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HomeMy WebLinkAboutLos Angeles County Employees Retirement Association - Public Financial Report20 21 LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION W OVEN TOGETHE R Connecting service, stewardship, and diverse strengths for a financially secure future Popular Annual Financial Report (PAFR) For the Fiscal Year Ended June 30, 2021 Pension and OPEB Trust Funds of the County of Los Angeles, CA 2 About LACERA 2 Operations and Administration 4 Pension Plan 6 OPEB Trust 7 Accomplishments lacera.com What’s I N S I D E Santos H. Kreimann Chief Executive Officer LACERA’s strength stems from the diversity of our community, members, and employees, and the collective understanding that our lives and destinies are interwoven. This year, our fund returns outperformed policy benchmarks, as we continue to apply a long-term, diversified asset allocation strategy and weave environmental, social, and governance factors into our investment decisions. SANTOS H. KREIMANN Chief Executive Officer LUIS A. LUGO Deputy Chief Executive Officer LAURA GUGLIELMO Assistant Executive Officer JJ POPOWICH Assistant Executive Officer EXECUTIVE TEAM “ ”The executive team comprises four executive officers responsible for carrying out the strategic goals set by the Boards of Retirement and Investments. Divisional managers lead LACERA’s 15 specialty departments and oversee day-to-day operations. This Popular Annual Financial Report (PAFR) of the Los Angeles County Employees Retirement Association (LACERA) summarizes the Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2021; it does not replace the ACFR. Financial data presented herein is derived from the ACFR and prepared in accordance with the Governmental Accounting Standards Board’s reporting guidelines and Generally Accepted Accounting Principles of the United States of America (U.S. GAAP). The 2021 ACFR is posted on lacera.com, as well as an archive of our annual reports.. ABOUT LACERA In 1937, Los Angeles County established a pension trust fund to provide defined retirement and death benefits to eligible County employees. In 1938, LACERA was introduced to administer it, and the Board of Retirement was established to oversee the organization. The Board of Investments was created in 1971 to spearhead LACERA’s increasingly sophisticated investment strategies and achieve its long-term funding goals. Our Services LACERA is the largest county retirement system in the United States, and our mission is to produce, protect, and provide the promised benefits to our members. We are an independent governmental entity, separate and distinct from the County of Los Angeles (County), responsible for administering and managing the retirement fund and, since 1971, the Retiree Healthcare Benefits Program for the County and outside districts. LACERA is further responsible for managing the trusts that fund these programs. Our Management LACERA’s Boards LACERA is governed by two boards, both of which are composed of elected and appointed trustees. The Board of Retirement is responsible for the overall administration of the retirement system, the review and processing of disability retirement applications, and administration of the County-subsidized Retiree Healthcare Benefits Program (or Other Post- Employment Benefits Program) including overseeing actuarial matters. The Board of Investments is responsible for establishing LACERA’s investment policy and objectives, as well as exercising authority and control over the investment management of the fund and actuarial matters relating to setting of contribution rates and estimation of fund liabilities. 2 OPERATIONS AND ADMINISTRATION Continued COVID-19 Response In 2021, health and safety remained a primary focus to ensure the well-being of LACERA staff and the organization’s ability to provide uninterrupted service and benefits to our members. LACERA continued to carefully monitor local and global events related to the pandemic and considered potential impacts to internal operations and external business partners. ALAN J. BERNSTEIN Chair Board of Retirement Term Expires 2023Secretary Board of Investments Term Expires 2021 Appointed by Board of Supervisors ELIZABETH B. GINSBERG Board of Retirement Board of Investments Chief Deputy County Treasurer and Tax Collector Alternate Ex-Officio Member VIVIAN H. GRAY Vice Chair Board of Retirement Term Expires 2021* Elected by General Members DAVID GREEN Board of Investments Term Expires 2023 Elected by General Members ELIZABETH GREENWOOD Board of Investments Term Expires 2022 Appointed by Board of Supervisors JAMES P. HARRIS Board of Retirement Alternate Member Term Expires 2023 Elected by Retired Members PATRICK L. JONES Board of Investments Term Expires 2023 Appointed by Board of Supervisors SHAWN R. KEHOE Board of Retirement Term Expires 2022 Board of Investments Term Expires 2022 Elected by Safety Members JOSEPH KELLY Vice Chair Board of Investments Term Expires 2023 Elected by Retired Members KEITH KNOX Board of Retirement Chair Board of Investments County Treasurer and Tax Collector Ex-Officio Member WAYNE MOORE Board of Retirement Term Expires 2022 Appointed by Board of Supervisors RONALD A. OKUM Board of Retirement Term Expires 2021 Appointed by Board of Supervisors WILLIAM R. PRYOR Board of Retirement Alternate Member Term Expires 2022 Elected by Safety Members LES ROBBINS Board of Retirement Term Expires 2023 Elected by Retired Members GINA V. SANCHEZ Board of Investments Term Expires 2023 Appointed by Board of Supervisors HERMAN B. SANTOS Board of Retirement Term Expires 2023 Board of Investments Term Expires 2021* Elected by General Members GINA ZAPANTA Secretary Board of Retirement Term Expires 2023 Appointed by Board of Supervisors *Reelected to new term starting in January 2022. TRUSTEES The following list of trustees is current as of December 1, 2021. 3 The organization’s administrative expenditures and financial flows, including the ability to pay benefits, endured: We administered member benefits without exception, and received contributions from plan sponsors as scheduled, including those for the pension plan, OPEB Trust, and Retiree Healthcare Benefits Program. From a financial perspective, LACERA persisted through this pandemic by maintaining its long-term investment strategy and operational focus, navigating through turbulent times with continuous guidance from the Board of Retirement and Board of Investments trustees. The actions taken by LACERA’s Boards and Executive Office resulted in a strong financial position at the fiscal year-end. Although the economic and investment environments presented unique challenges, LACERA’s investment portfolio generated a robust return, increasing the fund balance to over $73 billion. During most of the pandemic, LACERA served members through a remote call center, virtual face-to-face appointments, and online workshops, providing the same personalized service members expect. The Member Service Center at LACERA’s offices reopened in July for in-person visits, adopting a permanent appointment-only model to increase efficiency and reduce wait times for members. Annual Administrative Budget The LACERA Board of Retirement and Board of Investments trustees jointly approve the annual operating budget. The actual expenditures represented an underexpenditure of 9.7 percent below the amount budgeted for the fiscal year ended June 30, 2021. Administrative Expenses For the Fiscal Years Ended June 30, 2021 and 2020 (Dollars in Thousands) 2021 2020 Operating Budget Request $100,291 $94,600 Administrative Expenses (90,586)(85,384) Underexpended Operating Budget $9,705 $9,216 Net Pension Liability As of June 30, 2021, 2020, and 2019 (Dollars in Millions) 2021 2020 2019 Total Pension Liability $80,304 $76,579 $70,309 Less: Fiduciary Net Position (73,012)(58,510)(58,295) Net Pension Liability $7,292 $18,069 $12,014 Percentage of Total Pension Liability 90.9%76.4%82.9% PENSION PLAN Fiduciary Net Position Restricted for Benefits The Fiduciary Net Position Restricted for Benefits (Net Position) represents the assets available for future payments to retirees and their beneficiaries. As of June 30, 2021, LACERA has $73 billion to pay future pension benefits. As compared with the prior fiscal year, the Net Position increased by $14.5 billion, which was primarily due to LACERA’s diverse investment strategy producing positive investment performance. LACERA Membership As of June 30, 2021 and 2020 2021 2020 Difference % Change Active Members 116,239 116,289 (50)—% Retired Members 69,524 67,988 1,536 2.3% Membership 185,763 184,277 1,486 0.8% $73 Billion Sizeof fund in 2021: Additions and Deductions in Fiduciary Net Position — Pension Plan For the Fiscal Years Ended June 30, 2021, 2020, and 2019 (Dollars in Millions) 2021 2020 2019 Difference % Change Difference % Change Contributions $2,774 $2,459 $2,304 $315 12.8%$155 6.7% Net Investment Income/(Loss)15,633 1,448 3,181 14,185 979.6%(1,733)(54.5)% Total Additions/(Declines)$18,407 $3,907 $5,485 $14,500 371.1%($1,578)(28.8)% Benefits and Refunds ($3,814)($3,606)($3,407)($208)5.8%($199)5.8% Administrative Expenses and Miscellaneous (91)(86)(83)(5)5.8%(3)3.6% Total Deductions ($3,905)($3,692)($3,490)($213)5.8%($202)5.8% Net Increase/(Decrease)$14,502 $215 $1,995 $14,287 6645.1%($1,780)(89.2)% Fiduciary Net Position Beginning of Year 58,510 58,295 56,300 215 0.4%1,995 3.5% Fiduciary Net Position End of Year $73,012 $58,510 $58,295 $14,502 24.8%$215 0.4% 2020 4 Growth of the Pension Plan For the Last 10 Fiscal Years Ended June 30 (Dollars in Billions) $80 $70 $60 $50 $40 $30 $20 $10 0 Fiscal Year Fi d u c i a r y N e t P o s i t i o n 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2021 - 2020 2020 - 2019 Pension Liabilities As calculated by LACERA’s actuary, the Total Pension Liability is the amount of projected benefit payments attributable to past periods of member service. The Net Pension Liability is the Total Pension Liability minus the plan’s net assets or Fiduciary Net Position. These liabilities, which are the employers’ responsibility, are calculated under the guidance of GASB Number 67 for financial statement reporting purposes. Net Pension Liability As of June 30, 2021, 2020, and 2019 (Dollars in Millions) 2021 2020 2019 Total Pension Liability $80,304 $76,579 $70,309 Less: Fiduciary Net Position (73,012)(58,510)(58,295) Net Pension Liability $7,292 $18,069 $12,014 Percentage of Total Pension Liability 90.9%76.4%82.9% 5 5% 10% 15% 20% 25% 30% 1 Year 3 Years 5 Years 7 Years 10 Years Pension Plan Policy Benchmark 23.1% 25.2% 10.9% 10.7%10.3%8.3%8.3%10.8% 8.5%8.6% Pension Plan Policy Benchmark Annualized Total Returns (Net of Fees) — Pension Plan As of June 30, 2021 5 Asset Allocation Policy The Board of Investments adopts and periodically reviews investment policies with a fundamental principle that the funds are managed for the sole purpose of providing benefits to LACERA’s members. An investment fund’s strategic asset allocation policy is generally recognized to have the most impact on a fund’s investment performance. Over the last fiscal year, LACERA’s general consultant performed a full review of its asset allocation for both the Pension Plan and OPEB Trust, and this resulted in the Board approving new strategic asset allocations in May and June 2021. These target allocations and rebalances within the portfolio are designed to be more efficient, enhance the portfolio’s expected compensation relative to risk, and compound durable investment returns for the long-term benefit of LACERA’s members. Annual Returns LACERA’s Pension Plan investment return met or exceeded the policy benchmark and the 7 percent actuarial assumed rate of return over the last 10 years. All returns are presented net of investment management fees. Funded Status LACERA’s independent consulting actuary, Milliman, performed the latest actuarial valuation as of June 30, 2020 and determined the funded ratio of the actuarial assets compared to the actuarial accrued liabilities. Pension Plan Asset Allocation As of June 30, 2021 Asset Categories: Functional Groups Growth 52% Risk Reduction and Mitigation 20% Real Assets and Inflation Hedges 16% Credit 11% Overlay Composite 1% A B C D E A B C DE 6 Funded Ratio: Pension Plan For the Last Three Actuarial Valuations Valuation Date Funded Ratio June 30, 2020 76.3 % June 30, 2019 77.2 % June 30, 2018 80.6 % OPEB TRUST Fiduciary Net Position The OPEB Trust Net Position includes prefunding contributions from the County, LACERA, and the Superior Court, as well as investment activity and administrative expenses. For the fiscal year ended June 30, 2021, additions included net investment income of $452.1 million and deductions of $0.6 million for administrative expenses. The OPEB Trust Net Position increased by $814.2 million as compared with the prior fiscal year. This increase was primarily due to positive investment performance as well as additional prefunding contributions from the employers participating in the OPEB Trust. Fiscal Year $100 0 $600 $1,500 $200 $1,100 $700 $1,600 $2,000 $300 $1,200 $800 $1,700 $2,100 $400 $1,300 $900 $1,800 $2,200 $500 $1,400 $1,000 $1,900 $2,300 Fi d u c i a r y N e t P o s i t i o n Growth of the OPEB Trust For the Last Seven Fiscal Years Ended June 30 (Dollars in Thousands) 2015 2016 2017 2018 2019 2020 2021 ¹Contributions presented here are limited to OPEB Trust prefunding and exclude pay- as-you-go contributions, which are included in the OPEB Trust employer contributions as presented in the ACFR’s Statement of Changes in Fiduciary Net Position. Annual Returns The OPEB Trust investment returns exceeded policy benchmarks during the past fiscal year and for the three-, five-, and seven-year periods, and exceeded the actuarial assumed rate of return of 6 percent. All returns are presented net of investment management fees. Contributions The County and other plan sponsors funded the current ongoing OPEB Program benefits due on a pay-as-you-go basis. In addition, plan sponsors made regular contributions to the OPEB Trust, which are accumulated and invested to offset future benefit liabilities. Contributions — OPEB Trust For the Fiscal Years Ended June 30, 2021 and 2020 (Dollars in Thousands) 2021 2020 Los Angeles County $357,269 $246,197 LACERA 1,477 1,029 Superior Court 3,955 1,000 Total Contributions1 $362,701 $248,226 2021 Public Pension Standards Award Toward the end of 2021, LACERA received its 19th consecutive award from the Public Pension Coordinating Council (PPCC) in recognition of meeting professional standards for plan funding and administration as set forth in the Public Pension Standards. These standards are intended to reflect minimum expectations for public retirement systems management and administration and serve as a benchmark by which all defined benefit public plans should be measured. ACCOMPLISHMENTS Funded Ratio: Pension Plan For the Last Three Actuarial Valuations Valuation DateFunded Ratio June 30, 202076.3 % June 30, 201977.2 % June 30, 201880.6 % 7 Annualized Total Returns (Net of Fees) — OPEB Trust As of June 30, 2021 5% 10% 15% 20% 25% 30% 1 Year 3 Years 5 Years 7 Years 10 Years N/A OPEB Master Trust Policy Benchmark 28.2% 28.4% 10.3%10.6%11.0%7.4%8.7%12.7% OPEB Trust Asset Allocation As of June 30, 2021 Asset Categories: Functional Growth 50% Credit 21% Real Assets and Inflation Hedges 19% Risk Reduction and Mitigation 10% A B C D A B C D Cost-of-Living Adjustments By law, LACERA retiree and survivor monthly benefit allowances are subject to an annual cost-of-living adjustment (COLA), which is effective on April 1 and begins with the April benefit payments. On April 7, 2021, the LACERA Board of Retirement approved the maximum allowable COLA increases for all retirement plans retroactively effective to April 1, 2021. COLAs are driven by changes in the cost of living over the previous 12-month period as of December 31. The maximum allowable COLA adjustment is determined by the provisions of each LACERA retirement plan. Plan A allows a maximum adjustment of 3 percent; the other LACERA plans allow a maximum of 2 percent. Members who retired prior to April 1 and eligible survivors of members who passed away before April 1 are eligible for a COLA. In addition, retirees and eligible survivors whose allowance has lost more than 20 percent of its purchasing power since retirement are eligible to receive a supplemental COLA. See www.lacera.com/ retirement-payments/star-cola for more information. Award for Outstanding Achievement in Popular Annual Financial Reporting For the 23rd consecutive year, the Government Finance Officers Association of the United States and Canada (GFOA) granted an Award for Outstanding Achievement in Popular Annual Financial Reporting to LACERA for its Popular Annual Financial Report (PAFR) for the fiscal year ended June 30, 2020. This prestigious national award recognizes conformance with the highest standards of creativity, presentation, understandability, and reader appeal for state and local government popular reports and is valid for one year. We believe our current report continues to conform to the PAFR requirements, and we are submitting it to the GFOA for consideration again this year. 8 Popular Annual Financial Report (PAFR) For the Fiscal Year Ended June 30, 2021 Pension and OPEB Trust Funds of the County of Los Angeles, CA Administrative Services Pieces of Mail Processed 1,038,284 Administrative Services Member Documents Scanned & Indexed 69,524 Benefits Monthly Retirement Allowances Paid Retirement Benefit Estimates My LACERA 236,179 Benefits 3,396 New Retirees My LACERA 99,204 Registered Members 522,922 Visits My LACERA 251* Virtual Workshop & Benefit Fairs (12,745* attendees) Member Services 5,725* One-on-One Counseling Sessions Member Services 144,542* Member Services Call Center Phone Calls 86,741* Retiree Healthcare Call Center Phone Calls 55,085 Retiree Healthcare Annual Healthcare Packets Mailed 354,013 Los Angeles County Employees Retirement Association lacera.com 300 N. Lake Avenue Pasadena, CA 91101 626-564-6000 8 *Statistics were impacted by the ongoing closure of our in-person service center and change to online-only workshops and benefit fairs.