County Faces Challenge Over Use of Pension Funds

Representatives of more than 90,000 current and retired members of county employee unions have taken the first step toward a lawsuit that could foreclose the use of their pension earnings to balance Los Angeles County’s $15-billion budget.

The union coalition filed a claim against the county last week alleging that the arrangement, hatched in 1994 to avert hospital closures and possible county bankruptcy, is illegal. A claim is a precursor to a lawsuit, which the unions’ attorney has vowed to file if the county does not change its policy.

“They balanced their budget on the members of their retirement system’s backs,” said lawyer Steven Silver.

If the challenge is successful, it could be costly to the county, which this year will gain $195 million from the complex 6-year-old deal it cut with its pension fund, the Los Angeles County Employees’ Retirement Assn.

In essence, the county receives an annual discount on the amount of money it needs to contribute to its employees’ retirements, with the pension fund picking up the slack. The deal unnerved Wall Street and angered unions when it was signed in 1994 to stave off dire budget cuts during the depth of the recession.

Since then, the county has saved about $3.1 billion through the arrangement, officials said. To trigger the deal, the county sold $2 billion of pension obligation bonds and gave that money to the pension fund. The county is still paying off those bonds and spending $142 million to pay health benefits for retirees as required under the deal, county officials said.

Still, county budget officials have been weaning the county off its dependence on the money in the last two budgets.

County officials say that they carefully reviewed the complex arrangement and that it is legal. “We did a very good job in 1994 of making sure this was a good fiduciary agreement, said Greg Radamacher of the retirement association, stressing that numerous lawyers reviewed the deal.

Radamacher said the agreement has been good for retirees because it meant the plan got an upfront infusion of cash from the county.

But the coalition of 14 unions believes the arrangement defies an opinion from the attorney general’s office stating that retirement fund money should go only to retired employees.

“Employees have retirement benefits that they want to talk about that that money is supposed to be used for,” said Bud Treece, chief negotiator for the coalition and executive director of the Assn. of Los Angeles Deputy Sheriffs.

Treece said the unions have long sought improved retirement benefits, while their pension money went elsewhere. Complaints to county supervisors, he alleged, were ignored. “I guess there’s one way [county supervisors] talk,” Treece said, “and that’s after they’ve lost in court.”