State of California Recommends
Other Retirement Systems Follow LACERS Lead
On Monday, January 7, the State of California’s Public Employees Post-Employment Benefits Commission (PEBC) released its report to the Governor’s Office. The PEBC’s number one recommendation was that California's public employee retirement systems make prefunding
health benefits just as important as prefunding pension allowances. While
all California retirement systems prefund retirement allowances, only 22%
prefund retiree health care.
LACERS has been prefunding health benefits for almost 20 years and prefunding retirement allowances since its inception in 1937. LACERS funded ratio is 68.5% for health benefits and 81.7% for retirement benefits.
Most other pension systems 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.
PAY AS YOU GO
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PRE-FUNDING
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Paying pension benefits as they become due without advance funding.
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Investing money now to use the earnings to pay for future benefits.
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Governor Arnold Schwarznegger formed the PEBC to examine
post-employment benefits. In 2007, the bipartisan committee met in
cities throughout California. LACERS General Manager Robert Aguallo,
Jr. testified before the committee about the success of LACERS two
prefunded programs - health benefits and retirement allowances.
"Once again, an independent agency has concluded LACERS is a
sound retirement system that is ahead of the curve when it comes to
providing post-employment benefits to its Members," said Aguallo.
While retiree health benefits are not guaranteed to the same extent
as your retirement allowance, pre-funding helps ensure the ongoing
viability of retiree health benefits. At LACERS, all funds for retirementallowances and health benefits are invested alongside each other for:
• Reduced risk through diversification
• Reduced transaction costs and fees
• Superior investment returns
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