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Pension scheme would cost hundreds of millions of dollars
WRITTEN BY :   Contributed by the Los Angeles Police Protective League

Calling former Mayor Richard Riordan’s proposal to change the retirement benefits for all current and future Los Angeles city employees “deeply flawed,” the Los Angeles Police Protective League urged voters this weekend not to sign the petitions that could put the Charter Amendment on the May 2013 ballot.
The proposal, now called the “Bankruptcy Avoidance and Pension Protection Act,” will dramatically increase the city’s required payments to the three Los Angeles pension systems. These increased costs, which will be in addition to already scheduled contributions, would take effect as soon as the systems are closed to all future employees and will continue at the increased level for a decade or more.
“The plan proposed by Riordan to close the defined benefit pension system as a way of saving money is both simplistic and wrong,” said Tyler Izen, president of the Los Angeles Police Protective League.
In the past 18 months, nine separate states and the City of New York have examined and rejected closing their respective defined benefit pension systems. After study and debate, it was determined that closing the pension system would not save money, but instead would be more costly than continuing with the existing pension system. For example, this year New Hampshire commissioned two separate actuarial studies on the costs of closing their pension plan to new employees. The reports concluded that “total pension funding costs would rise” and that “in all areas” transition to a “proposed defined contribution plan will be more expensive to employers and employees than maintaining the current defined benefit system,” with an added result of cost shifting to future generations.
“Richard Riordan is wrong about the city pension plans, and it’s telling that he has presented no independent actuarial analysis in support of his talking points. Riordan repeatedly claims that rising city costs will lead to bankruptcy. If he truly believes that, it’s bizarre that he wants voters to adopt a plan that immediately and for a lengthy period of time increases city costs. His plan isn’t factually supported and doesn’t save the City money, despite his witty sound bites claiming it does,” said Tyler Izen.
Texas, New Hampshire, North Dakota, Minnesota, Kansas, New Mexico, Rhode Island, Missouri, Wyoming and the City of New York have considered and then rejected the same type of proposal offered by Riordan to close the pension system to new employees and switch to a defined contribution system to save costs. “The common reason for rejection was that it was too costly to close the pension system to new employees and switch to a defined contribution system. The Riordan scheme ignores all these published studies, as well as one done in 2005 for the City of Los Angeles showing the immediate and significant costs of closing the defined benefit plan to new hires and implementing a defined contribution pension proposal in its place for the new hires is higher than continuing to make the defined benefit plan open to new employees,” said Izen.
Izen added, “Riordan cannot be believed on his claim that city bankruptcy is imminent because of rising city costs when he is pushing a plan that increases city costs substantially in the next decade or more. The Police and Fire Pension system is short millions of dollars in part because Riordan’s 2001 charter amendment on pensions allowed – in fact, encouraged – using excess funding as a substitute for the city’s required annual payment. Now, Riordan wants to double down on his previous bad policy decision with this poorly conceived plan.”
Thoughtful analysis and real solutions are needed to address pension issues – not sound bite clips and charter changes that are poorly thought-out and extremely costly. “Simply put, the Riordan scheme will not save money; it will cost taxpayers hundreds of millions. We urge all residents not to sign the petition that would put Riordan’s poorly thought-out plan on the ballot,” concluded Izen.

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Published: November 8, 2012 – Volume 11 – Issue 30



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