Category: Newsroom

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

In an effort to further reach out and connect to members and other stakeholders, LAFPP has launched a Facebook page! This page will be utilized as an additional resource to disseminate information to our members through various posts and links. Click on the Facebook icon on the LAFPP.com home page, or enter “Los Angeles Fire and Police Pensions” in the Facebook search bar to be directed to our Facebook page. Be sure to log into your own Facebook account and “Like” us to receive updates through your Newsfeed!

LAFPP REPORTS a RETURN of 17.86 PERCENT FOR 2013-14

Los Angeles Fire and Police Pensions (LAFPP) is reporting a return of 17.86 percent for the fiscal year ending June 30, 2014. LAFPP assets totaled $18.27 billion at the end of the fiscal year.  

The gain marks the fourth double-digit return the fund has earned over the last five years and was led by LAFPP’s strong performance in the domestic fixed income and international equity markets, generating returns over their benchmarks.  

LAFPP’s 17.86 percent return is well above the Fund’s discount rate of 7.50 percent, which is the long-term return required to meet current and future obligations for members. LAFPP’s 10-year investment return is 7.75 percent, while its 20-year return is 8.71 percent.   LAFPP has a long-term investment horizon and uses an asset allocation which encompasses a strategic long-term perspective of the capital markets.  

LAFPP is one of the largest fire and police pension funds in the U.S. The retirement system administers retirement and health subsidy benefits for more than 25,000 current and retired public safety employees and their beneficiaries for the City of Los Angeles. More information is available at About LAFPP.    

Fry v. City of Los Angeles (a.k.a. “The Fry Case”)

The “Freeze Ordinance” Stands

The Fry, et al. v. City of Los Angeles case concerns the City’s ordinance freezing the retiree health subsidy benefit by the City for those LAFPP members who retired or entered DROP on or after July 15, 2011, and who did not elect to contribute an extra 2% of their salary. The petitioners sued the City and argued that the City’s “freeze ordinance” illegally impaired their vested rights to a retiree health subsidy that would increase over time.

Settlement Agreement Reached in February 2017

In April 2016, the plaintiffs filed a Petition for Review with the California Supreme Court, which was later denied in June 2016.  The matter was remanded to the trial court to resolve the remaining issues in accordance with the Court of Appeal’s opinion.  The trial court instructed the parties to complete a mandatory settlement conference by February 23, 2017. The two parties subsequently met as instructed and reached agreement on the remaining issues in early February 2017. The stipulations outlined in the settlement agreement are:

• Plaintiffs acknowledge that the Court of Appeal held that the City Council had the authority, under the City Charter, to enact the Freeze Ordinance and freeze the amount of the medical premium subsidy.
• The City acknowledges that the City Administrative Officer stated to the City Council and the Mayor that the “current retiree healthcare subsidy is a vested benefit, but the discretionary adjustment that increases the medical subsidy is not vested.”
• The parties understand and agree that nothing in the Agreement shall be construed to preclude a party from proffering any evidence adduced in discovery in the Action in any future proceeding, subject to objections.
• The City also agreed to reimburse Plaintiffs in the amount of $13,000 for litigation expenses. The settlement is considered a “no fault” settlement and the Plaintiffs release the City from liabilities, claims, and causes which relate to this action. 

Based on this final ruling, the freeze ordinance stands and LAFPP will continue to provide a frozen subsidy to current and future pensioners who chose not to “opt-in” to contribute an additional 2% of their salaries. 

Re-cap of Events

• July 28, 2014: Judge Joanne O’Donnell ruled that the petitioners have a vested right to a “non-frozen” health subsidy in retirement.  The Court ruled that petitioners had a right to the Board exercising its discretion in setting the subsidy rate, but not a right to any particular amount of subsidy.

• September 5, 2014: the Los Angeles County Superior Court issued an official Writ based upon the ruling made by Judge O’Donnell.  The Writ directed the Board to resume exercising its discretion to make annual, limited adjustments to the health premium subsidy amount without any regard to the “freeze ordinance.”  Accordingly, on the October 31, 2014 pension payments, LAFPP provided the current “non-frozen” subsidy to pensioners who were impacted by the freeze. 
• October 29, 2014: In response to the Writ, the City of Los Angeles filed a Notice of Appeal.  The City also filed a Verified Petition for Writ of Supersedeas and Request for Immediate Stay on November 3, 2014.  The City filed both petitions because of the legal uncertainty regarding the proper procedure to challenge the trial court’s September 5, 2014 ruling. 
• November 12, 2014: In response to the appeal and Writ filed by the City of Los Angeles, the Court of Appeal granted a stay on the Writ issued by the trial court on September 5, 2014.  As a result of the stay, beginning with the November 30, 2014 pension payments, LAFPP once again provided a frozen subsidy to those pensioners who did not elect to contribute the additional 2% of their salary. 
• March 7, 2016: The California Second District Court of Appeal reversed the September 5, 2014 Writ of Mandate issued by the Los Angeles Superior Court authorizing the Board of Fire and Police Pension Commissioners (Board) “to exercise its discretion, previously delegated to it by the City in an ordinance, to set the maximum subsidy…without regard to later City ordinances ‘freezing’ the subsidy…”  The Court of Appeal agreed with the City’s position that there was not a vested right to a LAFPP Board-determined subsidy.  The Court of Appeal found that the City Council continues to retain the final decision authority over the subsidy even while delegating to the LAFPP Board determination of subsidy increases.  
• March 25, 2016: The Second Appellate Court denied the plaintiffs’ petition for rehearing.