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L.A. pension proposal would hike retirement age, cut benefits

Police, firefighters and current city workers wouldn't be affected by the council's plan — announced the same day as an extension of a business tax holiday.

September 18, 2012|By David Zahniser and Kate Linthicum, Los Angeles Times
  • Former L.A. Mayor Richard Riordan, shown earlier this year, argued that existing employee costs should have been targeted.
Former L.A. Mayor Richard Riordan, shown earlier this year, argued that… (Ricardo DeAratanha / Los…)

Setting the stage for a legal battle with employee unions, the Los Angeles City Council is weighing a new plan to reel in pension costs by hiking the retirement age and cutting benefits for thousands of future civilian employees.

The proposal, unveiled the same day that the council backed a three-year business tax break worth roughly $50 million, would set the retirement age at 65 and establish new financial penalties for those who retire earlier. The plan, which could be voted on as early as next week, also would require new employees to pay more if the retirement fund suffers major investment losses.

None of the changes would apply to police officers or firefighters — or any civilian worker hired before July 1. Nevertheless, union leaders promised to fight the plan, saying city leaders lack the legal authority to impose the changes without going back to the bargaining table.

"We'll take whatever action necessary to enforce our rights, even if it means going to court," said Bob Schoonover, president of Service Employees International Union Local 721, who called the plan a "frontal attack on all city workers."

Schoonover said the timing of the council's vote sent a "poor message" to the workforce. They're "going to cut pensions while giving business people a tax break," he said.

City Administrative Officer Miguel Santana said the pension plan changes would save between $30 million and $70 million within five years and as much as $4.9 billion over three decades. Despite the threat of legal action, Santana claimed most employees don't have a problem with the proposals because they affect new workers only.

"I don't think that their membership cares, quite frankly," he said. "This is all about people who don't work for the city today."

The pension plan came out an hour after the council voted 10 to 2 to extend a so-called "business tax holiday" for companies that open in Los Angeles between 2013 and 2015. The tax break, which requires a second vote next week, would allow companies to keep roughly $50 million over three years, according to city estimates. The tax holiday went into effect nearly three years ago and has resulted in an estimated $30-million reduction in potential revenue, officials said.

Santana said it is not clear if new economic activity has made up for the revenue loss. That prompted a sharp response from Councilman Paul Krekorian, who cast one of the two votes against the extension.

"We don't know if this has created a single new penny or a single new job," he said.

Santana said he saw no connection between the two issues, calling the business tax holiday a "short-term measure" while pensions are a long-term problem.

The pension proposal comes one month after Gov. Jerry Brown secured passage of a pension reform plan for state workers, as well as many employees in local government agencies. Los Angeles' effort coincides with calls from outside City Hall for more drastic measures.

Former Mayor Richard Riordan and a handful of business leaders have threatened to put a measure on the ballot freezing the pay of city workers if pensions rise above a certain threshold. On Tuesday, Riordan called the city's proposal "a tiny step in the right direction" — and argued that existing employee costs should have been targeted.

The council's plan already has the backing of Mayor Antonio Villaraigosa and Council President Herb Wesson, one of the mayor's closest allies on the council. Wesson spokesman Ed Johnson described the proposal as "Herb's plan." Wesson said in a statement that the changes are "fair to both the city and our employees." The councilman planned to discuss his support Wednesday at a news conference with the mayor.

The proposal contains an array of changes. It would no longer allow spouses of retired city workers to receive healthcare benefits. Pensions would be calculated by relying on the average of an employee's last three years of pay, not the final year. And the benefits themselves would be smaller.

Under the current pension formula, civilian city employees can retire with full benefits at 55 if they have served 30 years. For example, a 55-year-old who earns $60,000 annually would receive a yearly pension of $38,880 after working 30 years.

If the changes are approved, a newly hired worker with the same set of circumstances would receive a yearly pension of $13,860. That change is designed to push workers to stay at their jobs longer, which reduces pension payments.

Schoonover, the union official, said the potential benefits of the proposal are many years off, making it "more of a political move than a financial move." Many city employees would have difficulty making ends meet, he said, because they are not eligible for Social Security.

Santana said the proposal is not a "panacea" for solving the city's budget crisis over the next two years. But he argued it is essential for stabilizing the city's finances in coming decades.

"This is one of many steps we are taking to bring the city to long-term sustainability," he said.

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