Category: Newsroom

Cost of Living Adjustments (COLA)

The COLA for 2014 is 0.5%
A Cost of Living Adjustment (COLA) is made to a pensioner’s benefit to reflect annual changes in the cost of living and is calculated as a percentage of his/her current benefit.
Effective July 1, 2014, eligible pensions for members and beneficiaries of Tiers 1 – 6, (including DROP) will be adjusted by 0.5% for the pension payment dated July 31, 2014.

Please follow the appropriate link for a summary of your tier’s COLA provisions:
Tier 1/Tier 2 COLA Overview
Tier 3 COLA Overview
Tier 4 COLA Overview
Tier 5 COLA Overview
Tier 6 COLA Overview
DROP COLA Overview
A summary of Historical COLA Percentages is also available for viewing.
Determining the COLA
Pursuant to the Charter and the Administrative Code, the size of any year’s COLA is based on the annual change in the Consumer Price Index (CPI) as published by the Bureau of Labor Statistics. Specifically, we look at the change in the CPI for All Urban Consumers in the Los Angeles-Riverside-Orange County Area for the prior 12-month period ending February.
A list of the goods and services included in the CPI is available here. You may also review the step-by-step instructions on How to Access CPI Data.
Questions
If you have questions about the COLA, please contact Retirement Services at (213) 978-4495 or, (800) 787-2489, ext. 84495. You may also send an email to pensions@lafpp.com. For questions about the CPI, please visit the Bureau of Labor Statistics’ website, or call (415) 625-2270.

DETROIT’S BANKRUPTCY FILING Update as of 4/17/2014

On Tuesday, April 15, 2014, an agreement was reached by the city of Detroit and negotiators for the Detroit General Retirement System and the Detroit Police & Fire Retirement System, and consists of: Cuts to pensions for general members of 4.5% with the elimination of an annual cost of living adjustment (COLA); No cuts to pensions for police and fire members, with a 1% annual COLA increase (down from 2.25%); and Creation of an independent investment advisory committee to vet all investments made by the boards of both pension systems.

The previous offer proposed monthly pension cuts of 26% for general members and 6% for police and fire members, with no COLA benefits for either side. The deal to preserve police and fire pension benefits is due in part to the stock market’s positive impact on the safety pension fund’s financial performance in the last 18 months and an increased investment rate of return.

The deal, like the original plan, is contingent upon an agreement between the state, foundations and the Detroit Institute of Arts Museum to raise $816 million over 20 years. To date, lawmakers have not approved the state’s share of $350 million. Kevyn Orr, Detroit’s emergency manager was expected to file the new plan with the U.S. Bankruptcy Court on Tuesday, April 15, 2014. The pension boards must still sign off on the deal and the police and fire retiree association agreed to support it as well. Both are expected to recommend a “yes” vote to the retirees and active vested members who will be receiving ballots on May 1. Judge Steven Rhodes must also review the plan to determine if it is fair and equitable. Re-cap of Events July 18, 2013 — Detroit filed for Chapter 9 bankruptcy.

December 3, 2013 — U.S. Bankruptcy Judge Steven Rhodes ruled that Detroit could formally enter Chapter 9 bankruptcy.  Judge Rhodes made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy stating that, “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy.”  The judge emphasized that he would not accept “deep cuts” or necessarily agree to any pension cuts unless the City’s final reorganization plan is fair and equitable. Representatives from the American Federation of State, City and Municipal Employees (AFSCME), filed an immediate appeal asking the judge to send the case to the U.S. Court of Appeals.

December 4, 2013 — Detroit’s pension systems filed a request to appeal Judge Steven Rhodes’ decision, citing that the state constitution provides special protection for pensions, even under Chapter 9.

December 16, 2013 — Judge Rhodes allowed appeals of two of his critical rulings — finding Detroit eligible for bankruptcy and cuts to pension benefits for retirees — to proceed to the U.S. 6th Circuit Court of Appeals.

February 21, 2014 — Kevyn Orr, Detroit’s emergency manager, filed a plan of adjustment with the U.S. Bankruptcy Court to restructure the city’s $18 billion in debts and liabilities.  It included pension cuts for general members of 26% and 4% for police and fire members.  If rejected by the members, the cuts would increase to 34% and 10%, respectively.  The plan is contingent upon an agreement between the state, foundations and the Detroit Institute of Arts Museum to raise over $800 million to fund the pensions and preserve the city-owned art collection.  As a result, the city would not have to make contributions to either system until 2023. Also on this day, the U.S. 6th Circuit Court of Appeals agreed to hear the appeal to Detroit’s eligibility for bankruptcy.

March 31, 2014 — Kevyn Orr filed a revised bankruptcy plan which retained the cuts originally proposed for general members, but increased the cuts for police and fire members to 6% if they approved, or 14% if they rejected.  The revised plan would also require the assets of both pension systems – the Detroit Police & Fire Retirement System and the Detroit General Retirement System – to be placed into irrevocable trusts so that the systems can receive funding from the state of Michigan.

Los Angeles, California has language in its constitution that makes it difficult for California cities to restructure their pension obligations through the bankruptcy process. The City and its employees have made progress in reducing the City’s future budget deficits through agreed changes in pension and healthcare costs, increasing operational efficiencies citywide, reducing the civilian workforce and increasing revenues.

The City’s general fund tax base is once again growing, posting year over year gains. Because of these budget reductions, reforms and increased revenues, the City’s financial position has improved over what it was only four years ago. And the City can now better manage its costs, including its pension and healthcare liabilities.

While the City’s contribution to LAFPP may continue to grow as the Plan continues to recognize the financial losses from the 2008-09 market crash, the City appears to be well able to continue funding the annual required contributions to the Plan.

In addition, unlike Detroit, the City is not losing residents, turning off streetlights, or struggling to send ambulances to medical emergencies. Our System remains well funded with a current combined funded ratio of 77.3% for both pension and retiree healthcare benefits. In fact, a study completed by the Pew Research Center in January 2013 indicated that LAFPP was one of the best funded pension systems in the country. Be assured that we at LAFPP are committed to protecting and providing your hard-earned retirement benefits. We will keep you updated through our website as more information becomes available.

With the recent discovery of the computer security bug named Heartbleed, LAFPP performed an assessment of its network and systems and have determined that there was no impact from the bug. Our partners and vendors have also confirmed their systems were not affected. All member data is secure and LAFPP will continue its due diligence in protecting members’ information.

Pension Perspectives Newsletter for Active and DROP Members

Active/DROP Members — May 2014 Newsletter

On April 9, 2014, the Los Angeles 2020 Commission released its second and final report offering solutions to the problems identified in its January report, “A Time for Truth.” The report, “A Time for Action” proposes ways to help improve government and the economy in the City of Los Angeles. Specifically, the report focuses on how the City can:
Enhance transparency and accountability in City Hall;
Improve the budget process to move towards a path of fiscal stability; and
Renew job creation.
Among other things, the first report heavily criticized the City’s long-term funding policy employed by its three pension systems stating, “Today’s workers are paying into a system whose benefits they are increasingly unlikely to see.” “A Time for Action” noted that defined benefit pensions should be preserved as “…they help the City maintain a stable and experienced workforce.” However, it was also recommended that the assumed rate of investment earnings should adhere to Warren Buffett’s rule and be lowered to 6.0%.
 
Additional specifics on how the City might address pension reform were not included in the report because “…a careful, detailed look at retirement costs” is required. Instead, the report recommended that a five-member “Commission for Retirement Security” be temporarily established to conduct a detailed analysis to determine: 1) the total lifetime cost of an employee to the City, and 2) the total compensation to the employee. The Commission would operate independent of the City’s existing pension boards and its members would be appointed by the Mayor, City Council and Controller. Within 120 days, the Commission would be required to produce a report with specific recommendations on how the City could achieve balanced retirement costs by 2020.

Los Angeles Fire and Police Pensions
The Board of Fire and Police Pension Commissioners is very aware of the issues surrounding public pension funding, especially in light of the Great Recession. Almost all public pension systems are dealing with similar issues and most do not pre-fund retiree healthcare benefits as the City has done since 1989. Although the Commission’s report refers to a long-term discount rate of only 6%, our Pension fund exceeded our assumed investment rate of return of 7.75% and earned over 13% for the year ending as of June 30, 2013. Over the long term, LAFPP’s total investment return for the 20-year period ending June 30, 2013 is 8.01%. The Plan’s funded ratio is now 77.3% for pension and retiree healthcare benefits combined.
We will continue to update members regarding any potential action by the City or if the 2020 Commission releases any additional report or recommendations.

Retired Police Board Member Election Results

Belinda Vega Elected New Board President On July 17, 2014, Belinda Vega was elected as the new President of the Board of Fire and Police Pension Commissioners. Ms. Vega was originally appointed to the Board on December 5, 2012 and succeeds Ruben Navarro, who served as Board President since July 2013. As President of the Board, Ms. Vega will preside over the Board’s primary responsibility to oversee the administration of the pension system; its assets, investments, actuarial services, rules and regulations. Additionally, the Board President provides leadership in furthering the mission of LAFPP “to advance the health and retirement security of those who dedicate their careers to serve and protect the people of Los Angeles” and the delivery of professional and prompt service to over 25,000 active and retired members.

As President, Ms. Vega will exercise the following duties:

• Appoint members to committees;
• Approve the Board agenda; Preside at all Board meetings, ensuring that such meetings are conducted in an efficient manner and in accordance with the City Charter and Administrative Code, applicable public meeting laws, and relevant Board policies, including utilizing Robert’s Rules of Order as a guideline in conducting meetings;
• Determine who shall act as spokesperson for the System should the need arise; and,
• Approve the travel expenses incurred by the General Manager and the Board, as appropriate.

In addition, Robert von Voigt was elected Vice President of the Board. The Vice President assumes the duties of the President when the President is absent or if the President delegates to the Vice President to act. The Vice President also assumes the duties of the President if the President becomes unable to carry out his or her duties due to death, resignation, removal from office, or permanent disability. Mr. von Voigt was appointed to the Board on December 1, 2008 and succeeds Ms. Vega, who served as the Board’s Vice President since December 2013.

The Board consists of nine members, of which Ms. Vega is one of the five members appointed by the Mayor. Mr. von Voigt is one of the four members elected by active and retired plan members.

On July 17, 2014, the Board of Fire and Police Pension Commissioners approved the Plan actuary’s recommendation to lower the investment return assumption from 7.75% to 7.50%.  This action will help ensure the long-term viability of the Plan to properly fund the benefits for the Plan’s members.
The Segal Company, the Plan’s actuary, presented its findings from its review of the economic assumptions to the Board and recommended that the investment return assumption be reduced to 7.50%, primarily due to a continued decline in inflation over the past two decades.  (The assumption was previously lowered in 2010 from 8.00% to 7.75%.)
The investment return assumption is the expected long term rate of return on the Plan’s investments, after expenses.  One component of this assumption is the inflation assumption, which was lowered from 3.50% to 3.25% due to the low inflationary economic environment.  The “across-the-board” salary increase assumption was also reduced from 4.25% to 4.00% to be consistent with the recommended inflation assumption.
In addition to the economic assumptions, the Board reviewed and adopted the findings and recommendations detailed in The Segal Company’s triennial Actuarial Experience Study covering July 1, 2010 through June 30, 2013.  This study compares the Plan’s actual experience to the non-economic (or demographic) assumptions previously adopted by the Board.  Based on the Plan’s experience, the Board adopted the actuary’s recommendations to adjust various assumptions such as retirement rates, mortality rates and disability incidence rates. 
Adoption of the economic and non-economic assumptions is expected to have less than a 1.0% impact on the City’s contribution to the Plan. Other recent experience may also help mitigate the impact to the City’s contribution rate from lowering the assumed rate of return. 
It is important to note that the actuarial assumptions do not determine the “actual cost” of the plan.  The actual cost is determined by the benefits and administrative expenses paid, offset by contributions and investment income received.  The use of realistic actuarial assumptions is critical in maintaining adequate plan funding, while fulfilling benefit commitments to LAFPP members already retired and to those nearing retirement.  Accurate actuarial assumptions aid in achieving equity across generations of taxpayers.  The goal is to fund employees’ benefits while they are rendering service and taxpayers are receiving services from those employees.

Occasionally, Los Angeles Fire and Police Pensions (LAFPP) receives requests from members of the public, websites and the media for Plan information. Pursuant to (CPRA), we are required to release information that is not legally exempt from disclosure.  These requests are routinely reviewed by the City Attorney’s office to ensure the information being released is appropriate.
 
Examples of information commonly requested and eligible for release include: names of members, employing departments, pension and health subsidy amounts, tier membership and years of service.
 
Information exempt from disclosure includes: social security numbers, birthdates, addresses and phone numbers. Exempt information is never released to the public.
 
In response to a recent CPRA request, LAFPP has been advised that it must release information regarding all of its retired members, including their names, pension amounts, years of service, and retirement year.  This information was provided to Transparent California and has been published on its website, www.transparentcalifornia.com, which has published information from many other public pension systems.
 
For questions concerning CPRA requests, please contact the Communications & Special Projects Section at (213) 978-4530.

Pension Perspectives Newsletter for Active and DROP Members.

Retired Members — August 2014 Newsletter