The City of Hermosa Beach will get some relief from its unusually high pension costs in six years, a consultant reported this week.
Over the summer, the city was one of five municipalities in Los Angeles County singled out by a civil grand jury for a cautionary analysis of high pension costs. In Hermosa, which has a $26 million annual budget, the unpaid pension liability was placed at $14 million.
The city’s consultant, John Bartel, president of Bartel Associates actuary, told the City Council that Hermosa’s pension costs are high in part because it has been paying off a high number of disability-related pensions, which can cost more over time, because the employees often retire at a younger age.
Mayor Howard Fishman said cities have little leeway to challenge disability claims by police and firefighters, because state labor laws include a presumption that some conditions, such as back injuries, are caused by the job.
Police pensions were singled out as especially expensive. In six years, the amount Hermosa pays for police pensions is expected to be cut roughly in half, officials said.
The city’s higher pension costs are isolated in a “side fund” that Hermosa is paying off, in addition to its usual payments to a state pension pool called the California Public Employee Retirement System.
Bartel said the side fund, which will be paid off in six years, represents the unpaid pension liability that Hermosa brought with it when it joined the state system in 2003.
Hermosa’s side-fund pension payments, which go up or down based on the success of state retirement fund investments, are expected to be about $1.5 million next year for police, and about $420,000 for firefighters.
He said the city can try to borrow money to pay off the side fund more cheaply, but it will not be easy finding a low enough interest rate to make it worthwhile. City Finance Director Viki Copeland said it has been difficult to find a lender, in part because of a multimillion dollar lawsuit against the city by Macpherson Oil Company, which is scheduled to go to trial in April.
The side fund was addressed by the grand jury report as well.
“The City of Hermosa Beach pays among the highest retirement system employer contribution rates in the county and pays the highest employer contribution rate for [pensions related to] its police safety plan,” the report stated.
The report noted that the city has taken some cost-cutting measures, establishing a “two-tier” pension plan in which future employees will receive lower pensions, eliminating or freezing 25 vacant employee positions, and moving “aggressively” to “pre-fund” some of its pension liabilities. That move has “substantially” reduced some unfunded future liabilities since 2008, according to the report.
City officials said the two-tiered pension system is expected to save the city 34 cents for every $1 in payroll for each new police officer, 19 cents for every $1 in payroll for each new firefighter and 8 cents for every $1 in payroll for other new city employees.
