2007-08 City Contribution Rate to Retirement Plan Will Decrease

As a result of LACERS’ favorable investment returns in the past three years and other actuarial gains, the City’s contribution rate (expressed as a percentage of payroll) to the LACERS Plan will decrease for the fiscal year (FY) 2007-08. Based on their most recent valuation of LACERS’ actuarial liabilities and assets, which was adopted by the Board at its November 14th LACERS Board meeting, LACERS’ consulting actuary – The Segal Company – recommended the City’s contribution rate for FY 2007-08 be 22.79%, a 1.07% decrease from last year’s contribution rate of 23.86%.

The recommended City contribution rate for retirement benefits went down slightly (16.54% for FY 2007-08 vs. 16.86% for FY 2006-07). The FY 2007-08 City contribution rate for health benefits was down by 0.75% (6.25% for FY 2007-08 vs. 7.00% for FY 2006-07).

Additionally, the funded ratio of LACERS’ actuarial value of assets to its actuarial accrued liabilities for retirement benefits increased from 77.2% to 77.8%. The funded ratio for retiree health benefits also increased from 52.0% to 57.2%. The overall funded ratio increased from 73.2% to 74.7%.

LACERS’ investments returns for fiscal year 2004, 2005, and 2006 were 18.6%, 10.0%, and 12.4%, respectively. Because LACERS uses an asset valuation method that doesn’t recognize the full value of market fluctuations in a single year, but instead “smooths” its investment gains and losses over five years, the volatile effects of investment returns are minimized. This practice helps stabilize the City’s contribution rate to LACERS. Based on the actuarial valuation, LACERS’ total unrecognized gain from the past few years is $599,373,975 which will help control the City’s contribution rates in future years.

Although the recommended City’s contribution rate as a percentage of payroll is expected to be lower, the actual contribution amount may increase if the payroll growth rate is larger than the decline in the recommended contribution rate. How much higher (or lower) will depend on the covered payroll in the City’s FY 2007-08 Budget.