WALL STREET: THE WILD DAY AFTER : Officials Still Expect to Clear a Profit : City, County Pension Plans Intact Despite Steep Losses

Pension plans for Los Angeles city and county workers have lost nearly $1.5 billion since the stock market turned sour this month, but officials who run the huge portfolios were in widespread agreement Tuesday that there will be no impact on retirees unless stock values continue to fall drastically.

In fact, the brokers who manage the huge $7.9-billion pension fund for Los Angeles County employees began to cautiously buy stocks again on Tuesday as the stock markets showed signs of recovering. City officials said they also were staying in the stock market.

“I still expect at the end of the year to make some money on the fund,” said Gary Mattingly, general manager of the pension system for 20,000 Los Angeles city police officers and firefighters, which has lost $550 million since October 1, including $202 million on Monday alone.

Eats Into ‘Paper Profits’

In essence, the losses occurred only on paper and for the most part ate into “paper profits” that were earned earlier this year when the value of stocks was surging to record levels. The losses would be widely felt if all city police officers and firefighters retired tomorrow, but in reality the pension system is only required to pay out its benefits gradually.

Retirees receive a fixed income based on their former salary and years of employment so their earnings are not directly affected by the changing value of a fund’s investments. In addition to investments, the retirement systems receive an allocation from general tax collections to help pay the pension benefits for retirees.

If the stock markets were to collapse and investment sources dried up, local taxpayers would have to make up the difference so that pension benefits could be paid. But local officials said Tuesday they expected no impact on taxpayers from the stock market plunge.

The month’s losses were less serious than it might appear, retirement system managers also said Tuesday, because of the peculiar nature in which pension funds are invested.

The amount of pension funds that can be invested in the stock market is limited by law for most public agencies. That has forced the retirement systems to invest their massive amounts of money in a wide variety of ways, including bonds, real estate, the money market.

For example, the huge pension system for Los Angeles county workers keeps only 41% of its money in stocks. So while the value of stocks collapsed, the value of bonds held by the system increased and other investments stayed about the same.

“The cushion was there. It followed the old adage about not putting your eggs in one basket,” Dennis Draper, USC associate professor of finance and business economics, said Tuesday.

During a press conference at City Hall and later during interviews, Mattingly said the police and fire pension system earned a 69% return on its stock investments in 1983, then lost 16% playing the stocks the next year. The following two years the stocks returned 30% and 35%, a higher return than any of the system’s other investments.

Even with the reversal this month, which has seen the value of its stocks fall 27%, the system’s investment in stocks so far this year has about broken even, Mattingly said.

The City Employee Retirement System, which covers 10,000 retired civil service workers and 20,000 current employees, lost $156 million on Monday and has seen its stock portfolio drop $250 million this month, general manager Jerry Bardwell said Tuesday.

But he joined other pension managers Tuesday in proclaiming the losses to be of little importance and said the stock market remains a safe place to invest pension funds. “The mood is not doom and gloom,” Bardwell said. “We might start looking for different stocks, but we will by all means be looking for stocks.”

Bradley Talks With Managers

Los Angeles Mayor Tom Bradley, who called the city’s pension managers together for a crisis meeting Tuesday, came out of the meeting pronouncing the pension funds safe.

“I feel confident that instead of our employees being worried about their pensions they should be reassured,” Bradley said.

Later in the day, Bradley’s political rival, Councilman Zev Yaroslavsky, called the same experts before his council Revenue and Finance Committee and reached about the same conclusion.

“It’s not a cause for panic and certainly not a cause to worry fundamentally about the funds,” Yaroslavsky said. Later, he added his feeling that people are justified in feeling nervous about the pension funds.

County officials expressed similar assurances about their pension system, by far the largest for government workers in Los Angeles. It pays benefits to 32,000 retired workers and collects contributions from 67,000 current employees.