Frequently Asked Questions: LACERS Funded Ratio
What Is a 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.
What Impacts a Funded Ratio?
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.
How does our current funded ratio compare to those of the past?
The funded ratio changes annually based on changes in liabilities, investment returns, active member demographics, actuarial assumptions, and more. Historically, funded ratios seem to follow a cycle.
As you can see, ratios have increased and then decreased again over the last twenty years. 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)
| VII Funded Ratio |
6/30/06 |
6/30/05 |
Change |
| A. Retirement Benefits |
77.8% |
77.2% |
0.6% |
| B. Healthy Subsidy Benefits |
57.2% |
52.0% |
5.2% |
| C.Total |
74.7% |
73.2% |
1.5% |
(Based on Market Value of Assets)
| VII Funded Ratio |
6/30/06 |
6/30/05 |
Change |
| D. Retirement Benefits |
83.1% |
79.3% |
3.8% |
| E. Health Subsidy Benefits |
61.2% |
53.4% |
7.8% |
| F.Total |
79.8% |
75.3% |
4.5% |
From LACERS Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2006
What else do I need to know?
LACERS fund is strong and performing well compared to other public pension plans in our class. 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.
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