Every year at about this time the LACERS annual actuarial valuation is published. The valuation gives an important snap shot of how LACERS is doing and what the City’s annual contribution rate will be for the following fiscal year.
Following are some interesting things I found in this year’s valuation (for fiscal year ending June 30, 2025):
The market value of LACERS assets ($25.38 billion) is higher than the actuarial value ($24.8 billion).
This is good news! LACERS posted strong investment returns last fiscal year, resulting in a market value on June 30 that exceeded the actuarial asset value used to determine next year’s City contribution rate (more on that below).
Because it’s not good for anyone to have the City’s annual pension contribution whipsaw up and down every fiscal year, each year’s investment return is phased in over a seven-year period (so, only one seventh of last year’s great return will be recognized each year). The phased-in years of investment returns create the actuarial value of assets. By phasing in the returns, the good investment return years don’t artificially push down the City’s contribution for the following year and, conversely, poor investment years don’t unnecessarily inflate the City’s contribution.
When the market value of LACERS assets is above the actuarial value, that means there are several years of investment gains to be phased in in future years. This helps the City’s contribution rate while improving the funding of LACERS at the same time.
LACERS funded ratios have improved.
Based on the market value of LACERS assets, the funded ratio for retirement benefits improved from 72.3 percent (2024) to 76.3 percent (2025), and the funded ratio for Retiree health benefits moved from 106.3 percent to 108.2 per cent. It is always good news when funded ratios improve because that means our pension plan is in a more solid fiscal position.
The City’s contribution rate for fiscal year 2026-27 will be going up!
You might think that, with the good news in the paragraphs above, the City’s contribution rate would be heading downward, but that’s not the case. This is because each year, there are many ingredients in what I call the “actuarial stew.” To deter mine the City’s contribution rate, you must make sure all the ingredients of the “stew” are taken into consideration.
For fiscal year 2026-27, the City’s contribution rate will increase by 0.55 per cent from 31.44 percent to 31.99 percent of payroll. The biggest reasons for the increase (or ingredient in the “stew”) in the City’s contribution rate are higher than expected:
- salary increases for active (still working) members.
- Cost of Living Adjustments (COLAs) for Retirees; and
- 2026 health premium and subsidy levels.
One other factor nudging the City’s contribution rate up next fiscal year is the expiration of the additional 1.0 percent contribution some employees have been paying toward the Early Retirement Incentive Program (ERIP) cost obligation (finally!).
While the City’s contribution rate will go up slightly next fiscal year, it’s not yet clear whether the City’s contribution amount will go up or down. The amount of the City’s contribution is determined by multiplying the rate times the expected City payroll as determined during the budget process.