Lead the Way in Pre-Funding Retirement Allowances and Health Benefits

On Thursday, May 31, LACERS General Manager Robert Aguallo, Jr., testified at a hearing of the State of California’s Public Employees Post-Employment Benefits Commission where he detailed how LACERS has been a leader in pre-funding retirement benefits, including pensions and health. For 70 years, LACERS has pre-funded retirement allowances for Members. For the past 20 years, LACERS has been one of the few retirement systems in the nation to invest money to pre-fund health benefi ts for Members. This is important as other systems in California and across the country are trying to figure out how to pay for retiree health care. Most other pension systems do not pre-fund, and instead use a “pay-as-you-go” approach to cover retiree health costs. This approach has resulted in a struggle for pension systems to meet today’s rising health care costs for their current retirees.

"It was important that the Commission hear about the success story at LACERS. We have been leaders in pre-funding post-employment benefits, including retirement allowances and health care," said Aguallo.

The funded ratio is 77.8% for retirement benefits and 57.2% for health benefits. Both numbers have been increasing and are anticipated to rise again in 2007.

While retiree health benefits are not guaranteed to the same extent as your retirement allowance, pre-funding helps ensure their ongoing viability.

In a “pay-as-you-go” system, costs are paid as they come in. In a “pre-funded” system, both current and future costs are estimated and budgeted for. The “funded ratio” is a measure of how much of the money needed to pay all total current and future costs is currently held by the system. At LACERS, the Portfolio Management Division oversees the investment of the monies.

All funds for retirement allowances and health benefits are invested alongside each other at:

Reduced risk through diversification.

Reduced transaction costs and fees.

Superior investment returns.