Pension Fund Move Could Be Costly

A decision to liquidate $318 million in investments by the Los Angeles city pension fund amid conflict-of-interest allegations could cost from $30,000 to $3 million, a consultant for the fund warned Tuesday.

Based on the history of such large liquidations, Allan Emkin of Pension Consulting Alliance told the city’s pension board that transaction costs of $3 million would be the worst-case scenario, with $30,000 to $60,000 being the best-case scenario.

“I’m concerned,” board member Rick Rogers responded. “It’s an expense to the fund that under normal circumstances we would not have to incur.”

The investments being liquidated have been handled by Dimensional Fund Advisors of Santa Monica, which in 2001 hired the husband of pension board member Shelley Smith.

The city attorney’s office warned this month that Smith faced a conflict of interest and that either she or her husband would have to resign if the company were to extend Dimensional’s contract managing $318 million in funds for the Los Angeles City Employees’ Retirement System.

Instead, the firm decided not to seek an extension of the contract that expired this month, angering many city employees.

Half a dozen of them attended Tuesday’s meeting to call on Smith to resign and saying that her refusal could harm the pension fund.

“I don’t think it should cost us $3 million as employees for her to stay on the board,” Terri Lopez, an employee who attended the meeting, said afterward.

About 30 union activists and employees who support Smith also attended the meeting. Smith is president of the L.A. City Attorneys Assn., an affiliate of the powerful Service Employees International Union Local 347.

The pension board allowed three Smith supporters to address the board and then cut off public comment.

Afterward, Smith told her supporters she would not resign.

In asking that public comment be halted, board member Ken Spiker said it was not within the board’s jurisdiction to make a decision on Smith’s tenure because she had been elected by city employees.

One city worker opposed to Smith, who asked not to be identified, said it was inappropriate for the board to cut off public comments after the three pro-Smith speakers.

City Atty. Rocky Delgadillo later agreed. “It’s definitely a violation of good public policy,” said Katie Buckland, a spokeswoman for Delgadillo, who added that the city attorney’s office would investigate whether the board violated the law in cutting off public comment.

Despite Emkin’s comments, pension fund staff members told the board Tuesday that they could not yet estimate what, if anything, it would cost to liquidate the funds.

Councilman Bernard C. Parks, who heads the council’s budget committee, said he would request today that the council order an analysis to determine how much the liquidation is likely to cost and how much might have to be made up by Los Angeles’ general fund.

“I will be taking a hard look at the financial risk we face due to one person’s selfish decision and will be making a formal motion on Friday for an official investigation to determine how much money taxpayers will lose as a result of this conflict,” Parks said.

City Controller Laura Chick said she also would conduct a management audit of the pension fund.