LACERS BOARD UPDATE
By Michael R. Wilkinson
LACERS’ actuary, Segal Consulting, reported to the LACERS Board that the funding level has increased for both the retirement and the health plan. LACERS reports the funding separately for the health plan and the retirement plan.
The funded ratio for the retirement plan increased from 70.1 percent to 71.3 percent, and for retiree health benefits, the funded ratio increased from 80.7 percent to 84.4 percent. This ratio compares the actuarial value of LACERS assets to its actuarial value of its liabilities.
The funded ratio is used for many purposes, including setting the contribution rate of payroll for the City to pay its share of the pension. The pension promise is paid by employee contributions by the active members, investment returns and City contributions. The City contribution rate (percentage of payroll) went down from 24.75 percent to 24.63 percent for the retirement fund and from 4.91 percent to 4.49 percent for the health fund. These are the combined rates for Tier 1 and Tier 3.
The City is legally obligated to pay the total cost of employee contribution and has always paid 100 percent of the required contribution. However, when you look around the country to see some of the public retirement plans that are in dire financial straits, there is one problem that repeats – a failure of the employer to pay the required contribution.
The pension plans for two of the worst funded states — Illinois, 38 percent funded, and New Jersey, 36 percent funded — had other problems as well, but both regularly failed to make full required contributions. This lack of needed contributions led to a devastating underfunding of the plans. The City has always paid its full obligation on time when it was due. Proper funding from the employer is critical so that the funds will be there to run the plan and to make investments, since the investment returns make up the largest share of plan assets.