LACERS FUNDING

The money in LACERS' fund comes from three sources: Member contributions, contributions from the City of Los Angeles , and earnings from LACERS Investments. Our fund is currently valued at more than $9 billion (September 2009). Every year, LACERS determines its funded ratio as an exercise to measure our ability to pay the future retirement and health benefits of all LACERS members - retired and active - based on LACERS current assets and a number of assumptions. If LACERS current assets are not sufficient to pay all of the long-term liabilities, the City will contribute money to cover the remaining balance. Assumptions are reviewed annually by LACERS and our contracted certified actuary, The Segal Company, and presented to the Board of Administration. Based on actuarial projections and experience studies, the Board may change the assumptions to reflect the current environment.

LACERS' Funded Ratio

A funded ratio is a snapshot of the relative status of LACERS assets and liabilities. It identifies future obligations that are amortized over extended periods and should not be viewed as a test of how well the City can meet its current or future obligation to pay retirement benefits. Although funded ratios change from year to year, our ability to provide retirement benefits remains secure. In fact, we are in a better position than most retirement systems because we have been pre-funding our health benefits for nearly twenty years.

Funded Ratio Impacts

The major factors that impact funded ratios are:

Changes in funding methodology.
For example, the Board's decision to include funding of health subsidy benefits for active LACERS members with less than 10 years of service. This ensures that the cost of providing this benefit is included as a part of LACERS funding for all years of a member's service. This change in methodology decreased the funding ratio because the liability now includes all active LACERS members.

Changes in actuarial assumptions.
Every three years, LACERS actuary performs an Experience Study to compare the actual experience of LACERS to its predicted experience. This helps determine the accuracy of the assumptions used for such variables as investment returns, salary increases, retirement rates, mortality rates, and termination rates of LACERS members. Based on these results, new assumptions may be adopted by the LACERS Board of Administration, which may alter the funded ratio. For example, this year new assumptions were adopted regarding member demographics to better reflect the actual experience of LACERS members. These changes more accurately reflect LACERS actual liabilities.

Changes in the value of LACERS assets.
LACERS smoothes its investment gains and losses over 5 years. This "smoothing" methodology helps minimize the effects of volatile investment returns and thus helps stabilize the City's contributions to LACERS.

Funded Ratio Comparisons

Funded ratios are simply an accounting exercise to consider long-term liabilities based on current assets and have had no direct bearing on our ability to provide benefits to our retired Members.  Our current funded ratio information is listed below.

(Based on Valuation Value of Assets)

(Based on Market Value of Assets)