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L.A. controller suggests merging management of two pension systems

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Los Angeles City Controller Ron Galperin called on pension officials Wednesday to take new steps to cut costs — possibly by merging the management of two of its three retirement systems.

During the recession and in its aftermath, pension costs for Los Angeles police, firefighters and city employees grew while investment returns were worse than expected, according to audit reports released Wednesday by the controller.

The reports find that between 2008 and 2012, the money that Los Angeles chipped in to two of its three city employee pension systems grew from $737 million to $869 million. That number is expected to exceed $1 billion this fiscal year, according to the city budget.

Graphic: Six-figure L.A. city pensions

In the same period, investments for the two systems underperformed by more than $7 billion. Since then, rates of return have gone up significantly, “but these reports demonstrate that there are lessons to be learned for the future,” Galperin said in a release.

For instance, administrative costs for the two systems were higher, per member, than for similar retirement systems, the reports found. If the Los Angeles City Employees’ Retirement System whittled those costs down, it could have saved $23.5 million between 2008 and 2012, the controller concluded.

Galperin suggested that consolidating the management of two retirement systems — one for firefighters and police and one for civilian employees not with the Department of Water and Power — could reduce costs for administration and investment management.

For instance, “if they are both going to be making similar investments, why pay for the same research twice?” said Lowell Goodman, communications director for the controller.

LACERS general manager Tom Moutes declined to comment specifically on the idea of consolidation, but in a statement said he was “proud that the management audit noted many positive aspects relating to LACERS,” including that it “operated in a reasonably efficient and economical manner” and that its operations were “very transparent.”

Moutes also noted that there were far fewer recommendations than in the last management audit in 2007. “As we are constantly striving to improve our operations, we welcome the audit recommendations and look forward to further reviewing them with our board,” the statement said.

Los Angeles Fire and Police Pensions general manager Ray Ciranna said in an email to The Times that his agency looked forward to reading and addressing the recommendations in the report.

As for merging management with the city employees retirement system, "the issue was raised in the last management audit and after subsequent review and analysis, it was determined that there wouldn't be any significant cost savings from combining investment activities," Ciranna wrote in an email. "Our investment management fees continue to be very competitive and are some of the lowest in the industry."

The audit reports also recommended that the pension systems might save money by placing it under passive management, which is less expensive than paying someone to make day-to-day investment decisions. If the fire and police pension had used passive management instead of active management for part of its portfolio, it could have reduced investment management fees by $20 million, according to one audit.

“We don’t know that paying all these fees always translates into a higher rate of return,” Goodman said. “It certainly merits further study.”

The latest audits did not examine the retirement system for employees of the Department of Water and Power. The three newly released reports included management audits of LACERS and LAFPP, as well as a compliance audit of city contributions to the two systems.

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emily.alpert@latimes.com

Twitter: @latimesemily

Copyright © 2014, Los Angeles Times
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