LA WATCHDOG - The Los Angeles City Employees’ Retirement System (commonly known as “LACERS”) had a 29% return on its investment portfolio for the fiscal year ending June 30, 2021.
This unexpected performance exceeded LACERS investment rate assumption of 7%. As a result, the unfunded pension liability based on market values is now $4.1 billion (85% funded), down from $8.2 billion (68% funded) in the previous year.
Interestingly, the OPEB (Other Post-Employment Benefits, primarily post-retirement medical benefits) portion of LACERS is overfunded at 107%, a bright spot, especially when considering that the County and State OPEB accounts are barely funded, resulting in billions in unfunded liabilities that will crowd out other spending priorities.
The City’s Separation Incentive Program had a significant impact on LACERS. During the past year, there was an increase of almost 1,600 retirees (7.8%) while the number of active members (read the City’s civilian employees) decreased by over 2,300 people (8.4%). As a result, the City’s projected payroll is expected to decrease by almost $200 million to $2.25 billion.
As a result of fewer City employees, a lower projected payroll, and a series of convoluted calculations, the City’s required annual contribution to LACERS is expected to drop by almost $40 million.
On the other hand, if the City is serious about lowering LACERS unfunded pension liability, it ought to consider increasing its annual contribution by this $40 million.
While LACERS funded ratio based on market values is an improved 85%, this assumes an overly optimistic investment rate assumption of 7%. If the City followed the recommendation of professional investors such as Berkshire Hathaway’s Warren Buffet and used a 6% rate, the unfunded liability would increase to $7.7 billion, lowering the funded ratio to 75%. This would also require an estimated additional annual contribution in the range of $250 million.
The unfunded liability for the City’s two pension plans exceeds $10 billion. It is the City’s most significant liability and threatens to overwhelm its budget and crowd out vital services such as necessary services such as the repair and maintenance of our streets, sidewalks, and parks as well services for the homeless.
Rather than keeping Angelenos in the dark, the Nury Martinez led City Council and its Personnel Committee chaired by wannabe Controller Paul Koretz need to follow up on the recommendation of the LA 2020 Commission and establish a pension commission to review and analyze the City’s two pension plans and to develop recommendations to reform the pension pans and eliminate the unfunded pension liability over the next 25 years.
After all, we have a right to know since we are paying the bills.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: [email protected])