Category: Newsroom

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.  

Los Angeles Fire & Police Pensions’ funded status increases to 86.6% As a result of the strong fiscal year investment return of 17.86% and other favorable plan experience, the funded status of Los Angeles Fire and Police Pensions (LAFPP) increased to 86.6% for pension benefits.  Additionally, the City’s combined contribution rate for pension and retiree health subsidies will decrease to 46.51% for Fiscal Year 2015-16, as compared to 47.94% for the current fiscal year.   The funded status and contribution rate are based on the results of the fund’s annual actuarial valuation performed by The Segal Company, which was presented to the Board of Fire & Police Pension Commissioners at its regular meeting on November 20, 2014. The overall funded status for both pension and health subsidy benefits will increase from 77.3% to 80.8% on an actuarial basis.  On a market basis, the Plan’s combined funded level will increase from 77.7% to 87.5%.   The improvement in the funded status was due in part to lower than expected cost-of-living increases for retirees, beneficiaries, and DROP members, as well as a greater than expected return on investments.  The valuation reflects the economic and demographic assumption changes adopted by the Board in July 2014, which included the lowering of the assumed investment rate of return to 7.5% for future liabilities.  Due to smoothing of investment gains and losses, the total unrecognized investment gain as of June 30, 2014 is $1.412 billion.  Unless offset by future investment losses or unfavorable plan experience, the $1.412 billion deferred gain will be recognized over the next several years and have a positive impact on the future funded ratio and employer contributions.    

Pension Perspectives Newsletter for Active and DROP Members

Pension Perspectives – November 2014 Newsletter

Emerging and diverse Manager Program Although not widely known, Los Angeles Fire and Police Pensions (LAFPP) has been a leader in this area since the late 1980s. LAFPP began hiring and engaging emerging and diverse managers in 1987 and over the many years, various managers have been hired to manage equities, fixed income, real estate and private equity. LAFPP has also employed diverse consultants who have provided different services to the Fund over these many years.  

Currently, LAFPP has over $1.9 billion invested with diverse investment firms across all asset classes. As a percent of assets under management (AUM), the Fund has one of the highest percentages of any pension fund across the nation.  

LAFPP’s Emerging Manager Program consists of hiring direct managers and fund of funds managers in the stock and bond portfolio. Altogether, the Fund has over $1.5 billion invested with diverse stock and bond managers. Many of the emerging managers in the Program started with smaller accounts (AUM), but their AUMs for the Fund have grown larger as they have been successful in growing the Fund’s investments. Currently, the Fund has invested approximately $300 million in fund of funds managers, but will be shifting $100 million to hire directly several large cap equity, small cap/micro cap equity and fixed income managers.  

The Fund has also committed or funded over $344 million to diverse private equity and real estate managers. The Fund created a Specialized Manager Program to attract and invest in newer private equity funds.  

Currently, the Fund is in the process of searching for several large cap, small-cap and bond fund emerging managers to manage part of a new $100 million allocation. The results of the searches will presented to the Board in the early part of 2015.