Category: Newsroom

ATTENTION ACTIVE FIRE MEMBERS: UNDER-COLLECTION OF PENSION CONTRIBUTIONS FOR PAY PERIODS 1, 2 & 3

LAFPP staff has been advised by the Controller’s Office that pension contributions were under–collected for members of MOU 23 – Firefighters and Fire Captains.
The problem affected approximately 900 Fire members who were receiving a longevity bonus. This bonus is pensionable and therefore, is subject to pension deduction. However, during system programming for the July 1, 2013 pay increase, the longevity bonus was mistakenly coded as “not pensionable”, resulting in an under–collection of pension contributions for Pay Periods 1, 2 and 3.
While the error was corrected in Pay Period 4 by the Controller’s Office, in accordance with LAFPP Board Rule 5.3, the under–collected amount will be deducted on the October 16, 2013 pay check for those affected. Note that the average under–collected amount is approximately $60 for all three pay periods combined.
For questions or concerns, please contact LAFPP Active Member Services at (213) 978-4522.

For the first time in LAFPP history, the Fund’s total assets reached an unaudited market value in excess of $17 billion dollars on October 15, 2013. This increase, up from the June 30, 2013 value of $15.75 billion, confirms that we are making great progress on rebuilding our portfolio after the losses sustained in the 2008-09 Great Recession.
As highlighted in the October 2, 2013 report on the Fund’s investment return, the market gain was fueled by the strong performance in the domestic and international equity markets. The real estate investments continue to show promising returns as well.
LAFPP is one of the largest public safety pension funds in the country, administering retirement benefits for more than 25,000 active and retired sworn employees of the City of Los Angeles. More information is available at About LAFPP.

After searching for several years for a suitable headquarters building, Los Angeles Fire and Police Pensions (LAFPP) purchased a four-story office building, known as the Neptune Building, on July 24, 2013 for $12.8 million. The 54,000 square foot building is located at 701 East 3rd Street in the Arts District of Downtown Los Angeles.
Before occupying the building, various tenant improvements and building upgrades will be completed over the coming year. The target date for the move is mid 2015. We will provide periodic updates and keep members informed of the status.

On October 17, 2013, the Board of Fire and Police Pension Commissioners (Board) approved staff’s…

On October 17, 2013, the Board of Fire and Police Pension Commissioners (Board) approved staff’s recommendation to dedicate the LAFPP Boardroom at the new headquarters building to Commissioner Sam Diannitto, retired Fire Department representative, for his unprecedented service for more than 59 years to the System, the Board and its members, and to the residents of the City of Los Angeles.
Commissioner Diannitto was a member of the Los Angeles Fire Department for 43 years and retired in 1997 at the rank of Assistant Fire Chief. He was first elected to the Board in 1972 and has served for 38 years – 25 years as the active Fire Department representative and 13 years as the retired Fire Department representative. His Board experience has included serving as Vice President in 1975-1976 and as President in 1976-1977 and 1991-1992.
Commissioner Diannitto has also been a valuable asset to other prominent organizations. In 1985, he founded the Public Safety Employees Pension and Benefits Conference, which continues to be the premiere public safety conference for first responders across the country. Further, he assumed various leadership roles such as Vice President of the United Firefighters of Los Angeles City (UFLAC), President of the National Conference of Public Employee Retirement Systems (NCPERS) and President of the NCPERS Executive Committee.
Again the Board and staff thank Commissioner Diannitto for his long and distinguished service to the City of Los Angeles and to the members of the System. Review Commissioner Diannitto’s bio for more information on his accomplishments.

Pension Perspectives Newsletter for Active and DROP Members

Active/DROP Members — December 2013 Newsletter

Recent Mayoral Appointments
Effective December 17, 2013, the following Commissioners were appointed to the Board by the Mayor to serve the unexpired terms of former members:

Commissioner Carl Cade will serve the remainder of the term ending June 30, 2015, previously filled by Dean Hansell.
Commissioner Pedram Salimpour returns to the Board and will serve the remainder of the term ending June 30, 2017, previously filled by Gregory Lippe.
Commissioner Corinne E. Tapia will serve the remainder of the term ending June 30, 2014, previously filled by Wayne Moore.

Welcome Commissioners Cade, Salimpour and Tapia!

To view your DROP Semi-Annual Statement for the period ending December 31, 2013, log in to…

DROP MEMBER SEMI-ANNUAL STATEMENTS ARE AVAILABLE NOW!

To view your DROP Semi-Annual Statement for the period ending December 31, 2013, log in to MyLAFPP and click on the “DROP Statements” tab on the left.
This statement provides your date of entry, mandatory date of exit and your account balance with interest credited on June 30 and December 31.
For questions regarding your DROP Semi-Annual Statement, please contact the Retirement Services Section at (213) 978-4495.

DROP UPDATE – January 13, 2014

Due to the pending actuarial study of the DROP Program, many members are concerned… Is DROP going to change? Should I enter now? Is DROP costing the City money? Are there plans to freeze DROP? Will DROP be around when I get ready to retire?

A lot of questions remain unanswered. However, here is what we do know:

• DROP is currently open to eligible members.
• At the time the DROP Ordinance was last amended on November 7, 2008, the “Sunset Clause” for termination of the Program was removed. Therefore, the DROP Program will continue indefinitely unless and until the ordinance is amended in the future.
• DROP will not be discontinued without warning.

The Administrative Code, Section 4.2100(c), specifically states the criteria by which DROP can either be amended or suspended. These criteria include maintaining cost neutrality to the City and/or meeting the City’s DROP goals of retaining and lengthening the careers of sworn personnel with LAFD, LAPD and the Harbor Department.

We will have lead time to notify you of any Program changes.

If and when DROP is amended, there will be sufficient lead time for us (and the unions) to notify members that the Program will be amended. This notification will allow eligible members to enter DROP before the changes take effect. Before DROP can be amended, a study must be conducted, followed by a meet-and-confer with the unions.

The Administrative Code Section 4.2100 requires the City to conduct an actuarial study of the DROP Program no less than once every five years. The last study was completed in 2008 and the current study, initiated in late 2013, is expected to be completed in early 2014.

To make changes to the DROP Program, the City would need to do the following:

1. Have an actuarial study performed to evaluate whether the Program continues to be cost neutral and is meeting the goal of extending the careers of sworn personnel;
2.  Meet and confer with the unions to negotiate changes to the Program if the actuarial study determined that changes were warranted. (The City would have up to 180 days to negotiate the changes with the unions, with the possibility of an additional 180 days if both sides agree to an extension);
3. Any amendments to the enabling ordinance would affect only future entrants to the DROP Program – those who enter the Program after the effective date of the ordinance that amends DROP.

At this time, we are not aware of any effort to amend or suspend the DROP Program.

For questions, please contact your union. For information on entering or exiting the DROP Program, please contact the Retirement Services Section at (213) 978-4495, or (800) 787-2489, ext. 84495.

If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits. You may have made after-tax contributions for any of the following reasons:
From 7/1/82 -12/20/96, mandatory pension contributions were collected after-tax.
Elective purchases of service credit made by contract or lump sum payments were collected after-tax. (Trustee-to-trustee transfers from Deferred Compensation are pre-tax.)

The voluntary 2% “opt-in” pension contribution by certain members in order to vest future retiree medical subsidy increases are collected after-tax. (Note: This does not apply to Tier 6 members.)
The Internal Revenue Code includes a provision that allows DROP members to recover a portion of their eligible after-tax contributions using an accelerated method. This method allows you to take a lump sum distribution of any eligible after-tax DROP funds, rather than recovering it in payments over your lifetime through the Simplified Method. Members exiting DROP on or after January 1, 2014 will be subject to this basis recovery method and may:
Recover pre-1987 after-tax contributions entirely from the lump sum DROP distribution.
Have any post-1986 after-tax contributions allocated pro-rata between the lump sum DROP distribution and the member’s ongoing monthly pension annuity. Any after-tax funds included in the monthly pension annuity will be subject to the Simplified Method. The Simplified Method, developed by the IRS, is the formula that determines the amount of your pension that will not be taxed for a fixed number of months in retirement based on your age and the age of your qualified spouse/domestic partner, if applicable.

Distribution Options – Effective January 1, 2014

Review the options below to select a distribution election for both your taxable and non-taxable DROP funds. Please note, if you rollover any non-taxable portion, you must also rollover your entire taxable portion.

OPTION
NON-TAXABLE DROP FUNDS
TAXABLE DROP FUNDS
1
Lump sum cash payment of eligible non-taxable funds
Direct rollover of all taxable funds
2
Direct rollover of all non-taxable funds
Direct rollover of all taxable funds
3
Partial lump sum cash payment and partial direct rollover of non-taxable funds
Direct rollover of all taxable funds
4
Lump sum cash payment of eligible non-taxable funds
Partial lump sum cash payment and partial direct rollover of taxable funds (partial lump sum cash payment subject to mandatory 20% Federal tax withholding)
5
Lump sum cash payment of eligible non-taxable funds
Lump sum cash payment of all taxable funds (subject to mandatory 20% Federal tax withholding)

All rollovers must be made to one financial institution of your choice for either the non-taxable or taxable portions of your DROP account. It is important to note that not all plans can accept a rollover of non-taxable funds, so please confirm with the plan of your choice before making any elections for a direct rollover. For example, the City’s Deferred Compensation Plan does not accept rollovers of non-taxable funds. Therefore, if you select Options 2 or 3, you must roll your non-taxable funds to an institution other than Deferred Compensation.
You must complete a DROP Distribution Form within 90 days of your DROP exit date to determine how you wish to recover your after-tax contributions. After 90 days, the distribution of your DROP account will be limited to a lump sum cash payment only, subject to mandatory 20% Federal tax withholding for the entire account balance. The Board Operating Policies and Procedures (Pension Processing, Section 3.2.3) have been amended to reflect the basis recovery method.
For more information review the DROP Basis Recovery FAQs. For any questions, please contact DROP/Service Pensions at (213) 978-4575.

FAQS – HOW AFTER–TAX CONTRIBUTIONS AFFECT YOUR DROP FUNDS

DROP BASIS RECOVERY

FREQUENTLY ASKED QUESTIONS

If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits.

I’ve heard that if I’m exiting DROP after January 1, 2014, that I will get a refund or rebate. Is this true?

The amount due to you from DROP has not changed. However, the taxability of your DROP account will be determined differently, depending upon whether or not you’ve made after-tax employee pension contributions. You may be able to receive part of your DROP distribution tax-free.

How do I know if I’ve made after-tax employee pension contributions?

You may have made after-tax contributions for any of the following reasons:

From 7/1/82 – 12/20/96, mandatory pension contributions were collected after-tax.

• Elective purchases of service credit made by contract or lump sum payments are collected after-tax. (Trustee-to-trustee transfers from Deferred Compensation are pre-tax.)
• The voluntary 2% “opt-in” pension contributions certain members elected in order to vest future retiree medical subsidy increases are collected after-tax. (Note: This does not apply to Tier 6 members.)

How is the non-taxable portion of my DROP account determined?

If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits.

If you are exiting DROP, the Internal Revenue Code includes a provision that allows you to recover a portion of your eligible after-tax contributions using an accelerated basis recovery method. This method allows you to take a lump sum distribution of any eligible after-tax DROP funds, rather than recovering it in payments over your lifetime through the Simplified Method. If you exit DROP on or after January 1, 2014, you will be subject to the following basis recovery method:

• Recover pre-1987 after-tax contributions entirely from the lump sum DROP distribution.
• Have any post-1986 after-tax contributions allocated pro-rata between the lump sum DROP distribution and your ongoing monthly pension annuity. Any after-tax funds not recovered from the DROP lump sum, will be recovered through the Simplified Method from the monthly pension annuity.

What is the Simplified Method?

It is the formula that the Internal Revenue Code requires us to use to determine the amount of your ongoing monthly pension benefit that is taxable vs. the amount that is tax-free. You can read about this formula in IRS Publication 575. The tax-free portion is based on the amount of your unrecovered after-tax contributions at retirement and your age (plus your spouse’s/domestic partner’s age, if applicable), when you exit DROP and begin to receive pension benefits.

The formula determines the amount of your pension that will not be taxed and the length of the time for that exclusion. By subtracting the tax-free amount from your gross pension for a fixed number of months, your already taxed contributions will be recovered. Cost-of-living pension increases will not change or have any effect on the tax-free amount since the calculation is based upon your remaining after-tax contributions at retirement.

How will I know how much of my DROP distribution will be non-taxable?

When you receive your DROP distribution election forms, you will be provided with your distribution options, the breakdown of your after-tax contributions, the amount that may be recovered tax-free from your DROP distribution and how much you will recover on an ongoing basis from your monthly pension benefit tax-free.

What if I exited DROP prior to January 1, 2014?

This change was implemented January 1 to coincide with the beginning of the tax reporting year. If you exited DROP prior to January 1, 2014, no after-tax basis was allocated to your DROP account. You are recovering all of your after-tax contributions from your ongoing monthly pension annuity, using the Simplified Method.

LAFPP’s tax counsel is working with the IRS to confirm the proper tax treatment of all benefits.

For any questions, please contact the DROP/Service Pensions Section at (213) 978-4575.