April 23, 2024 The Best Source of News, Culture, Lifestyle for Culver City, Mar Vista, Del Rey, Palms and West Los Angeles

L.A. Controller Audits Show Pension Costs Climbed While Investments Underperformed

Los Angeles City Controller Ron Galperin.
Los Angeles City Controller Ron Galperin.

Los Angeles City Controller Ron Galperin released audit reports Wednesday that show that during the fiscal years 2008-2012, the economic health of both the Los Angeles City Employees’ Retirement System (LACERS) and Los Angeles Fire and Police Pensions (LAFPP) was hindered by economic recession and below-market returns.

Galperin said addressing the city’s current and future pension obligations was among the most challenging issues the city faces.

“These audits demonstrate that there is room to improve investment strategies, which could result in lower costs for the City,” Galperin said.

Together, LACERS and LAFPP, two of the City’s three pension systems, provide services and benefits to 37,000 active city employees and to 30,000 retirees and their beneficiaries.

According to the audit reports, between 2008 and 2012, the City’s contributions to LACERS and to LAFPP rose from $737 million to $869 million, an increase of 18 percent. Among the factors contributing to that rise were economic recession and an adjustment in the funds’ assumed rates of return, from 8 percent to 7.75 percent. According to the City budget, employer contributions for FY 2013-2014 will exceed $1 billion.

During the same period, between 2008 and 2012, LACERS’ investment portfolio underperformed the funds’ assumed investment returns by $4.9 billion. LAFPP’s underperformed by approximately $2.4 billion. Following the audit period, rates of return went up significantly and the funds’ performances both improved.

“That is welcome news,” said Galperin, “but these reports demonstrate that there are lessons to be learned for the future.”

Both pension systems spent approximately $50 million each on investment management fees during the audit review period.

While the fees were mostly in line with those charged to other pension systems, said Galperin, “it does not seem to follow that the asset management fees translated into high rates of return.”

Overall, the audits reported that LACERS’ and LAFPP’s management, planning and accounting practices generally comported with those of comparable public pension funds.

Still, the reports highlight areas for improvements:

The audit reports suggest that placing more funds under passive management could save the pension systems substantial fees and possibly generate greater investment returns. But to understand why, one has to pay attention to seemingly small numbers that turn out to be significant. For instance, LACERS’ actively invested assets underperformed as compared to benchmarks for passive investment by just 0.6 percent. However, that 0.6 percent totaled $160 million during the audit period.

Likewise, in FY 2011-2012, LAFPP paid approximately $23.5 million to investment managers to actively manage the public equity and fixed income portions of its portfolio. But according to the LAFPP audit, which was conducted by a firm specializing in pension management and investment analysis, if LAFPP had implemented an all-passive approach to the same portfolio, it could have reduced its investment management fees by $20 million.

When measured on a cost per member basis, both systems’ administrative expenses were higher than those of similarly situated plans. These costs added up. For example, had LACERS been able to lower expenses to the same levels as some of its peers, total administrative expenses would have been reduced by approximately $4.7 million per year, or $23.5 million over the duration of the review period.

Both LACERS and LAFPP serve members of the same city family. As a means to reduce administrative expenses and investment management fees, the audits recommend that the City consider consolidating the systems and/or implement heightened collaboration to capitalize on economies of scale.

City and contribution rates were determined based on budgeted salaries. This method omitted part-time and as-needed employees, as well as personnel who work for the two retirement systems. It is recommended that all pension-eligible members be included when determining contribution rates in order to increase accuracy and transparency.

Two of the audit reports were management audits of the Los Angeles City Employees’ Retirement System (LACERS) and the Los Angeles Fire and Police Pensions (LAFPP). These audits were conducted by independent firms and were commissioned jointly with the Mayor and Council in accordance with the City Charter. A third compliance audit, conducted by the Office of the Controller, examined the City’s contributions to LACERS and LAFPP.

The Controller’s office will lead a management audit of the DWP retirement system within the year.

The audit reports can be found online at http://controller.lacity.org/Audits_and_Reports/index.htm.

in News
Related Posts

Supreme Court Debates Legality of Ticketing Homeless Individuals, Hears Grants Pass Case

April 22, 2024

April 22, 2024

Landmark Case Raises Questions of Cruel and Unusual Punishment The Supreme Court engaged in a lengthy debate on Monday, lasting...

Taste of the Nation Returns to Culver City: Culinary Event Devoted to Fighting Childhood Hunger

April 22, 2024

April 22, 2024

Top Chefs and Tastemakers Join Together May 4th for No Kid Hungry’s Charity Event Taste of the Nation for No...

Extremist’s Arsenal: Felon’s Hate-Fueled Weapons Cache Leads to Federal Time

April 22, 2024

April 22, 2024

Man Was Part of a Hate Group, Posted Calls for Genocide and Racist Remarks Ryan Scott Bradford, a 35-year-old man...

(Video) Ariana Madix Confirms Something About Her Will Open Soon at LA Times Festival of Books

April 22, 2024

April 22, 2024

Ariana Madix answers the questions that fans want to ask at the Festival of Books as she appears to support...

Comedian Michelle Collins Brings her Big Natural Tour to LA

April 21, 2024

April 21, 2024

She’s funny, tall, glam and finally long-legging her way across these United States… it’s the Michelle Collins stand-up comedy tour...

Former CBS CEO Admits Role in Disclosure of Confidential Police Information

April 21, 2024

April 21, 2024

Leslie Moonves Fined for Aiding Misuse of Confidential Data in LAPD Complaint Former CBS CEO Leslie Moonves has acknowledged his...

Los Angeles Police Department Reveals Identity of Victim Found in Stolen U-Haul Truck in West Adams

April 21, 2024

April 21, 2024

Body Found in Rental Vehicle Was Shot in the Head, LAPD Seeks Information Detectives from the West Bureau Homicide Division...

Outrage Erupts Over Demolition of Iconic Midcentury Craig Ellwood Home in Brentwood

April 21, 2024

April 21, 2024

Destruction of Zimmerman House Creates Internet Backlash Preservationists lamented last year when another treasure of L.A.’s midcentury modern architecture vanished,...

Make Science Your Destination This Summer

April 19, 2024

April 19, 2024

Destination Science is the fun science day camp for curious kids with over 15 STEM activities weekly, three science stations...

Prime Time Sports Camps Coming Soon

April 19, 2024

April 19, 2024

Prime Time Sports Camp has remained a constant in the everchanging camp landscape for over 30 years by following this...

Groundlings Summer Improv Classes Open April 2

April 19, 2024

April 19, 2024

A summer of improvisation is around the corner at The Groundlings.  Three months of summer class offerings for teens will...

Coming to Venice for 4/20? Visit your original cannabis locals! Specials! Live entertainment @4:20pm  Doors open at 10am!!

April 19, 2024

April 19, 2024

Coming to Venice for 4/20? Visit your original cannabis locals! Specials! Live entertainment @4:20pm Doors open at 10am!! Free goodies!!...

Venice Kush Hosts “The Real Deal” Cannabis Celebration at the Beach

April 19, 2024

April 19, 2024

A Day of Education, Innovation, and Community at Venice Beach Venice Kush is gearing up to host its much-anticipated “The...

Get Jokerfied with The People’s Joker Director Vera Drew Interview; Now Playing at the Nuart Theatre

April 19, 2024

April 19, 2024

Vera Drew on Crafting a Trans Supervillain and Creating Comedy Chaos By Dolores Quintana The People’s Joker is an explosive...

Nicolas Cage Stars in Arcadian: A Bewitching Apocalypse

April 18, 2024

April 18, 2024

New Horror Film Delivers Solid Monster Movie Experience Arcadian is a new horror film starring Nicolas Cage (Dream Scenario, Mandy),...