September 27, 2012 / 10:38 PM / 5 years ago

Los Angeles latest California city to roll back pensions

* City expects $4 billion in savings in 30 years

* Retirement age at 65 for new staff, with lower payments

* “Politicians scrambling” to avoid taxpayer anger

By Jim Christie

SAN FRANCISCO, Sept 27 (Reuters) - California’s largest city has joined the nationwide push for pension reform, marking another setback over retirement benefits for public-sector unions in the most populous U.S. state.

Over labor’s outcry, the Los Angeles City Council on a 14-0 vote earlier this week approved changes to pensions for future civilian employees projected to save, according to the city’s administrative officer, more than $4 billion over 30 years.

Critics say the overhaul does not go far enough as pensions of current employees remain unchanged. Advocates say current workers have already helped bolster the city’s finances by raising their pension contributions to pay for retiree healthcare over the last three years when nearly 5,000 of the city’s civilian employees were sacked.

Mayor Antonio Villaraigosa, a former labor organizer, pressed for the changes along with council President Herb Wesson. Both previously were speakers of California’s Assembly, where public-sector unions have enjoyed considerable clout.

Political sympathies are, however, taking a back seat because city services have been on the chopping block in recent years while legal constraints and contracts safeguard payments for city retirees and pension benefits for current city employees, Wesson said.

A new look for the city’s pension plans is essential, Wesson told Reuters, noting that “Governing is not about doing what you want to do. Governing is about doing what you have to do.”

Los Angeles’ pension changes include raising the retirement age for new non-safety workers to 65 from 55 and new formulas to reduce their pension payments. New workers also face higher contributions to help with unfunded pension liabilities when financial markets turn down.


Los Angeles’ leaders also had a political incentive to act. “Politicians are scrambling to get out ahead of voter anger,” said Dan Schnur, director of the University of Southern California’s Unruh Institute of Politics.

Pension reform has become a political issue across the nation, and in California it spurred voters in San Diego and San Jose, the state’s second- and third-largest cities, in June to approve local pension reform measures by “avalanche” proportions, said Steven Frates, research director of the Davenport Institute at Pepperdine University’s School of Public Policy.

“They’ve come to recognize that as these exploding pension costs suck up more and more, the less there is for them,” he said.

The San Diego measure gives new city employees, with the exception of police officers, 401(k)-style retirement accounts instead of traditional pensions. San Jose’s measure reduces pension benefits for city workers who do not increase their contributions to their retirement accounts.

The easy victories boosted Governor Jerry Brown’s push to overhaul pensions for new state and local government workers covered by state pension plans. His fellow Democrats, who control the legislature, sat on his proposals for months, but in August approved many.

The governor has signed the changes into law. They include higher retirement ages and reduced pension benefits for new public workers. They will also split payments to pension accounts at least evenly with employers, who gain more authority to negotiate 50-50 contributions with current employees.


Villaraigosa pushed for pension changes for months - like San Diego and San Jose, Los Angeles has its own pension fund - and reforms backed by the city council mesh with his proposals.

The changes will help rein in Los Angeles’ pension spending years from now, leaving open the matter of tackling it over the near term, Frates said, echoing a criticism of reforms approved by California’s leaders.

Increased contributions by current employees to their pension accounts may be on the bargaining table between Los Angeles and its unions when it comes time to renegotiate contracts, Wesson said.

Unions would object but the request would be in line with pleas by city officials across the state in recent years. Asking for higher contributions has been widespread in California given how weak local finances have been, said Rod Gould, city manager of Santa Monica: “Already over two-thirds of cities have adopted greater employee cost sharing.”

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