DWP Chief Retreats on Pension Fund Issues Amid Employee, Retiree Outrage

A behind-the-scenes power struggle over control of the Los Angeles Department of Water and Power’s $5-billion pension fund spilled into public view Thursday in a rancorous meeting in which hundreds of angry current and former employees repeatedly booed the utility’s folksy general manager.

By the end of a two-hour showdown, the department’s leader, S. David Freeman, retreated on virtually all fronts by agreeing to immediately make an overdue $12-million payment to the pension fund with interest, voting to seek independent legal counsel and abandoning a highly unusual effort to force a closed-door review of the fund manager’s performance.

The struggle between the department’s top management and its employees comes as the nation’s largest municipal utility moves to eliminate 2,000 jobs in belated preparation for the coming competition in the electric power industry.

Freeman, who took the DWP’s reins six months ago, had promised the City Council that he could avoid the largest layoffs in city government history by offering employees a $346-million buyout and severance package that would be paid largely from the pension fund.

Seeking a politically painless way to avoid layoffs, the council, with a lone exception, agreed. Freeman has negotiated contracts with two of the DWP’s three major unions that contain cash severance payments of up to $50,000 each for younger workers and enhanced retirement benefits to encourage older employees to leave voluntarily rather than be laid off.

But he recently withheld the January payment to the pension fund, sought to immediately reduce the agency’s contributions and took extraordinary steps against the fund manager, sparking widespread distrust among DWP employees and retirees.

And the actions have reopened wounds created five years ago when Mayor Richard Riordan attempted to tap the DWP pension fund to finance the hiring of additional police officers. The effort sparked a storm of protest from DWP employees and ultimately was unsuccessful.

With memories of that clash still fresh, DWP staffers packed a meeting of the utility’s pension fund board to express their displeasure with Freeman.

Department employee Marsha Eversman seemed to sum up the prevailing mood when she accused the general manager of engaging in “another end-run attempt to raid . . . the DWP retirement plan.” She pointedly told Freeman, who is also a member of the pension fund board, that he has a legal and moral responsibility to fully fund the retirement system.

Freeman insisted that “nobody is trying to take any money out of [the pension fund] or put less money in.” He said the fund is in the best shape it has ever been in because of the increase in stock prices. He said the fund had amassed an $800-million surplus before the buyout and severance package was offered. But that did not allay fears of employee representatives on the pension board.

Chairwoman Marciene Hunter, a veteran of 29 years at the utility, said later that Freeman’s failure to make the January payment by the traditional date of Feb. 10 was a “breach of trust” that had shaken employee confidence.

Pension fund trustee Raymond Honda, another longtime DWP employee, expressed concern that Freeman was “making a mockery of the retirement board” by withholding the payment. “They are corporate raiders,” Honda said. “Riordan made money as a corporate raider.” Honda said the fund’s surplus could change quickly with a stock market downturn.

After the meeting, Freeman acknowledged that “I obviously touched a sore spot.”

He said there is “an extreme amount of nervousness” at the DWP about the retirement system. “There was no breach of trust,” Freeman added. “There may have been an error in judgment.”

He told the employees he had been unaware of the long-standing custom of making the pension fund payment by the 10th of the next month. But records show that the January check was ordered. A top DWP official later stopped the check.

Freeman agreed Thursday to immediately make the $12-million payment with interest. He did not pursue efforts to seek an immediate reduction in the DWP’s contribution to the fund and he agreed with other board members to seek outside legal counsel. He prevailed only in having the fund’s actuary conduct a review of the impact of the employee buyout package.

Freeman and the DWP’s chief financial officer, Phyllis Currie, left the meeting before the performance of pension fund manager Richard W. Goss came up.

Goss said the move against him was sparked by a memo he sent last week alerting pension board members that Freeman had failed to make the monthly payment. Freeman responded by calling Goss irresponsible in a videotaped message to department employees.

The pension fund manager said in an interview that Freeman has “a credibility problem” because of assurances that the buyout package could be financed largely through the pension fund. “The notion that it could be done for free is not one that is supported by the facts,” he said.