Item 226:
CITY OF LOS ANGELES
INTER-DEPARTMENTAL CORRESPONDENCE
Date: May 12, 2008
To: Budget and Finance Committee
From: Karen L. Sisson, City Administrative Officer
Subject: LACERS EARLY RETIREMENT WINDOW
As you are aware, an actuarial study was conducted by The Segal Company to look at several options for an early retirement window for employees in the Los Angeles City "Employees' Retirement System (LACERS). The study included the costs associated with four proposed scenarios - the first two proposals added either 1 or 5 years to a member's age, while the last two proposals added either 1 or 5 years to a member's years of service. The additional years added to age or service would enhance both the pension and medical benefits provided to eligible members who choose to retire during a specified period.
The study concluded that there will be a decrease in the employer contribution and an increase in the LACERS Unfunded Actuarial Accrued Liability (UAAL). In addition, the LACERS funded ratio would decrease between 1.4% and 3.1% depending on the scenario used. The following table summarizes the results of the study:
Scenario A
(1 Year of Age)
Employer Contribution Rate: $8.96 million
UAAL Increase: $221 million
Funded Ratio: 83.9%
Increase/Decrease: -1.4%
No. of Members Eligible to Retire: 6,238
No. of Members Anticipated to Retire*: 1,871
Scenario B
(5 Years of Age)
Employer Contribution Rate: $8.81 million
UAAL Increase: $410 million
Funded Ratio: 82.7%
Increase/Decrease: -2.6%
No. of Members Eligible to Retire: 8,801
No. of Members Anticipated to Retire*: 2,640
Scenario C
(1 Year of Svc)
Employer Contribution Rate: $7.72 million
UAAL Increase: $234 million
Funded Ratio: 83.8%
Increase/Decrease: -1.5%
No. of Members Eligible to Retire: 6,021
No. of Members Anticipated to Retire*: 1,806
Scenario D
(5 Years of Svc)
Employer Contribution Rate: $.28 million
UAAL Increase: $500 million
Funded Ratio: 82.2%
Increase/Decrease: -3.1%
No. of Members Eligible to Retire: 8,078
No. of Members Anticipated to Retire*: 2,423
* Based on actuarial assumption that 30% of these members would retire under the window.
A number of actuarial assumptions were used in the study to determine the costs and impacts of an early retirement option. The assumptions included the following:
• A total of 30% of eligible members would retire immediately with either a reduced or unreduced retirement.
• The City would not back fill positions vacated by members who accept the early retirement window for 30 years.
Upon further review by CAO staff, it became apparent that an additional study with revised assumptions is needed. The ultimate cost of an early retirement plan is directly related to the number of members who actually retire. And while it is impossible to predict how many employees will take advantage of an early retirement window, the 30% assumption does not appear to be realistic. It is more likely that a higher percentage of employees eligible for an unreduced retirement and a lower percentage of employees eligible for a reduced retirement Will actually take an early retirement. Therefore, following a further analysis of employees eligible to retire, the 30% assumption should be revised in an attempt to more accurately capture the salary savings to be generated from early retirements.
The study also assumes that City positions vacated by early retirements would not be back filled. This assumption is not realistic given the magnitude of City services provided to the public. When an employee retires, the likelihood that the City will need to back fill the vacated position to avoid a long-term reduction in service varies from position to position. Therefore, the back fill assumption should be amended to account for the fact that some positions will need to be filled earlier than others.
As part of the economic re opener to the MOU's, the City is currently discussing the possibility of a retirement incentive program with the Coalition of City Unions. It is anticipated that after further discussions with City staff and union representatives, and further analysis of employee data, modified assumptions will be developed to refine the results of the first actuarial study. This process will likely take several weeks to complete.
_______________________________________
Reminder, as noted before in this blog, the current EAA contract (through June 2010), has NO economic re-opener. Most ITA employees are covered by EAA MOU's.
INTER-DEPARTMENTAL CORRESPONDENCE
Date: May 12, 2008
To: Budget and Finance Committee
From: Karen L. Sisson, City Administrative Officer
Subject: LACERS EARLY RETIREMENT WINDOW
As you are aware, an actuarial study was conducted by The Segal Company to look at several options for an early retirement window for employees in the Los Angeles City "Employees' Retirement System (LACERS). The study included the costs associated with four proposed scenarios - the first two proposals added either 1 or 5 years to a member's age, while the last two proposals added either 1 or 5 years to a member's years of service. The additional years added to age or service would enhance both the pension and medical benefits provided to eligible members who choose to retire during a specified period.
The study concluded that there will be a decrease in the employer contribution and an increase in the LACERS Unfunded Actuarial Accrued Liability (UAAL). In addition, the LACERS funded ratio would decrease between 1.4% and 3.1% depending on the scenario used. The following table summarizes the results of the study:
Scenario A
(1 Year of Age)
Employer Contribution Rate: $8.96 million
UAAL Increase: $221 million
Funded Ratio: 83.9%
Increase/Decrease: -1.4%
No. of Members Eligible to Retire: 6,238
No. of Members Anticipated to Retire*: 1,871
Scenario B
(5 Years of Age)
Employer Contribution Rate: $8.81 million
UAAL Increase: $410 million
Funded Ratio: 82.7%
Increase/Decrease: -2.6%
No. of Members Eligible to Retire: 8,801
No. of Members Anticipated to Retire*: 2,640
Scenario C
(1 Year of Svc)
Employer Contribution Rate: $7.72 million
UAAL Increase: $234 million
Funded Ratio: 83.8%
Increase/Decrease: -1.5%
No. of Members Eligible to Retire: 6,021
No. of Members Anticipated to Retire*: 1,806
Scenario D
(5 Years of Svc)
Employer Contribution Rate: $.28 million
UAAL Increase: $500 million
Funded Ratio: 82.2%
Increase/Decrease: -3.1%
No. of Members Eligible to Retire: 8,078
No. of Members Anticipated to Retire*: 2,423
* Based on actuarial assumption that 30% of these members would retire under the window.
A number of actuarial assumptions were used in the study to determine the costs and impacts of an early retirement option. The assumptions included the following:
• A total of 30% of eligible members would retire immediately with either a reduced or unreduced retirement.
• The City would not back fill positions vacated by members who accept the early retirement window for 30 years.
Upon further review by CAO staff, it became apparent that an additional study with revised assumptions is needed. The ultimate cost of an early retirement plan is directly related to the number of members who actually retire. And while it is impossible to predict how many employees will take advantage of an early retirement window, the 30% assumption does not appear to be realistic. It is more likely that a higher percentage of employees eligible for an unreduced retirement and a lower percentage of employees eligible for a reduced retirement Will actually take an early retirement. Therefore, following a further analysis of employees eligible to retire, the 30% assumption should be revised in an attempt to more accurately capture the salary savings to be generated from early retirements.
The study also assumes that City positions vacated by early retirements would not be back filled. This assumption is not realistic given the magnitude of City services provided to the public. When an employee retires, the likelihood that the City will need to back fill the vacated position to avoid a long-term reduction in service varies from position to position. Therefore, the back fill assumption should be amended to account for the fact that some positions will need to be filled earlier than others.
As part of the economic re opener to the MOU's, the City is currently discussing the possibility of a retirement incentive program with the Coalition of City Unions. It is anticipated that after further discussions with City staff and union representatives, and further analysis of employee data, modified assumptions will be developed to refine the results of the first actuarial study. This process will likely take several weeks to complete.
_______________________________________
Reminder, as noted before in this blog, the current EAA contract (through June 2010), has NO economic re-opener. Most ITA employees are covered by EAA MOU's.
1 comment:
Let's give them an additional 2-1/2years of service. This will allow younger workers more opportunities for advancement in the future, when the economic climate has improved. A layoff under the Civil Service seniority rules, as proposed by the Mayor, would result in these younger workers being fired first and the higher paid workers remaining.
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