A retirement plan run by The Jewish Federation of Greater Los Angeles is more than $25 million underfunded, according to financial statements filed in October. The statements say the pension fund, which holds savings for more than 2,000 employees working for eight different Jewish-affiliated organizations, hold assets equivalent to only 76.1 percent of its projected liabilities. Because that number is below 80 percent, the Internal Revenue Service considers the fund in “endangered status” or a “yellow zone.”
“The truth is, it’s very easy to see a big number and get alarmed,” Federation Chief Operating and Financial Officer Ivan Wolkind said when asked about the fund’s status. But, he said, “It’s almost where we need to be.”
Indeed, the fund’s position had been getting stronger, improved from 71.5 percent funded in 2009, to 76.4 percent in 2011. But the most recent disclosures showed a slight dip in 2012.
“It’s not cause for concern,” Wolkind said. “There are plans, in Detroit, that are 30 percent funded. We’re actually in a strong position.”
One might suggest that the City of Detroit, which recently filed for bankruptcy, represents an extreme point of comparison. Yet Jason Hsu, an adjunct professor at UCLA Anderson School of Management, said many state and municipal pension funds are less than 50 percent funded.
In those cases, he said, “Unless the state or the city is able to come up with a significant amount of money, the likely outcome is there needs to be a major negotiation. And people are going to get reduced benefits.”
The Jewish Federation’s case is far less severe.
“It’s really not that bad,” said Mindy Gassman, a licensed pension actuary, although she added, “It’s not a perfect situation.”
Nearly two cents of every dollar contributed to the Jewish Federation in 2011 went into its employees’ retirement account. For two other of Los Angeles’ Jewish nonprofits that receive funding from Federation — Vista Del Mar and Bet Tzedek — that distribution was nearly five cents of every dollar. Over the last few years, each nonprofit has paid 16 cents of every dollar of payroll into the pension fund. Wolkind said Federation operates the fund as “one of the services [they] offer to the Jewish community.”
Eight L.A.-based Jewish nonprofit organizations participate in what’s called a defined benefit plan, meaning that each employee, upon retiring, will be entitled to a specific amount based on a formula of their highest salary, how old they are when they retire and how many years they worked for their organization. The nonprofits pay into the fund, and the money is invested in equities, bonds and elsewhere. If the fund does poorly, or if employee salaries go up too quickly, or if any number of other things go wrong, the plan can quickly become underfunded.
Representatives from four of the six biggest nonprofits in the Federation pension plan — Bet Tzedek, Jewish Vocational Service, Aviva Family and Children’s Services, and Vista Del Mar Child and Family Services — all declined to comment for this article.
The Zimmer Children’s Museum, one of the smallest organizations participating, has only three employees in the plan, and therefore pays far less than Vista Del Mar and Federation.
“It’s an amount that hits us,” said Esther Netter, the Zimmer museum’s CEO. “It isn’t inconsequential.”
Jewish Family Service spokesman David Gershwin offered only this prepared statement: “Jewish Family Service pension contributions have been stable for the last few years. And JFS will continue to participate in the pension plan administered by the Jewish Federation.”
In fact, Jewish Family Service of Los Angeles has been increasing its payments into the fund every year — nearly $1.4 million in 2012, $170,000 more than the year before. The amount that each organization contributes to the fund is pegged to employee salary — 16 percent of payroll, in recent years — and a rise in salaries is just one of what Wolkind said were numerous causes pushing up contributions. Another is the effort to close the gap between the amount of money the pension fund has and the amount of money it owes to future retirees.
Bet Tzedek’s contribution rose more than $100,000, as well, to more than $520,000 in 2012 — a significant sum for an organization that takes in around $8 million a year in revenue. One source within the nonprofit told the Jewish Journal that Bet Tzedek board members are worried, but not too worried, about retirement costs. Their bigger concern, reflected in ongoing contract negotiations with their employees union, is the cost of employee health care, which is up to roughly $900,000 a year and shows no signs of letting up.
Projected retirement costs, at least, are expected to level off. In 2006, organizations that are part of the Federation’s retirement plan began enrolling new employees into a defined contribution plan — an example of which is a 401(k) — which pays money into a worker’s retirement account but has no fixed output and is, therefore, not put in danger of insolvency if the financial markets crash. Such plans don’t guarantee employees a set amount when they retire.
“It’s unfortunate,” said Regina Birdsell, president of the Center for Nonprofit Management. “Our sector doesn’t think about taking care of ourselves as much as we think about taking care of others. The donor community has very little tolerance for the overhead price rage. They want to know that all their money is helping the cause without thinking about the margins it takes for getting things done.”
Many pension funds invest about 60 percent of their assets in the stock market, which meant they were hit especially hard during the financial collapse of 2008. But what followed hit them just as hard: In an attempt to stabilize the economy, the U.S. Federal Reserve lowered interest rates as much as possible. That has increased retirement funds’ “liabilities,” which are essentially an estimate of how much money future pensions will cost the fund. The estimate goes up when interest rates are low, as it’s generally harder to get a decent return on your investment when rates are low.
“It’s been a double whammy,” said Hsu, referring to the drop in stock prices followed by the slashing of the interest rate. “It’s increased the funding gap between liabilities and assets tremendously.”
And the Jewish Federation may not have all the options available to it that a private company might have to close the pension gap.
“The Federation has no way of doing what companies normally need to do — increase productivity,” said Gabe Kahn, a co-director of the Media, Economics and Entrepreneurship program at USC. “They’re a fundraising organization. They’re just shaking a tree and passing it around.”
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