LOS ANGELES - The $16.5 billion Los Angeles County Employees' Retirement Association is charged with raiding itself to bail out its plan sponsor, the financially troubled county.
The allegations are coming primarily from Zev Yaroslavsky, who as one of five county supervisor represents the employer. Mr. Yaroslavsky is often described as an expert in budget matters, and one who has considerable visibility in the media.
Pension fund officials deny the charges.
Consequently, the Los Angeles County fund finds itself in a reverse twist on the usual relationship between a public pension fund and its sponsor.
Typically, a cash-strapped sponsor finds a reason to lower its contribution to the pension fund, and trustees claim the fund was raided by the employer.
In this instance, the employer gets to significantly reduce its pension contributions, but is accusing the pension fund of raiding itself.
At issue is trustees' decision July 24 to share with the county about $176.4 million - including $144 million in surplus investment earnings.
The decision is in accordance with a 1994 agreement between the fund and the county. In exchange for the county issuing pension obligation bonds, the pension fund agreed at that time to share 75% of surplus earnings (those above the fund's actuarial assumption rate) with the county for eight years, provided the pension fund doesn't fall below a 97.5% funding level plus a 1% deficiency reserve.
In at least two television appearances, Mr. Yaroslavsky labeled the move a raid, and questioned its propriety.
Trustee Simon Russin called Mr. Yaroslavsky's remarks "outrageous."
Mr. Russin said the pension fund has shared only those surplus earnings that it agreed to last year.
And, Marsha Richter, retirement administrator for the fund, said, "We should charge the employer with how much the (pension) program costs - not more than it costs."
Trustees decided the fund could share surplus earnings with the county - by crediting the county with $176.4 million in pension contributions - after learning the fund will have investment returns in excess of 15% for the year ended June 30, 1995. The 15% return is well above its interest assumption rate of 8%.
In addition, Ms. Richter estimates the pension fund will have a funding level of 106%.
The annual county contribution owed to the pension fund is about $300 million. The bond issue brought the pension fund's funding level to 97.5% last year.
Recent high investment returns, particularly from alternative investments, according to Ms. Richter, pushed the pension fund into overfunded status in the past few months.
For the year ended June 30, the pension fund has realized investment income of $1.227 billion. Some $159 million of that amount came from its alternative investments.
Besides the $144 million in surplus earnings, the pension fund has credited the county with $21 million because of actuarial adjustments based on lower-than-expected salary increases and $11.4 million from unexpectedly low medical costs resulting from new cost controls.
Meanwhile, Los Angeles County, in trying to close a $1.2 billion budget deficit, is in trouble. The county is going to have to cut the district attorneys office, sheriff's department, and health department.
Thousands of county employees will be laid off as the county cuts its budget 20%.
Despite the county's financial problems, Mr. Yaroslavsky said he has many questions about "how the money came about" that will reduce the county pension fund contribution this year. "We need to ask if the employees are being shortchanged," Mr. Yaroslavsky was quoted as saying in a published report.
On July 28 and July 31, Mr. Yaroslavsky said in separate appearances on television that the county pension and trust funds have been "raided."
Mr. Yaroslavsky couldn't be reached for comment.
His press deputy, Joel Bellman, said Mr. Yaroslavsky questioned how money was raised from the pension fund in reaction to a statement from Sherman Bloch, Los Angeles County sheriff. Mr. Bellman said the sheriff indicated he had "lobbied" the pension fund and "squeezed out" higher surplus earnings from it.
Mr. Bellman said a sergeant in the sheriff's department, Bob Hermann, who is also a pension fund trustee, made the motion to share the pension fund surplus earnings with the county.
While Mr. Hermann made a motion to share earnings, his motion wasn't adopted. Instead, a motion to share a larger amount was made by Mr. Russin, who has no connection with county safety employees.
Mr. Bellman said he was unaware that the adopted motion had been made by Mr. Russin.
In response to continued questioning about why Mr. Yaroslavsky said the pension fund was raided, Mr. Bellman said, "I will have to check with him ...."
Later, Mr. Bellman said: "Look, you could disagree with the term 'raid' but I think the concept (Mr. Yaroslavsky) was talking about was that the board (of supervisors) went after pension monies whether it is contributions, whether it is the fund itself, we looked to the pension system rather than cutting our budget, restructuring our budget or tapping ongoing stable revenue sources.
"It's more sort of the family of financial chicanery."
Mr. Bellman denied speculation that Mr. Yaroslavsky claimed the pension had been raided only to heighten the drama surrounding the county's financial plight.
