By Muskan Arora
Recently, California 2nd District Court of Appeals declared that the $77bn Los Angeles County Employees Retirement Association (LACERA) owns the authority to set employment classifications and establish salaries for its employees, under both California Constitution and state statues.
Further, the ruling states that Los Angeles County Board of Supervisors (BOS) must accept and incorporate these classifications and salaries into its own functioning without tempering.
“The ruling strongly reinforces the legal authority of LACERA’s two governing Boards to make final decisions on the personnel needs of the fund, across all its administrative and investment responsibilities,” a spokesperson told Markets Group.
“This authority is important to fulfilling the Boards’ fiduciary duty to our members,” he added.
The 2nd District Court of Appeals dove deep into an exhaustive review of the California Constitution, state statutes, and relevant ballot initiatives owing to the 1937 Act. The act governs LACERA and 19 other Californian countries.
Before passing this ruling, the court depended on Proposition 162 which explicitly “conferred fiduciary responsibility on retirement boards for both the investment of funds and the administration of the system”. This gives boards like LACERA plenary authority to enforce employment classification and set employee salaries.
“The Court noted that fulfilling these responsibilities would be challenging if retirement boards lacked control over all system expenses, including employee classifications and salaries.”
The Court stressed that allowing a board of supervisors, which may have different responsibilities, priorities and agenda to vote and control the employment classification and compensation proposed by the board would undermine the board’s ability to meet these duties under Proposition 162.
Such power would corrupt the fiduciary relationship between the retirement board and system participants and beneficiaries.
The 2nd District Court decided that BOS has a “ministerial duty” to include the positions adopted by LACERS under civil service classifications and to incorporate the salaries for retirement system employees into the county’s resolution.
BOS vs LACERA: How it started
The tiff between BOS and LACERA started back in 2016-17 when the pension fund had conducted “comprehensive personnel reviews” recognizing the requirement for new positions and modifications in the salary to meet its strategic objectives and uphold its fiduciary duties.
However, in 2018, BOS provided a decade old case from a different Appellate District stating that it has the authority to block new classifications proposed by LACERS. Using this, they ignored the 15 years of its own model of implementing such changes.
When multiple efforts by LACERA to negotiate with the county failed, the pension fund filed a writ of mandate in 2021. Following the decade old case, the trial court ruled in favour of the county which led LACERS to appeal the decision resulting in the current ruling.
About LACERA
LACERA is responsible for both LA County’s Pension Fund and Other Post-Employees Benefits (OPEB) Trust.
The pension fund returned 9.8%, 6.6% and 8.5% for its 1,3 and 5-year returns against a benchmark of 11.9%, 4.4% and 7.3%, as of March 31.
The OPEB fund returned 13.1%, 4.1% and 6.9% for its 1,3 and 5-year returns against a benchmark of 12%, 3.6% and 6.5%, as of March 31.
