LACERS BOARD UPDATE
By Michael R. Wilkinson, LACERS Commissioner
The LACERS Board has approved two staff reports defending the current health and wellness program and the Board’s sole authority to make the investment decisions in the best interest of the plan and its members. As the Chair of the Benefits Administration Committee and a Board member, I opposed both reductions in our health plans and politically driven interference in the management of our pension fund’s investments. Both reports will be sent to the City Council.
I cannot speak for other members of the Board, but I was moved by the more than 100 Retired and active members and others who took the time to encourage the Board to keep the current health plans and resist actions to reduce the benefits to our members. Many members also spoke in support of protecting the State Constitution and the City Charter’s requirement that LACERS’ Board has the sole authority and is legally required to manage the investment program for the exclusive benefit of our pension fund.
The reports from LACERS were in response to two motions from the City Council. The first motion asked LACERS to investigate cutting the costs of our health plans, including switching from some of our group plans to coverage such as those under Covered California or the health exchanges.
The LACERS staff report detailed how the healthcare programs for the plan provide excellent coverage at a price that is lower than the cost trend rate of other plans. In addition, LACERS negotiates premiums with health carriers each year that results in millions of dollars of savings. Since LACERS has been prefunding the costs of healthcare for decades, the plan is 86 percent funded on an actuarial basis. This is one of the best in the nation.
The staff report detailed the reasons why switching from our current plans for non-Medicare (under age 65) plans would cost more for similar coverage under plans through Covered California. The LACERS Board has successfully kept costs low in part by its multi-year negotiated contracts strategy with medical plan providers which have allowed the Board to use a specially designed trust that banks surpluses in good years to keep the rates low when premiums spike.
Health exchanges, which substitute individual plans for LACERS group plans, were found to be significantly more costly and will hobble LACERS’ ability to negotiate the best deal for the members and control costs to the plan.
I also opposed the second motion from the City Council that would direct LACERS’ pension fund investments toward achieving social goals without recognizing the duty to protect the pension plan. LACERS already has a policy in place to keep to its fiduciary duty to its members to make decisions in the long-term financial interests in the plan. While LACERS policy requires consideration of environmental, social and governance risks in its investments, it is always with the focus to make sure that the plan earns the highest risk-adjusted returns necessary to keep the plan financially strong. The City Charter grants only the LACERS Board this authority to make investments for the exclusive benefit of the pension trust, and this requirement must not be ignored.
All the views in this article are my own and may not reflect those of other members of the Board or LACERS staff.
Correction: In my article last month entitled “COLA Adjustment Set; Goes into Effect in July,” the following sentence was omitted: “Those retiring from July 1, 2019 to June 30, 2020 will receive a 1.6 percent COLA increase for that period.”