Page 343 - FY 2020-21 Blue Book Volume II

CITY EMPLOYEES' RETIREMENT FUND

BASIS FOR THE PROPOSED BUDGET

The 2020-21 Proposed Budget for the City Employees’ Retirement Fund relates to current year funding as follows:

1
2019-20 2020-21
Adopted Estimated Proposed
Budget Expenditures Budget

$ 117,461,561 $ 117,368,000 Special Fund (Harbor, Airports, LACERS, $ 113,251,104
and LAFPP)
559,317,775 559,299,000 Tax and Revenue Anticipation Notes 532,649,398

$ 676,779,336 $ 676,667,000 Total $ 645,900,502

1) The total budgeted contribution may differ from the LACERS Budget due to LACERS accounting of the true-up
(a credit adjustment of $46,116,643). Although settled by the City in 2020-21, the amount will subsequently be
applied to the 2019-20 contribution and reflected as such in the Comprehensive Annual Financial Report
(CAFR).

The City’s contribution to the Los Angeles City Employees' Retirement System (LACERS) is based on rates
prepared by an actuary and adopted by the LACERS Board. It includes the required payments for the family death
benefit, excess benefit, and limited term retirement plans. The budget also reflects the true-up adjustment for the
prior fiscal year resulting from the reconciliation of budgeted covered payroll with actual covered payroll and an
adjustment from the enhanced benefit for Airport Peace Officers who remained with LACERS. The contribution will
be funded through the issuance of tax and revenue anticipation notes.

By funding the required contribution through the issuance of notes, the City will be able to make the entire
contribution in July 2020 rather than spreading the payments throughout the year. As a result, the pension fund is
expected to gain additional investment earnings on the payment, which discounts the City contribution by
approximately 3.3 percent. This discount reduces the required City General Fund contribution to the retirement fund
by approximately $18.7 million. The appropriation for the payment of the principal and borrowing costs on the tax
and revenue anticipation notes is in the 2020 Tax and Revenue Anticipation Notes (TRAN), Debt Service Fund.
The proprietary departments and the pension systems (LACERS and Los Angeles Fire and Police Pensions) will
directly fund their share of the contribution in July 2020.

The net $26.7 million General Fund decrease in the City’s contribution from 2019-20 is due to decreases in the
contribution rates and the ratio of employees enrolled in Tier 1 versus Tier 3, as well as a one-time true-up credit.
Specifically, the 2020-21 budget is inclusive of a one-time $46.1 million credit to the General Fund from the
2019-20 true-up adjustment. Expressed as a percentage of the City’s budgeted payroll, the Tier 1 contribution rate
has decreased from 29.89 percent in 2019-20 to 29.43 percent in 2020-21. The contribution rate for the Tier 3
benefit plan (i.e., City employees who became members of LACERS on or after February 21, 2016) decreased from
27.70 percent to 27.45 percent. These rates include the enhanced benefit cost for Airport Peace Officers who
remained in LACERS, which is borne exclusively by the Department of Airports. The final contribution obligation for
all other agencies has been adjusted accordingly to apply the full cost to the Department of Airports. Further, these
rates reflect recent demographic assumption changes adopted by the LACERS Board in 2019, including revised
mortality tables. Economic assumptions remained unchanged and the assumed investment return remains at 7.25
percent. The System will conduct an experience study toward the end of Fiscal Year 2019-20, which will include
an evaluation of the investment rate of return assumptions.

The system’s overall funded ratio, using actuarial value of assets, increased slightly from 71.6 percent to
73.1 percent as of June 30, 2019 and is broken down as follows: retirement (71.3 percent) and health (84.4 percent).

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