. The most commonly cited and deliberately misleading trick is to claim that the state’s contribution has risen 2,000 percent since 2001. This claim uses as its starting point the year that required the lowest amount of contributions to CalPERS in decades – the end of a four-year period where the employers took a contribution “holiday,” adding little or nothing to the pension system. (In 1996, the state contribution was $1.2 billion; by 2001, it dropped to $156 million.) During those years, the pension reformers of today remained silent as the government shirked its pension obligation, helping to create the situation we see today.

The call for future employees to rely on Social Security in lieu of pensions in retirement income is strange, considering that the Social Security system faces a $5.7 trillion shortfall over the next decades. Given the logic of the latest calls for change, can we expect future pundits to proclaim the fix to Social Security funding is to not let any future workers enroll in the system?

It is vitally important to look at our city’s long-term viability, which is dependent upon a stable, well-trained and fairly compensated public work force. In good economic times, public employment offers lower salaries, no bonuses, no stock options and no similar perks common in the private sector. The trade-off for being a police officer, firefighter or teacher has always been the security of a retirement after a lifetime of public service.

If that trade-off is taken away, who is going to devote their working career to public service and guarantee themselves inadequate resources for retirement? Anyone with common sense should wonder why the solution to issues facing public pensions would be to switch employees to a retirement system that is a demonstrated failure.

After devoting their careers to protecting the public, with all the accompanying physical and emotional turmoil, our future police officers and firefighters shouldn’t retire penniless. In fact, no one should.

Responsible leaders in our state shouldn’t be advocating for a system for public employees – or anyone – that has already failed millions of hardworking Americans.

Paul Weber is president of the Los Angeles Police Protective League.

LA City Unions Early Retirement Allegedly Passed, Here comes the fun!

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SEIU Mission Accomplished

SEIU Mission Accomplished

SEIU Claimed (1) Victory and that all MOUS  approved the deal, this is still in question, and that the Early Retirement has Passed.

What does this mean for the workers of the City of Los Angeles?

How can this deal be passed if ALL unions have not completed their vote count?

What is in store for remaining workers if this deal is finally approved?

First, if 2400 People don’t retire, the union must find a solution to that problem and fix the shortfall layoffs will be the only tool left and that will be immediate.

Second,  the City of LA must begin to address the new Unfunded liability in the LACERS plan, this could cause a 100 Million shortfall triggering the Layoff clause in the contract, and finally all it takes is the layoff of one worker, How tempting would it be to layoff one worker on June 30,2011 before our first raise is due? SO they pay us our raises we were due and screw us out of the rest of the deal.

Third, Lawsuits, Count on them.  Hopefully people retiring don’t actually plan on spending their bonus money anytime soon, because Lawsuits can drag on long after many of these workers will have moved on to greener pastures.

Fourth, Bankruptcy, the very tempting relief from all those debts, retirees medical, our medicals, new employees will most likely be switched to defined benifit plans shortly, which would completely eliminate the possibility of current workjers ever enjoying any retirment boost similar to what current retirees will enjoy.

Finally, Workers will be making less, while those who retire early, will Enjoy a 3% Cost of living raise next year and every year for the rest of their life.

Almost forgot, for those who might not have remembered not only will the furloughs hit you very soon, so will the New State Tax Rate.

Glad we have a raise to count on in Two years.

Final Certified Results will be posted as soon as they become available.

(1) Charles Leone SEIU claimed “all mous voted, all unions have passed the 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.

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.

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