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Pension funds

L.A. fund audit calls again for consolidation

A management audit of the Los Angeles City Water and Power Employees' Retirement Plan is again recommending the city evaluate the cost savings and feasibility of consolidating the plan and the other two city pension plans — the $20.6 billion Los Angeles Fire and Police Pension Plan and the $15.7 billion Los Angeles City Employees' Retirement System.

The audit, conducted by Aon Hewitt Investment Consulting, recommended a state constitutional amendment be required before consolidation of the three plans.

The board of the $12.3 billion Water and Power Employees' Retirement Plan was to discuss the recommendations at its Wednesday meeting.

"Consolidation of the city's pension funds is a retread of an idea that has been around since at least 1968," said Tom Moutes, LACERS' general manager, in an email. "If the city believes that consolidation is a good idea, then it should pursue the recommended courses of action to get the necessary changes to the state constitution and city charter. Otherwise, the city should advise the next auditor of the pension funds not to bother making this recommendation again."

The city charter calls for an audit to be conducted every five years. Audits of all three of the city plans have considered the cost benefits of consolidation since 2007. Following the consolidation recommendation in the 2009 audit and a 2010 Los Angels City Council resolution asking officials at the three plans to discuss consolidation, Water and Power Employees' plan officials estimated consolidation would save about $16.9 million per year, primarily from investment management fees. LACERS created an ad hoc committee to review cost savings through collaboration with the other two plans. The LAFPP board directed staff to look for cost efficiencies by collaborating.

Other recommendations in the audit include that the Water and Power Employees' board review its investment policy rebalancing ranges; include private equity within the equity rebalancing ranges; eliminate time-based rebalancing restrictions; and delegate rebalancing activities to staff.

The audit also recommends plan officials evaluate the potential benefits of passive management for its combined $9.3 billion in domestic equity, international equity and fixed income.

The audit found the water and power pension plan is above peers with active management of domestic equities but within peer ranges for international equities and fixed income, in terms of amount of assets actively and passively managed.

The audit also indicated fees paid to investment managers, the investment consultant, and the custodian bank by the pension plan are below peers, but did not provide details.

The previous management audit had 148 recommendations, of which 66 recommendations (44.6%) were implemented, 38 (25.7%) were partially implemented and the rest were not implemented, said James Nash, spokesman for the city controller.