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Workers who retire from the Los Angeles Department of Water and Power enjoy a higher monthly pension, on average, than retired public employees from the city and county, according to an audit released this week by City Controller Ron Galperin.
LADWP retirees received an average monthly pension payment of $5,212 in the fiscal year ending July 1, 2015, the audit said.
That figure is higher than the $4,023 average monthly payment for other city retirees and the $3,881 pension amount per month for retired county workers, amounts that are used as comparisons in the audit performed by contractor, Aon Hewitt Investment Consulting.
But while the LADWP’s pension benefits on average surpass those of other local government agencies, they are still slightly lower than the pension payments received by police and firefighters. The average monthly pension is just shy of the $5,309 monthly payments for Los Angeles police and fire department employees, according to the audit.
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The analysis is required every five years, and allows city officials to monitor the pension system at the LADWP, a separate entity that is ultimately overseen by city officials.
The audit report comes as watchdog organization, Transparent California, released data on individual pension payments received by LADWP’s more than 7,000 retirees in 2016. The data, posted on the organization’s website, showed LADWP issued at least $435 million in pension checks in 2016.
In the controller’s audit, the LADWP pension payments were compared to a dozen other public plans for agencies close by, including the cities and counties of San Diego and Orange, as well as San Bernardino County.
The LADWP plan’s “average monthly retirement compensation is within range of its peers for all years in the scope period,” the report concluded. “It is moderately higher than the peer system average and median monthly retirement compensation paid.”
David Lewin, a professor of management at the UCLA Anderson School, said LADWP compensation — including retirement benefits — tends to be on the higher end because the utility competes with private-sector agencies for qualified executives.
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Unlike other public agencies, LADWP operates like a “quasi-private” agency and usually recruits from the same pool of executives being eyed by companies like “ExxonMobil … and other energy companies, including solar and wind in the private market,” Lewin noted.
But unlike purely private sector companies, which tend to offer 401K-style retirement benefits that do not tie up funds for years to come, LADWP offers pension benefits. Such plans are a “defined benefit,” which means an agency is on the hook ahead of time to pay a certain benefit amount, based on the employees’ salary and years they worked, rather than the market, he said.
Lewin said LADWP is in the same boat as many public agencies nationwide that are now dealing with the challenge of whether they “can afford” to make the payments promised years ago.
“And if they can’t, they have to find the money somewhere, whether it’s through tax increases” or other methods, Lewin explained.
The controller’s audit also examined the reasonableness of the LADWP’s assumptions, when setting aside funds to make future pension payments.
Auditors found that the LADWP’s pension system “has been diligent in reviewing the appropriateness of its actuarial methodology and assumptions,” which “appear to be sound and reasonable.”
The last time the pension system re-evaluated its assumptions was in 2013. At that time, the system lowered its expected investment return rate from 7.75 percent to 7.5 percent, and the inflation rate from 3.5 percent to 3.25 percent. They also reduced the salary increase assumption from between 5.35 percent to 10.5 percent to a 4.75 percent to 10 percent range, based on the employees years working for the LADWP.
The pension system also adjusted its assumptions for how long the payments will need to be made “to reflect both recent and future improvement of life expectancy for its membership.”