Page 325 - 2022-23 Blue Book Vol 2

CITY EMPLOYEES' RETIREMENT FUND

BASIS FOR THE PROPOSED BUDGET

The 2022-23 Proposed Budget for the City Employees’ Retirement Fund relates to current year funding as follows:

2021-22 2022-23
1

Estimated Proposed
Budget Expenditures Budget

$ 129,047,697 $ 124,074,000 Special Fund (Harbor, Airports, LACERS, $ 132,355,098
and LAFPP)

601,508,093 601,450,000 Tax and Revenue Anticipation Notes 631,511,353

$ 730,555,772 $ 725,524,000 Total $ 763,866,451

1) The total budgeted contribution may differ from the LACERS Budget due to LACERS accounting of the true-up
(a credit adjustment of $75,194,360). Although the credit amount reflects a true-up of 2021-22 contributions, the
amount will be applied to the 2022-23 contribution and reflected as such in the Annual Comprehensive 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 2022 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 3.12 percent. This discount reduces the required 2022-23 City General Fund contribution to the
retirement fund by approximately $21.86 million. The appropriation for the payment of the principal and borrowing
costs on the tax and revenue anticipation notes is in the 2022 Tax and Revenue Anticipation Notes, 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 City General Fund contribution for 2022-23 represents a net increase of $30 million from 2021-22. This increase
is primarily due to higher contribution rates and a larger City budgeted payroll, which are partially offset with a one-
time true-up credit. Specifically, the 2022-23 budget is inclusive of a one-time $66 million credit to the General Fund
from the 2021-22 true-up adjustment. Expressed as a percentage of the City’s budgeted payroll, the Tier 1
contribution rate increased from 32.81 percent in 2021-22 to 33.93 percent in 2022-23. 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 30.16 percent to 31.35 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 increase in the
contribution rates is primarily a result of amortizing the prior year’s unfunded actuarial accrued liability over a smaller
than expected payroll, lower contributions than expected, and earlier than expected retirements. This increase was
partially offset by a higher than expected rate of return, the enrollment of new employees in Tier 3, lower than
expected salary increases for active members, lower than expected cost-of-living adjustment increases for retirees,
and lower health premiums and subsidies.

The system’s overall funded ratio, using the actuarial value of assets, increased from 71.6 percent to 74.6 percent
as of June 30, 2021, and is broken down as follows: retirement (71.6 percent) and health (94.6 percent).

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