Archived: The Fairness Factor in L.A. City Pension Reform

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Last Spring, City of Los Angeles Chief Administrative Officer (CAO) Miguel Santana painted a vivid picture of the severe financial crisis facing the City as the cost of pensions and health care for retirees soar higher and higher each year. He pointed out that the growing annual contributions by the City, combined with the multi-billion dollar unfunded liability threatened to disrupt or dismantle every municipal service for years to come. The recently-released plan to create a new benefit tier for future City employees, presented by the CAO, Mayor Villaraigosa and a subcommittee of the City Council, shows promise to reduce pension obligations in the future. However, the new retirement age of 62 falls well short of real reform and what is fair and common practice in the private sector.

Under the current system, most L.A. City civilian employees can retire as early as 55 years old with up to 100 percent of their final year’s salary for life. This is not only unsustainable from a financial perspective, but also unfair to the millions of L.A. residents who are working much longer under Social Security and are watching basic City services be cut to the bone in order to pay the cost of pensions and lifetime health benefits to retirees. The promises made to current employees under this system are vested contracts that cannot be modified without the permission of the employees themselves – which leaves the City with the limited option of changing the pension plan for future hires and cutting basic city services.

The most recent proposal takes important steps forward to ensure that future employees contribute more to funding their pensions, while at the same time reducing the maximum allowable pension.  That’s the good news for future city services. Unfortunately, the proposed retirement age to 62 falls short of the standard set by Social Security. While this is an increase from the current retirement age of 55 (with most City employees actually retiring closer to 60), the proposal still leaves a huge fairness – and cost – issue on the table.

That’s why the Chamber supports indexing the City’s retirement age to Social Security’s retirement age. This is fair both because City pensions are in lieu of Social Security and because it will ensure that the City’s retirement program tracks with the retirement age for the rest of America.

It’s fair, it’s reasonable and it’s simple.  It’s right for employees, taxpayers and basic city services. Join us in promoting this change before the only options left for the City of Los Angeles are much more drastic.

And that’s The Business Perspective.

The Business Perspective is a weekly column by Gary Toebben, President & CEO of the Los Angeles Area Chamber of Commerce, produced with the input of Samuel Garrison, Vice President of Public Policy.

Posted - Copyright © 2022 Eastern Group Publications, Inc.

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