Page 33 - 2020-21 Supporting Information Book_Revised

2020-21 PROPOSED BUDGET
PENSION AND RETIREMENT FUNDING POLICY

POLICY

During those fiscal years when either the Los Angeles City Employees’ Retirement System or the Los
Angeles Fire and Police Pension System are over-funded (greater than 100% funded) and therefore the
total annual required contribution, as adopted by the respective Boards, is less than the amount
required to fund the normal cost of retirement and health benefits for employees, the City will limit the
extent to which it will recognize these savings (negative unfunded actuarial accrued liability) in the
budget. Specifically, the amount budgeted for retirement and health contributions will be no less than
the amount derived by reducing the normal cost contribution rate to 90 percent. An adopted contribution
rate that would allow the City to contribute an amount less than 90 percent of the normal cost shall
trigger this provision that prohibits the City from using these savings to fund the City’s ongoing service
and program costs. Any savings or reduction in funding calculated due to the incremental contribution
rate below the 90 percent threshold will only be budgeted to pay down unfunded pension or healthcare
costs for retirees or, in the event that such costs are fully funded, as an appropriation to the Budget
Stabilization Fund.

This policy would only be triggered when either system has a total, negative unfunded actuarial accrued
liability (UAAL) that would cause the actual contribution rate to be below the 90 percent threshold of the
normal cost amount. When the total UAAL is positive, the City will continue to fully fund both the normal
cost and UAAL as required by the City Charter.

Los Angeles Los Angeles City
Fire and Police Employees'
Pensions
Policy Calculation Retirement System
System
Normal Cost:
Pension/Retirement Benefits 1 19.37% 6.25%
Health Benefits 1 4.85% 3.45%
Total Normal Cost 24.22% 9.70%

Funding Threshold (Normal Cost times 90%) 21.80% 8.73%
Normal Cost and Unfunded Actuarial Accrued Liability -45.58% -29.12%
1, 2
Credit or Cost of Unfunded Actuarial Accrued Liability 3 -23.78% -20.39%

(1) These percentages are available in both the Los Angeles Fire and Police Pensions System (LAFPP) and the Los
Angeles City Employees' Retirement System (LACERS) June 30, 2019 actuarial reports.

(2) For 2020-21, the Fire and Police Pensions System’s Normal Cost excludes administrative expenses of 1.12%.
Administrative expenses were previously included in the Normal Cost but they are now broken out separately for
LAFPP, consistent with the Governmental Accounting Standards Board (GASB 67) reporting. The LACERS Normal
Cost is still inclusive of administrative expenses as the LACERS Board of Administration did not adopt a similar change.

(3) If the percentage is positive, then the City must set aside an amount (based on the percentage times salaries) for
one-time expenditures. Since the percentage is negative, however, a credit has not been earned and funding would not
be set aside per this policy.

19