Former Los Angeles Mayor Richard Riordan has filed a ballot initiative to overhaul the city’s employee pension system. Riordan wants to require future workers to enroll in 401(k) style retirement accounts instead of government pension plans.
Riordan says his initiative would benefit new city hires.
“The 401k gives them control over their own money with the advice of the city experts telling them the best ways to invest it.”
Under Riordan’s measure, current employees would not switch to 401k’s, but they would see their retirement benefits frozen.
He says the effort would save hundreds of millions of dollars annually over the next few years - and keep LA from going bankrupt.
“Because right now, the pension systems in the city of LA are $9 billion underfunded," says Riordan. "And if some way or another if we don’t get that money put in before the new employees retire, there won’t be any money left for them.”
Riordan’s initiative has the support of business leaders, but not of LA Mayor Antonio Villaraigosa, who’s pushing his own effort.
The mayor’s plan - which the City Council supports - would raise the retirement age for city workers hired after July 1st of next year from 55 to 65. It would cap retirement benefits at 75 percent of what an employee makes, and require workers to pay more toward their retirement benefits.
The city’s budget analyst says Villaraigosa’s proposal would save the city between $30 and $70 million over the next five years, and $4 billion over the next 30 years.
Riordan maintains the provisions in the mayor’s plan don’t go far enough.
“They only apply to new employees," he says. "And there are going to be very few new employees in the near future and they only apply to even a third of the new employees. Two thirds will be in other plans.”
The mayor’s plan is up for a final vote this month.
Union leaders don’t like either plan, because they say they had no input.
“We’re not supporting any plan that doesn’t use the collective bargaining process," says Bob Schoonover, who leads SEIU Local 721. The union represents at least ten thousand LA city workers. Schoonover has particularly harsh words for Riordan’s plan.
“Former Mayor Riordan is using numbers that don’t make any sense," he says. "This is not going to fix the budget. It’s going to make it worse.”
Schoonover says studies in California and other states have shown it’s expensive to switch public sector workers from a defined benefits plan to a 401k. Riordan counters that 401k plans will save the city money in the long run.
The former LA mayor needs to collect about 255,000 valid signatures by the end of the year to qualify his measure for next May’s ballot.