Page 285 - FY 2021-22 Blue Book Volume 2

CITY EMPLOYEES' RETIREMENT FUND

BASIS FOR THE PROPOSED BUDGET

The 2021-22 Proposed Budget for the City Employees’ Retirement Fund relates to current year funding as follows:

1
2020-21 2021-22

Estimated Proposed
Budget Expenditures Budget

$ 113,251,104 $ 90,613,000 Special Fund (Harbor, Airports, LACERS, $ 129,047,678
and LAFPP)

532,649,398 532,833,000 Tax and Revenue Anticipation Notes 586,459,343

$ 645,900,502 $ 623,446,000 Total $ 715,507,021

1) The total budgeted contribution may differ from the LACERS Budget due to LACERS accounting of the true-up
(a credit adjustment of $34,089,399). Although settled by the City in 2020-21, the amount will subsequently be
applied to the 2021-22 contribution and reflected as such in the Comprehensive Annual Financial Report.

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 2021 rather than spreading the payments throughout the year. As a result, the pension fund
expects to gain additional investment earnings on the payment, which discounts the City contribution by
approximately 3.19 percent. This discount reduces the required City General Fund contribution to the retirement
fund by approximately $19.66 million. The appropriation for the payment of the principal and borrowing costs on the
tax and revenue anticipation notes is in the 2021 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 2022.

The net $36.19 million General Fund increase in the City’s contribution from 2020-21 is primarily due to increases
in the contribution rates, which are partially offset with a reduction in covered payroll and a one-time true-up credit.
Specifically, the 2021-22 budget is inclusive of a one-time $28.59 million credit to the General Fund from the
2020-21 true-up adjustment. Expressed as a percentage of the City’s budgeted payroll, the Tier 1 contribution rate
increased from 29.43 percent in 2020-21 to 32.81 percent in 2021-22. The contribution rate for the Tier 3 benefit
plan (i.e., City employees who became members of LACERS on or after February 21, 2016) increased from 27.45
percent to 30.16 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 are adjusted accordingly to apply the full cost to the Department of Airports. The increased contribution
rates reflect assumption changes adopted by the LACERS Board in June 2020 resulting from the triennial
experience study. Most notably, the LACERS Board approved to the following: (1) reduce the expected rate of
return from 7.25 percent to seven percent; (2) reduce the inflation rate from three percent to 2.75 percent; and, (3)
reduce payroll growth from 3.5 percent to 3.25 percent..

The system’s overall funded ratio, using the actuarial value of assets, decreased from 73.1 percent to
71.6 percent as of June 30, 2020, and is broken down as follows: retirement (69.4 percent) and health (85.6
percent).

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