LACERS BOARD UPDATE
By Michael R. Wilkinson, LACERS Commissioner
The City of Los Angeles just made a payment of the full employer’s contribution to the LACERS plan on time, and let me say it again, in full.
The payment of nearly $786 million goes mostly to our investments, but also represents the employer share of the Family Death Benefit Plan, the Limited Term Retirement Plan, and the Excess Benefits Plan. Some of this money also goes towards the health, vision and dental plans.
Why is this a big deal? It is important because it is a vital part of how we keep LACERS strong. Virtually all the pension plans that are in dire straits around the country are in part because politicians choose to skip pension contributions when finances were pinched and spent the money elsewhere. Year after year those plans became weaker because the money needed to fund their investments was withheld.
As we have discussed before, our pension plan is funded by only three sources: employee contributions while we are working, investment returns, and City (employer) contributions. The employee contributions are fixed and set by our Memoranda of Understanding (MOU), and the investment returns are what the plan earns.
Each year the actuary determines what amount the City must pay after considering all the factors such as how long Retirees are living, when people are retiring and how well the investments are doing. If the investment returns are stronger and total costs of running the plan are less than anticipated, the City’s contribution goes down. However, if investment returns are weaker and the plan costs are greater than anticipated, the City’s contribution goes up.
This constant adjustment of the required contribution from the City means that enough money will be available to fund the investment’s need to run the plan.
While the math may be complicated (as a lawyer, I must confess that there were no math questions on the bar exam!), the overall concept is very simple. In the end, the City must pay the amount LACERS determines is needed to keep the pension plan strong.