By Ed Mendel
Monday, September 23, 2013

A superior court judge overturned a freeze on retiree health care for Los Angeles city attorneys this month, citing some of the same case law that made public pensions a vested right that can only be cut if offset by a new benefit.

The court ruling is a blow to the view that state and local governments, when looking for cost savings, may be able to make cuts in promised retiree health care that are not allowed for tamper-proof pensions.

The debt or “unfunded liability” for retiree health care promised state and local government workers rivals pension debt. But most employers make no annual pension-like contributions to a retiree health care investment fund to help pay future costs.

Los Angeles, a leading exception to the pay-as-you-go policy, had the best funded retiree health care among big cities in a national Pew study issued in January. The city pays a big price for the policy praised by many and practiced by only a few.

Making the actuarially required payments for retiree health care promised current Los Angeles workers in the future accounts for nearly a quarter of the soaring retirement costs former Mayor Richard Riordan warns are driving the city toward bankruptcy.

Los Angeles expected to save about $100 million a year with the retiree health care freeze, called the “cornerstone” of an attempt two years ago to curb soaring retirement costs and balance the city budget.

The freeze gave Los Angeles city employees the option of paying more for retiree health care or receiving a lower benefit, similar to the voter-approved pension option given San Jose workers now awaiting a ruling after a trial in July.

And as with the San Jose pension option, part of the legal rationale for the Los Angeles retiree health care option is a provision in the city charter that specifically reserves the right to modify retiree health care benefits.

Los Angeles gave employees an option in 2011 of earning a retiree health care subsidy frozen at $1,190 a month (for the non-sworn) or contributing 4 percent of pay to continue earning retiree health care with annual increases.

“The fixed and permanent $1,190 medical plan premium subsidy in the freeze ordinance constitutes an impairment of a vested right to a substantial or reasonable benefit,” Los Angeles Superior Court Judge Luis Lavin said in a ruling Sept. 13.

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