Unsustainable Pensions: The Burden Falls On L.A.’s Next Mayor
There is something intrinsically problematic about a debate without dispute. So, Mantle, with characteristically pointed, if not pestering, questions dove head first into pension reform. Candidate Emanuel Pleitez argued that pension reform is the “most significant issue facing the L.A. City Council today” precisely because the City is too broke to pay out the pensions it has promised to its employees.
Under the City of L.A.’s defined benefit pension plan, employees contribute 10 percent of their income to their health care, and about 11 percent into their pensions. The City contributes the rest.
From 1982-2011, the U.S. experienced low inflation rates and high returns on investment. This caused actuaries to be overly optimistic in calculating the amount of money that needed to be put into the City pension fund in order to support retirees in the future. However, the stock market didn’t appreciate in the way actuaries predicted it would. The City cannot currently supplement the pensions they’ve promised, forcing taxpayers to make up the difference.
The next L.A. Mayor will find him- or herself stuck in negotiations between unions who think it is “unfair” to ask future employees to contribute more than 11 percent, and taxpayers who are tired of subsidizing exorbitant pensions.
A pension is a payout, meant to act as a person’s salary when they can no longer work—enough to sustain a living. My grandfather lives off of $2,000 per month. Currently, 841 L.A. City pension recipients from L.A.’s three pension programs collect over $100,000 per year.
I have to ask—why is the City of L.A. concerned with the “fairness” of pensions that provide more than enough to sustain a living, when it doesn’t have the funds to pay them? Employee compensation, retirement costs and health benefits account for 68 percent of our $238 million deficit in the City of Los Angeles.
Governor Jerry Brown and former Mayor Richard Riordan support reforms that include capping pensions, increasing the retirement age and requiring new employees to pay more toward their retirement. While this shifts more responsibility to the employee, it continues to protect the employee from shifts in the stock market. Marty Morgenstern, Secretary of the CA Labor and Workforce Development Agency, explains:
“[It’s still] a defined benefit plan, meaning you’re going to get your benefit when you retire, regardless of how the stock market did last year. If you have a defined contribution plan and the stock market drops the year before you retire, it kills people’s pensions.”
Labor unions wield incredible influence over elections in Los Angeles. Candidate Wendy Greuel, for example, has been endorsed by a union that represents a large number of DWP employees. How will she balance the need to retain union support with the need to prevent the City of L.A. from heading into bankruptcy? Yet, L.A. Times’ Jim Newton is confident that labor unions know their limitations:
“If labor prevents Riordan from prevailing with a ballot measure to drastically reform pensions, the city could face insolvency in the next few years. And then it's possible that a judge would curtail pension benefits even more sharply or demand greater sacrifices of current employees than Riordan is proposing.”
The candidates held a united line against endorsing hard numbers, insisting that pension contributions depend on the economy and therefore demand a “dynamic” approach. However, each recognized the importance of making negotiations a priority in office. “If we don't solve [our pension problem], we will continue cutting a couple million dollars from our budget every single year,” said candidate Kevin James. “We have to remain competitive with the private sector, and other cities across the country,” said candidate Jan Perry. “Everything needs to be on the table. If 40 percent of our general fund goes to health care and pension costs, something is wrong,” said Greuel.
If Mantle’s goal was to finally get the candidates arguing, he failed miserably. But I find it incredibly refreshing that our leaders in Los Angeles, along with Jerry Brown, have a united vision for recovery.