2008 Annual REPORT July 1, 2007 to June 30, 2008

2008 annualREPORT ci ty of los angeles department of fire and police pensions

LA FPP To Serve Those Who Protect July 1, 2007 to June 30, 2008

Fire and Police Pension System 1 D epartment of Fire and Police Pensions 2008 annual REPORT July 1, 2007 to June 30, 2008

M ichael A. Perez D . Edward Griffiths General Manager Assistant General Manager PENSIONS DIVISION

L aura K. Guglielmo Assistant General Manager ADMINISTRATIVE SERVICES DIVISION

Tom Lopez Chief Investment Officer Ivestmentsn Division

A lan L. Manning Assistant City Attorney Table of Contents

2 G overning Bodies

3 General Manager’s Letter

5 System Investments

11 Actuarial Valuation

17 Department Budget

19 Auditor’s Report

59 Active and Retired Membership

73 Legal Summary

75 Summary of Pension Plan Benefits

85 Milestones

360 East Second Street Suite 400 Los Angeles, California 90012

(213) 978-4545 E-mail — [email protected] Web — http://www.lafpp.com Antonio R. Villaraigosa MAYOR

R ockard J. Delgadillo L aura Chick C ity Attorney C ontroller C ity Council

E ric Garcetti Wendy Greuel President President Pro Tempore

E d P. Reyes Tony Cardenas Bill Rosendahl First District Sixth District Eleventh District

Wendy Greuel R ichard Alarcón G reig Smith Second District Seventh District Twelfth District

D ennis P. Zine Bernard C. Parks E ric Garcetti Third District Eighth District Thirteenth District

Tom LaBonge Jan Perry José Huizar Fourth District Ninth District Fourteenth District

Jack Weiss Herb J. Wesson, Jr. Janice Hahn Fifth District Tenth District Fifteenth District Board of Pension Commissioners Sean Harrigan M ike Carter President Vice President

George V. Aliano Sam Diannitto D on Keith L ouis F. Moret Commissioner Commissioner Commissioner Commissioner

E lliott Broidy Steve Juarez Patricia Means Commissioner Commissioner Commissioner

2 Department of Fire and Police Pensions 2008 Annual Report June 30, 2008 The Honorable Antonio Villaraigosa The Honorable Members of the City Council I respectfully submit the 2008 Annual Report for the Fire and Police Pension System of the City of Los Angeles. The annual report is intended to provide detailed, reliable information for you, other City leaders and stakeholders to keep you advised on the status and health of the System, and to help make management decisions and plans. This year marks the 109th anniversary of this pension system — the nation’s largest public safety pension plan. The System administers six pension tiers, two of which are closed, a medical subsidy program, a Deferred Retirement Option Plan (DROP) and a complex disability pension program. As of June 30, 2008, we have 13,495 active and 12,174 retired beneficiaries, 1,144 members enrolled in DROP and assets of $14.4 billion. For the one-year period ending June 30, 2008, our return was -4.58 percent. Despite our challenging year, over the last five years, our return averaged 10.5 percent, and we ranked in the 25th percentile of the Northern Trust Public Fund Universe. Our pension funded status is 99.1 percent for the period ending June 30, 2008, one of the highest in the state of California. We have been pre-funding health insurance premium subsidy benefits since 1989, and the funded status increased slightly, from 41.5 percent to 41.8 percent, for the period ending June 30, 2008.

System Administration The Fire and Police Pension System is administered by a Board of nine commissioners, five appointed by the Mayor; Fire and Police members each elect one active member, and Fire and Police retired beneficiaries each elect one retired member. The Board administers the System in accordance with the City Charter and the State Constitution. Article XVI, Section 17 (a) of the State Constitution provides the Board “sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries.” Section 17(b) further provides the “members of the Retirement Board of a public retirement system shall discharge their duties ... solely in the interest of, and for the exclusive purpose of, providing benefits to participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A Retirement Board’s duty to its participants and their beneficiaries shall take precedence over any other duty.”

Service Efforts and Accomplishments In order to ensure that the pension system is operating in the most efficient and economical manner, City Charter Section 1112 requires that a management audit of the Fund be conducted by an independent management auditing firm at least every five years. Pursuant to this Charter language adopted in 2000, Independent Fiduciary Services (IFS) conducted our first audit in January 2006. Results were released in December 2007 and found the System to be well run. Many of the recommendations made by IFS were implemented or in progress at the time the final audit was released. The remaining recommendations for improvement are being analyzed for incorporation into our Risk Assessment Plan. To better define the path to accomplish our mission — to advance the health and retirement security of those who dedicate their careers to serve and protect the people of Los Angeles — the Board adopted the second annual Strategic Plan in March 2008. The plan outlines the Board’s overall goals and specific projects to achieve them. The four goals — customer service, risk management, communications and stakeholder relations and facility and resource analysis — include 11 projects for the 2008-09 Strategic Plan. Staff continues to look for ways to maximize technological advances to improve services to our members. For example, we are merging the retiree payroll system, which is based on the City Controller’s mainframe, with our Web-based system that is used to manage our active membership data. This conversion will result in improved system operations, streamlined data entry and reduced manual calculations. Another project focuses on reducing hard copy documents by “digitizing” them, which allows for ease of searching and retrieving information. Ultimately, Staff will have information available at their fingertips for our most important function — the delivery of pension benefits to our members. In executing these conversions we are engaging top security consultants to ensure the security of applications and member data. The Public Service Purchase (PSP) Program became effective in April 2008, and was implemented in June beginning with an online calculator for cost estimates. This program allows active members to purchase time served in the military and time with another government entity in order to increase their LAFPP pension benefit. The specialized actuarial calculations involved in determining the cost to purchase service under PSP presented challenges in the implementation process. However, Staff and our consultants worked diligently to ensure that members continued to receive quality customer service during this period. Consistent with a recommendation from IFS, the City’s auditor, the Board authorized the creation of an Internal Control Section. The intent of this section is to identify major risks in the Department and establish controls to minimize those risks. The recent economic turmoil has caused substantial concern over our future. However, this pension system has remained resilient through current and past market crises. We have been providing a lifelong defined benefit to our members for over 10 decades. Fulfilling this lifetime obligation is made possible by a professionally managed asset allocation plan, along with an investment strategy that calls for a well-diversified portfolio. The Board and Staff, with the assistance of our general consultant, Pension Consulting Alliance, continue to closely evaluate our asset allocation plan and make prudent decisions concerning changes. To further improve the overall health of the Fund, we work with many other public funds in the Council of Institutional Investors (CII). CII is a nonprofit association committed to addressing governance and investment issues that affect the retirement assets entrusted to its members. Membership in CII has allowed us to join with other pension systems to collectively study and weigh in on financial regulation changes, such as corporate executive compensation, necessary to protect the economic interests of our members. I sincerely thank the Board, Staff and our consultants and advisors for their support and dedication to improve the services and administration of our pension system, and I look forward to meeting the challenges before us.

Respectfully submitted,

Michael A. Perez General Manager system INT VES MenTS

Fire and Police Pension System 5 Summary of Itnnves me t Performance Investment Activities The investment objective of the total Fund, over a full market cycle (usually 5 to 7 years), I ntroduction is to earn a return on investments matching or exceeding the assumed actuarial rate of return During the past five years, the System’s assets of 8 percent and investment performance above increased from $10.20 billion to $14.41 billion. the median of a sampling of public funds. The Fund decreased by $1.14 billion for the year ending June 30, 2008. For the past five years, the System’s annualized return of 10.50 percent exceeded the actuarial Market Value Growth of System Assets (IN BILLIONS) rate of return and was also higher than the Northern Trust Public Funds’ median return $16

$15.55 of 9.44 percent. For the one- and three-year $15 $14.41 periods, the System’s overall investment

$14 $13.50 performance was down 4.58 percent and up $13 $13.02

$12.30 8.35 percent, respectively. $11.60

$12 $11.51 $11.38 $11 $10.20

$10.07 The Fund was ranked in the 59th percentile of $10 the Northern Trust Public Fund Universe for the $9 one-year period, 21st percentile for the three-year $8 period and 25th percentile for the five-year $7 $6 period ending June 30, 2008. The System’s top $5 performers this year were its emerging markets $4 equities, alternative investments and fixed $3 income portfolios, while the domestic equities, $2 international developed equities and real estate $1 underperformed their benchmarks this time period. $0 0605040302010099 07 08 Ass et Allocation Decisions Itnnves me t Environment Our asset allocation plan establishes the The bond market (Lehman U.S. Universal Bond blueprint for investing the System’s assets in Index) produced a return of 6.22 percent for stocks, bonds, real estate and cash equivalents the year ending June 30, 2008. Large company over a three- to five-year period. This plan is the stocks (S&P 500) returned -13.12 percent. Small single most important factor in managing risk stocks (Russell 2000 Index) returned -16.19 percent. and achieving the investment returns necessary International stocks (Morgan Stanley EAFE to fund benefits. Index) returned -6.20 percent. Real estate, as measured by the National Council of Real Estate Investment Fiduciaries Index (NCREIF Property Index), returned 9.20 percent.

6 Department of Fire and Police Pensions 2008 Annual Report The Board’s asset class targets as of Most of the System’s assets are managed by June 30, 2008 are: investment managers who try to outperform a market index. The System has one large equity Domestic Large Cap Equity...... 29.75% account that is a Standard & Poor’s 500 Index Domestic Small Cap Equity...... 5.25% fund whose performance matches that index International Equity...... 15.00% and one fixed income account that is a Lehman Emerging Markets...... 3.00% Brothers U.S. Aggregate Index fund. A list of our Domestic Bonds...... 19.50% managers is at the end of this section. High Yield Bonds...... 2.50% Real Estate...... 9.00% The System invested in several new commingled Alternative Investments...... 10.00% real estate funds and sold individual properties, Hedge Funds...... 5.00% including an industrial building in Round Rock, TX Cash Equivalents...... 1.00% and an apartment complex in Dallas, TX.

Proxy Voting

The actual asset class percentages of the System The System votes all domestic proxy ballots, will vary from target allocations due to inflows which totaled 2,207 proxies and corporate consents (such as City and member contributions), outflows for Fiscal Year 2007-2008. The international equities (such as pension payments) and the movements managers vote the proxies for their portfolios in of the securities markets. Assets are periodically accordance with the Board’s proxy guidelines, rebalanced to adjust for these movements. and cast a total of 1,168 proxy ballots.

As of June 30, 2008, the net asset values were The System votes affirmatively on preemptive as follows: rights, cumulative voting and confidential voting; opposes anti-takeover measures; and AS S ET CLASS MARKET VALUE P ErcenT generally abstains on issues of a social, political ( In Millions) or environmental nature that have no expected Stocks $ 8,729.8 60.6% economic impact on the System’s assets. The Bonds 3,301.1 22.9% System votes affirmatively on executive Real Estate 1,205.6 8.4% compensation bonus plans if the corporation’s Alternative Investments 607.3 4.2% stock performance in the past year exceeded Hedge Funds 460.8 3.2% the returns of both the Standard & Poor’s Cash Equivalents 101.5 0.7% 500 Index and an appropriate peer group index; Total $14,406.1 100.0% supports the nomination of and directs an affirmative vote for the appointment of Itnnves me t Activities independent directors to the Board of Directors; The manager changes for the year included the and directs an affirmative vote on measures termination of one domestic equity manager proposed to place independent directors on and two alternative investment advisors, and the compensation committees. hiring of two alternative investment advisors. The following investment managers were rehired during the year: six domestic equity managers, four international equity managers, one real estate consultant and the System’s custodian bank.

Fire and Police Pension System 7

C hanges in Asset Mix: Last Ten Years

Alternative Hedge Short-Term F iscal Year Stocks Bonds Real Estate Investments Funds Investments 1998-99 62.48% 24.97% 4.42% 1.56% 6.57% 1999-00 64.45% 22.53% 5.55% 2.65% 4.82% 2000-01 56.35% 25.24% 7.62% 3.31% 7.48% 2001-02 54.95% 27.74% 7.95% 3.52% 5.84% 2002-03 54.1% 31.4% 7.6% 3.50% 3.4% 2003-04 60.3% 28.0% 6.7% 3.50% 1.5% 2004-05 62.47% 28.05% 4.66% 3.24% 1.58% 2005-06 61.3% 26.5% 6.2% 3.7% 2.3% 2006-07 63.2% 23.5% 7.0% 3.4% 2.0% 0.9% 2007-08 60.6% 22.9% 8.4% 4.2% 3.2% 0.7%

A nnual Rates of Return

F iscal Domestic International Fixed Real Alternative Hedge Total Year Equities Equities Income Estate Investments funds* Fund** CPi*** 1998-99 25.53% 17.65% 2.44% 13.00% 12.46% 16.04% 1.96% 1999-00 17.91% 26.93% 3.90% 15.00% 42.14% 16.30% 2.87% 2000-01 -17.88% -19.49% 2.35% 12.80% 1.58% -10.00% 2.98% 2001-02 -17.64% -6.57% 1.17% 1.10% -17.05% -7.97% 1.07% 2002-03 3.21% -5.42% 15.29% 3.90% -12.66% 5.47% 2.11% 2003-04 23.67% 35.82% 3.39% 6.50% 23.50% 16.92% 3.30% 2004-05 5.54% 15.68% 9.85% 9.58% 27.03% 10.07% 2.50% 2005-06 10.69% 29.35% -0.91% 22.68% 27.24% 12.48% 4.3% 2006-07 20.05% 31.68% 6.52% 17.46% 17.35% 2.42% 18.50% 2.7% 2007-08 -11.93% -7.50% 6.50% -0.26% 10.17% 0.65% -4.58% 5.0%

* For the 2006-07 Fiscal Year, the Hedge Funds return is for May and June only. ** Total fund includes short-term investments. *** CPI is for the U.S. for the year ending June 30.

8 Department of Fire and Police Pensions 2008 Annual Report I nvestment Advisors

Stock Managers Separate Account Alliance Capital Management Real Estate Managers Attucks Asset Management Adelante Capital Management Daruma Asset Management Apollo Real Estate Advisors Delta Asset Management Heitman Capital Management FIS Funds Management Morgan Stanley Investment Management Frontier Capital Management Principal Global Advisors Robeco Investment Management Sentinel Real Estate Corporation Trust Company of the West Urdang Associates Real Estate Advisors

Bond Managers Alternative Investment Bridgewater Managers LM Capital Management Aldus Equity Loomis Sayles & Company StepStone Group MacKay Shields Northern Trust Reams Asset Management F und of Hedge Western Asset Management Company Funds Managers International Stock Managers Aetos Alternatives Management Grosvenor Institutional Partners Artio Global Investors K2 Advisors Brandes Investment Partners Fisher Investments Marvin & Palmer Associates McKinley Capital Management Principal Global Investors

Fire and Police Pension System 9 actuarial V AluaTIon

Fire and Police Pension System 11 A ctuarial Valuation Summary How a Valuation Is Conducted The actuarial funding method used (Entry Age A ctuarial Valuations Normal Cost) is required by the Charter under Two actuarial valuations of the assets and liabilities Section 1210 (Fire and Police Pension Plans General of pension benefits are conducted annually. Provision section) for Tier 1, Tier 2, Tier 3, Tier 4 One study examines the pension benefits paid and Tier 5. An actuarial valuation examines to members and their beneficiaries; the other the membership of the System as currently study examines the health insurance premium constituted and then projects future liabilities subsidy benefits allocated to qualifying members. using various assumptions. These studies evaluate the funding progress of the System and determine the annual Non-economic actuarial assumptions on mortality contribution requirements. of members and spouses, probability of service retirement and disability, probability of termination The funded status of the System is examined prior to retirement and probability of having a over a span of several years to determine if surviving beneficiary are created from studies progress is made. Satisfactory funding progress made of the actual experience of the membership has occurred over the past ten years. of the System. A new study is conducted every three years. Funded Status These assumptions are recommended by an 120% 119% 114% actuary and adopted by the Board of Fire 108% 105% 104% 103% and Police Pension Commissioners. The last 99% 100% 99% 95% 94% experience study covered the period July 1, 2004

81% to June 30, 2007 and was adopted by the Board 80% in October 2007. The adopted assumptions were used for the June 30, 2008 annual actuarial 60% valuation. An example of projected mortality is as follows: 40%

A verage Life Expectancy for Retirees 20% Service Retiree (Age = 65)...... 19.2 years 0% 070605040302010099 08 Disabled Retiree (Age = 65) ...... 16.8 years Surviving Spouse (Age = 65) ...... 20.1 years F unding Status and Tier 5 Tier 5 provides for an employee contribution Economic assumptions are also studied, rate of 8 percent as long as the Plan is 100 percent recommended by the actuary and adopted by actuarially funded. As of June 30, 2008, the Plan the Board. The economic assumptions in effect is 99.1 percent actuarially funded. Therefore, for this valuation period are: the employee pension contribution for Tier 5 members will remain at 9 percent until the Plan is at least 100 percent actuarially funded.

12 Department of Fire and Police Pensions 2008 Annual Report is calculated. This amount would theoretically E conomic Assumptions be sufficient to fully fund a member’s retirement Annual Increase in the benefit on the date of retirement if all Consumer Price Index ...... 3.75%* assumptions were realized and no benefit Annual Individual changes were made. Salary Increase ...... varies by age These potential future contributions are considered assets of the System, along with assets currently Ae g Annual Salary Increase** being invested by the Department of Fire and 20-24 6.34% Police Pensions. For purposes of determining the 25-29 5.49% contributions to the System, the current assets are 30-34 4.37% now valued using a method that phases in, over 35-39 3.25% five years, the unrealized and realized appreciation 40-44 2.25% above that which is expected based on the assumed 45-49 1.67% rate of return. 50-54 1.37% 55-59 1.19% U nfunded Actuarial Accrued Liability 60 and over 1.15% An unfunded actuarial accrued liability (UAAL) of a retirement system occurs when the system’s Annual Increases in actuarial liability is greater than the value Total System Payroll...... 3.75% of its assets, or when the funded ratio is less Investment Rate of Return...... 8.0% than 100 percent. As of June 30, 2008, the Actuarial Balance Sheet (see page 15) shows * Tiers 3, 4 and 5 are capped at 3%. ** Includes 0.50% “across the board” salary increase. the UAAL for pension benefits for all tiers to be approximately $126 million. The UAAL for health insurance premium subsidy benefits for Pen sion Benefit Balance Sheet all tiers combined is approximately $1.1 billion. Cost-of-living and individual salary assumptions are used to project the dollar amount of benefits Numerous variables, including pension benefit to be paid. The total liability is then reduced to increases and actuarial losses, generate or increase today’s dollar terms using the investment rate of the UAAL. Actuarial gains or losses arise from return assumption. differences between the actual experience of a pension system and the actuarial assumptions Once the liabilities of the System are computed, used to project the system’s funding requirements. the valuation study projects the member An example would be if combined members’ contributions expected to be received, which salaries increased more than what was assumed. are reduced to today’s dollar terms using the investment rate of return assumption. The The gains and losses reflected in the UAAL individual salary increase assumptions are must be amortized over a period of time and used to project the total member contributions. are a key component of the City’s required The Entry Age Normal Cost contribution, the contribution to the System. amount the City would contribute for a hypothetical new entrant into the System,

Fire and Police Pension System 13 Cni o tr bution Requirements Calculation U nfunded Liability The City contribution is composed of two parts: Contribution Requirements (1) the Entry Age Normal Cost contribution and Recommended 2009-2010* (2) the contribution to amortize the unfunded Tier 1...... $18,206,925 liability. The unfunded liability is amortized over Tier 2 ...... -2.85% of total payroll a time period using a methodology prescribed ...... of Tiers 1, 2, 3, 4, 5 in the Charter and Administrative Code. The Tier 3...... 5.28% of Tier 3 payroll amortization period for Tier 1 and Tier 2 is Tier 4...... 4.98% of Tier 4 payroll scheduled to end on June 30, 2037. Tier 5...... 1.54% of Tier 5 payroll

Tier 1 is amortized as a level dollar amount. Harbor Port Tier 2 is amortized as a level percentage of all Police (Tier 5)...... -0.09% of Harbor System members’ (Tiers 1, 2, 3, 4 and 5 combined) Tier 5 payroll

salaries. Tiers 3, 4 and 5’s amortization basis is a * Contributions to be made on July 15, 2009. level percentage of Plan members’ salaries over a continuous 15-year cycle. Each year’s actuarial Health Insurance Premium gain or loss is amortized over 15 years. Any Subsidy Valuation gains or losses resulting from benefit changes The health insurance premium subsidy valuation are amortized over a 30-year period. With utilizes the same actuarial assumptions as the this information, the actuary computes the valuation of pension benefits, with the addition contribution requirements for the City. of a medical inflation assumption. Currently, medical costs are increasing at a faster pace E ntry Age Normal Cost than inflation. Assumptions in the June 30, 2008 Contribution Requirements actuarial valuation included medical trend rate Recommended 2009-2010* increases of 9 percent for pre-65 and post-65 premiums in 2008, both decreasing gradually (as a percentage of Plan members’ salaries) to 5.0 percent in 2017 and thereafter. Using the Tier 1...... 0.0% same actuarial methods for pension benefits, Tier 2...... 23.32% the Actuarial Balance Sheet for health insurance Tier 3...... 17.8% premium subsidy benefits is shown on page 15. Tier 4...... 16.21% The contributions suggested to fund the health Tier 5...... 19.44% insurance premium subsidy benefits are: Harbor Port Police (Tier 5)...... 19.72% Health Insurance Premium Subsidy

* Contributions to be made on July 15, 2009. Contribution Rates Recommended 2009-2010* (as a percentage of Plan members’ salaries)

Tier 1 ...... $1,977,523 Tier 2 ...... 5.85% Tier 3 ...... 7.57% Tier 4 ...... 7.94% Tier 5 ...... 4.95% Total ...... 8.45% Harbor Port Police (Tier 5)...... 4.61%

* Contributions to be made on July 15, 2009. 14 Department of Fire and Police Pensions 2008 Annual Report A ctuarial Balance Sheet – June 30, 2008

Pren se t Resources and Expected Future Resources

AS S ET Retirement Health Total 1. Valuation value of assets $14,153,296,122 $767,647,562 $14,920,943,684

2. Present value of future normal costs Employee 1,067,649,943 1,067,649,943 Employer 2,421,482,453 451,669,043 2,873,151,496 Total 3,489,132,396 451,669,043 3,940,801,439

3. Unfunded actuarial accrued liability 125,819,620 1,069,192,775 1,195,012,395

4. Present value of current and future assets $17,768,248,138 $2,288,509,380 $20,056,757,518

Pren se t Value of Expected Future Benefit Payments and Reserve

LIA E BIliTI S Retirement Health Total 5. Present value of future benefits Retired members and beneficiaries $8,183,755,499 $1,114,590,122 $9,298,345,621 Inactive members with vested rights 19,504,695 19,504,695 Active members 9,564,987,944 1,173,919,258 10,738,907,202

6. Total present value of expected future $17,768,248,138 $2,288,509,380 $20,056,757,518 benefit payments

Fire and Police Pension System 15 department b udget

Fire and Police Pension System 17 D epartment Budget

Budgeted Actual R tseceip 2007-08 2007-08 City Contribution $326,656,184 $326,656,184 Special Fund (Harbor) 1,572,547 12,954,035 Excess Benefit Plan 149,734 121,447 Member Contributions 105,096,297 98,074,219 Earnings on Investments 399,050,000 425,929,934 Gain (Loss) on Sale of Investments — 640,730,148 UFLAC Settlement 282,582 282,600 Miscellaneous (1) 1,000,000 2,840,637 Total Receipts $833,807,344 $1,507,589,204

(1) Actual miscellaneous receipts include donations from outside entities. Donations are not budgeted. Donations totaling $67,568 were received in this fiscal year.

Budgeted Actual E xpenditures 2007-08 2007-08 Service Pensions $425,050,000 $416,237,599 Service Pensions – DROP Payout 165,740,000 122,654,025 Disability Pensions 117,651,000 115,347,464 Surviving Spouses’ Pensions 97,614,000 98,143,712 Minors’/Dependents’ Pensions 1,671,000 1,929,521 Refund of Member Contributions 4,917,000 2,767,666 Health Insurance Premium Subsidy 80,000,000 60,737,207 Dental Insurance Premium Subsidy 3,000,000 2,604,663 Medicare 9,000,000 6,796,582 Health Insurance Reimbursement 1,000,000 740,806 Investment Management Expense 66,120,000 58,750,238 Administrative Expense 15,169,500 12,373,185 Total Expenditures $986,932,500 $899,082,668 Increase (Decrease) in Fund Balance $(153,125,156) $608,506,536

R eceipts Expenditures

Investments: 70% Service and DROP: 59.94% City Contributions: 22% Disability: 12.83% Member Contributions: 7% Surviving Spouse: 10.92% Special Fund (Harbor): 1% Other: 16.32% Other: 0%

18 Department of Fire and Police Pensions 2008 Annual Report auditor’s rer po t

Fire and Police Pension System 19 20 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 21 22 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 23 24 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 25 26 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 27 28 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 29 30 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 31 32 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 33 34 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 35 36 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 37 38 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 39 40 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 41 42 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 43 44 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 45 46 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 47 48 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 49 50 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 51 52 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 53 54 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 55 56 Department of Fire and Police Pensions 2008 Annual Report Fire and Police Pension System 57 58 Department of Fire and Police Pensions 2008 Annual Report active and retired memr be ship

Fire and Police Pension System 59 FIRE AND POLICE or after December 8, 1980 participate in Tier 3 (formerly Article XXXV, Plan 1) and those hired PENSION PLANS on or after July 1, 1997 are in Tier 4 (formerly Article XXXV, Plan 2). Tier 3 members were Six Fire and Police Pension Plans allowed to transfer to Tier 4 during an enrollment As of June 30, 2008, the System is composed period. Also, Tier 4 members hired between of six tiers. Benefits are based on the member’s July 1, 1997 and December 31, 1997 were given pension tier, pension salary base and years the opportunity to transfer to Tier 3 during an of service. In addition, the System provides for enrollment period. Tier 5 is the only tier accepting disability benefits under certain conditions and new members. It was established for all members benefits to eligible survivors. hired on or after January 1, 2002. Active members in Tiers 2, 3 and 4 were allowed to transfer to Members hired pursuant to the provisions Tier 5 during the enrollment period from of Article XI 1/2 of the 1925 Charter are known January 1, 2002 through December 31, 2002. as “fluctuators.” Fluctuator pensioners receive Additionally, eligible sworn members of the Harbor 50 percent of the current salary received by the Department hired prior to January 8, 2006 were classification they retired from. Such beneficiaries provided the option to transfer to Tier 5 from are included in Tier 1 for purposes of our LACERS during the period January 8, 2006 actuarial valuations. through January 5, 2007. Harbor Department eligible sworn personnel hired on or after Members hired on or before January 28, 1967 January 8, 2006 are automatically enrolled as participate in Tier 1 (formerly Article XVII). Tier Tier 5 members. 2 (formerly Article XVIII) includes members hired on or after January 29, 1967 and Tier 1 members who transferred to Tier 2. Members hired on

60 Department of Fire and Police Pensions 2008 Annual Report Active Membership Last Ten Years

14,000 11,865 790,11 046,01 325,01 11,493 12,000 147,01 922,9 10,000

8,000 026,6 453,6

6,000 198,4 434,3 163,3 612,3 879,2 877,2 4,000 157,2 414,2 765,1 632,1 671,1 921,1 770,1 2,000 275 984 935 315 1,030 723 492 042 996 372 470 452 225 182 0 0 0 0 0 0 0 0 0 0 0 2 1 5 0 99 00 01 02 03 04 05 06 07 08

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5

memrh be s ip as of june 30, 2008

Tier Fire Police harbor Total Tier 1 0 0 0 0 Tier 2 71 111 0 182 Tier 3 32 964 0 996 Tier 4 61 391 0 452 Tier 5 3,551 8,226 88 11,865 Total 3,715* 9,692** 88*** 13,495

*Includes 530 DROP participants. **Includes 613 DROP participants. ***Includes 1 DROP participant.

Fire and Police Pension System 61 15000

10000 10,000 11000 8,000

140006,000

4,000 Active Membership by Years of Service 140003,500 Fire Police Harbor

3,000

14000 2,609 2,500 2,311

16,0002,000 13,218 1,481 1,500 1,429 12,000 872 1,000 863 720 633 540 511 463 433 357 8,000500 185 70 5 4 2 4 2 1 0 0-4 5-9 10-14 15-19 20-24 25-29 30+ 4,000

Active Membership by Age Group Fire Police Harbor

2,500 2,089 2,000 1,940 1,471

1,500 1,373 1,118 843 1,000 674 572 517 436 487 418 458

500 350 294 92 176 80 29 8 8 6 8 2 13 14 9 0 0 10 0 -25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

R efunds of Member Contributions

01-02 02-03 03-04 04-05 05-06 06-07 07-08 Fire: Tier 2 0 0 0 0 0 0 0 Tier 3 3 1 0 1 0 0 0 Tier 5 0 6 10 15 17 6 10 Police: Tier 2 4 0 0 0 0 1 0 Tier 3 117 49 39 29 22 15 12 Tier 5 13 37 54 55 64 97 69 Harbor: Tier 5 0 0 0 0 0 1 0 Total 137 93 103 100 103 120 91

62 Department of Fire and Police Pensions 2008 Annual Report Deferred Retirement Option Plan (DROP)

DROP Entries Fire Police Harbor

300 274 261

250 241

200 188 167 157 153 144 142

150 135 125 111 100

100 85

50 1 0 01-02 02-03 03-04 04-05 05-06 06-07 07-08

DROP Exits Granted Fire Police

300

250 233 199 200

150 128 122 112

100 86 63 57 52 50 43 30 29 0 0 0 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Fire and Police Pension System 63 Deferred Retirement Option Plan (DROP) Average Age at DROP Entry Fire Police Harbor

60 57 57 56 55 55 54 54 53 53 53 53 53 52 52 52

10 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Average Years of Service at DROP Entry Fire Police Harbor

40 32 32 31 30 30 29 29 29 29 28

30 28 27 27 27 27

0 01-02 02-03 03-04 04-05 05-06 06-07 07-08

64 Department of Fire and Police Pensions 2008 Annual Report Deferred Retirement Option Plan (DROP)

Average DROP Participation Fire Police Harbor

800 744 738 721

700 641 627

600 543 524 499

500 451 439 401 400 257 300 257

200 146

100 1 0 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Average DROP Duration at Exit (Months) Fire Police

60 55 52

40 37 36 33 32

30 24 24

20 16 16 8 10 8 0 0 0 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Fire and Police Pension System 65 Retired Membership Last Ten Years

10,000

Service Disability Survivor 9,000

8,000 7, 438 680,7 660,7 640,7 540,7 720,7 7, 273 089,6 559,6 587,6

7,000

6,000

5,000

4,000 193,2 683,2 993,2 693,2 873,2 883,2 263,2 753,2 153,2 063,2 343,2 833,2 513,2 972,2 282,2 3,000 242,2 2,419 2,370 2,331 2,325

2,000

1,000

0 99 00 01 02 03 04 05 06 07 08

12,000

9,000 Retired Membership by Age Group 6,000

3,000

2,500 2,488

2,000 1,945 1,484

1,500 1,386 1,198

1,000 796

500 270 196

0 -50 50-59 60-64 65-69 70-74 75-79 80-89 90+

66 Department of Fire and Police Pensions 2008 Annual Report Average Monthly Pension $4,486

$4,500 $4,292 $4,075

$4,000 $3,845 $3,663 $3,561 $3,399

$3,500 $3,269 $3,069 $2,949 $3,000

$2,500

$2,000

$1,500

$1,000

$500

$0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

C ost-of-Living Adjustments

E ffective July 1 Cost-of-living adjustments are made to eligible pensions each July 1, based on the movement of the Consumer Price Index for the Greater Los Angeles area from March 1 of the preceding year to March 1 of that year. Members of Tier 1 and Tier 2 have no cap on their cost-of-living adjustments. Members of Tiers 3, 4 and 5 have cost-of-living adjustments capped at 3 percent. Members of Tier 5 also have a COLA Bank feature.

6% 5.1% 5%

4% 3.8% 3.6% 3.6% 3.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3% 2.9% 2.9% 2.7% 2.7% 2.7% 2.2% 2.2%

2% 1.9% 1.9% 1.9% 1.2% 1.2%

0% 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Tiers 1 & 2 Tiers 3 & 4 Tier 5

Fire and Police Pension System 67 Pension Statistics: Last Ten Years

Service Pensions Granted Fire Police Harbor

400 953

350

300 266 251 250 191 981 77 200 661 1

150 211 119 115 100 46 56 26 44 34 33 50 82 51 31 9 0 0 0 98-99 99-00 00-01 01-02* 02-03* 03-04* 04-05* 05-06* 06-07* 07-08*

*Excludes DROP Exits.

Disability Pensions Granted Fire Police Harbor

100

50 24 73 73 40 63 34 92 82 82 72 42 30 27 12

20 41 01 13 11 8 7

10 4 3 0 1 0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

68 Department of Fire and Police Pensions 2008 Annual Report Pension Statistics: Last Ten Years Average Years of Service at Service Retirement Fire Police Harbor

35 13 31 31 30 30 29 82 29 82 28 28 28 28 30 28 27 27 27 27

25 23 22

5 0 0 0 98-99 99-00 00-01 01-02* 02-03* 03-04* 04-05* 05-06* 06-07* 07-08*

*Excludes DROP Exits.

Average Years of Service at Disability Retirement

35 Fire Police Harbor 33 31 30 30 29 28 30 28 27 25 24

25 23 23 21 19

20 18 15 15 15 14 15 14

10 9

5 0 0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Fire and Police Pension System 69 Pension Statistics: Last Ten Years Average Age at Service Retirement Fire Police Harbor

60 59 75 75 57

58 57 65 65 65 65

56 55 45 45 54 35 35 35 35 54 35 25

52 15

42 0 0 40 98-99 99-00 00-01 01-02* 02-03* 03-04* 04-05* 05-06* 06-07* 07-08*

*Excludes DROP Exits.

Average Age at Disability Retirement Fire Police Harbor

65 59

60 58 56 56 55 55 55 55 53 52 51 50 49

50 47 47 46 46 44 45 42 42 45 40

35 32

20 15

5 0 0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

70 Department of Fire and Police Pensions 2008 Annual Report Service- Connected Disability Pensions by Type and Department

DI SABIliTY PENSIONS FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR GRANTED 2003-04 2004-05 2005-06 2006-07 2007-08 FD PD Total FD PD Total FD PD Total FD PD Total FD PD Total Physical Only 13 24 37 12 16 28 4 20 24 5 27 32 11 23 34 Physical/Psychiatric 11011 0 7 7 0 6 6 21012 0 2 2 Psychiatric Only 011011000033000 TOTAL 14 35 49 12 24 36 4 26 30 7 40 47 11 25 36

Types of FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR Claims* 2003-04 2004-05 2005-06 2006-07 2007-08 FD PD Total FD PD Total FD PD Total FD PD Total FD PD Total Back 12 27 39 10 9 19 4 17 21 5 27 32 8 23 31 Neck 3 10 13 6 12 18 2 9 11 1 13 14 2 11 13 Knees 7 1522 6 9 15 2 10 12 1 5 6 6 7 13 Other Orthopedic 8 21 29 6 14 20 1 26 27 6 19 25 6 14 20 Cardiovascular 29112571780553710 Ulcer 01111178044044167 Hypertension 189044246088358 Pulmonary 202000112112022 Cancer 314022011011022 Gun Shot Wound 011000000011011 HIV/AIDS 000000000000000

*Will not equal the total number of disability pensions granted due to multiple claimed disabilities.

Service- and Nonservice-Connected Disability Retirements by Department and Rank

FIRE 03-04 04-05 05-06 06-07 07-08 P Olice 03-04 04-05 05-06 06-07 07-08 Firefighter 5 6 0 4 3 Police Officer 25 14 15 25 22 Apparatus 1 0 0 1 0 Sergeant 2 7 7 6 4 Operator Detective 8 2 3 10 4 Engineer 2 3 1 1 3 Lieutenant 0 1 1 1 1 Inspector 0 1 0 0 1 Captain 2 0 0 0 0 Captain 6 2 2 1 4 Commander 0 0 0 0 0 Battalion Chief 0 0 1 0 0 Deputy Chief 0 0 0 0 0 Assistant Chief 0 0 0 0 0 Assistant Chief 0 0 0 0 0 Deputy Chief 0 0 0 0 0 TOTAL 37 24 26 42 31 TOTAL 14 12 4 7 11

Fire and Police Pension System 71 legal s ummary

Fire and Police Pension System 73 Summary of Legal Activities provided advice on a wide range of subjects, from Brown Act issues and public record requests F iscal Year 2007–2008 to Tier 5 and Deferred Retirement Option Plan (DROP) issues and compliance with new tax Under City Attorney Rockard J. Delgadillo, regulations. Additionally, the Division provided the Retirement Benefits Division of the representation for the Board and the Department Los Angeles City Attorney’s Office, led by in all legal matters. It assisted members and Managing Assistant City Attorney Alan L. their beneficiaries in understanding the effects Manning, along with Deputy City Attorneys of dissolution proceedings on pension and John C. Blair, Mary Jo Curwen and Michael R. DROP benefits. The Division worked with the Wilkinson, and assisted by legal Secretary Department Staff on ordinances and City Charter Rebecca Clark, provided day-to-day assistance changes, including Medicare Part B, Public on the myriad legal issues facing the Service Purchase Program, Recall to Duty and Department and the members and beneficiaries several amendments to the Deferred Retirement of the Plan. As legal counsel to the Board of Option Plan. Fire and Police Pension Commissioners and the Department, the City Attorney’s Office

74 Department of Fire and Police Pensions 2008 Annual Report summary of pn e sion plan benefits Fire and Police Pension Plan Tier 1 (Formerly Article XVII) (1925 - January 28, 1967)

Tier 2 (Formerly Article XVIII) (January 29, 1967 - December 7, 1980)

Tier 3 (Formerly Article XXXV, Plan 1) (December 8, 1980 - June 30, 1997)

Tier 4 (Formerly Article XXXV, Plan 2) (July 1, 1997 - December 31, 2001)

Tier 5 Effective January 1, 2002

Fire and Police Pension System 75 Tier 1 Tier 2 Tiers 3 and 4 Tier 5 1. SERVICE RETIREMENT a. Eligibility 20 years of service 20 years of service Tier 3: Age 50 with Age 50 with 20 years 10 years of service of service Tier 4: 20 years of service

b. Salary base Normal Pension Base Normal Pension Base Final Average Salary Final Average Salary (Final monthly (Final monthly (One-year average (One-year average salary rate) salary rate) monthly salary) monthly salary)

c. Pension as a 40% at 20 years of 40% at 20 years of 2% per year of service 50% at 20 years of percentage of service, plus 2% for service, plus 2% for up to 20 years of service, plus 3% for salary base each additional year each additional year service, plus 3% for each additional year of up to 25 years of up to 25 years of each additional year service (except 4% at service, plus 1-2/3% service. 55% at 25 of service up to 30 years of service) for each additional years of service, plus 30 years of service Maximum of 90% year between 25 and 3% for each additional Maximum of 70% for 33 or more years 35 years of service year between 25 and for 30 or more years of service 30 years of service Maximum of 66-2/3% of service for 35 or more years Maximum of 70% of service for 30 or more years of service

2. SERVICE-CONNECTED DISABILITY a. Eligibility Work related Work related Work related Work related No age or service No age or service No age or service No age or service requirements requirements requirements requirements

c. Pension as a 50% to 90% 50% to 90% 30% to 90% 30% to 90% percentage of depending on severity depending on severity depending on severity depending on severity salary base of disability, with a of disability, with a of disability, with a of disability, with a minimum of member’s minimum of member’s minimum of 2% per minimum of 2% per service pension service pension year of service year of service percentage rate percentage rate

3. NONSERVICE-CONNECTED DISABILITY a. Eligibility Not work related Not work related Not work related Not work related Five years of service Five years of service Five years of service Five years of service

b. Salary base Highest monthly Highest monthly Final Average Salary Final Average Salary salary as of member’s salary as of member’s (One-year average (One-year average retirement for basic retirement for monthly salary) monthly salary) rank of Police Officer III basic rank of Police or Firefighter III, and Officer III or the highest length of Firefighter III, and service pay the highest length of service pay

c. Pension as a 40% 40% 30% to 50% 30% to 50% percentage of depending on depending on salary base severity of disability severity of disability

76 Department of Fire and Police Pensions 2008 Annual Report Tier 1 Tier 2 Tiers 3 and 4 Tier 5 4. SERVICE-CONNECTED DEATH OR DEATH AFTER SERVICE-CONNECTED DISABILITY a. Eligibility Work related Work related Work related Work related No age or service No age or service No age or service No age or service requirements requirements requirements requirements b. Salary base Normal Normal Final Average Salary Final Average Salary Pension Base Pension Base (One-year average (One-year average (Final monthly (Final monthly monthly salary) monthly salary) salary rate) salary rate) except for members who transferred from Tier 2 to Tier 5 c. Eligible 50% 50% with less than SERVICE-CONNECTED SERVICE-CONNECTED Qualified 25 years of service DEATH: DEATH: Surviving or 55% with 25 75% of Final Average Former Tier 2: 75% of Spouse’s (QSS) or more years Salary if service-connected Normal Pension Base if or Qualified of service death while active or death service-connected death Surviving Uncapped COLA due to service-connected while active Domestic cause(s) within 3 years 3% cap on COLA, with Partner’s (QSDP) after effective date of COLA Bank benefit as a Service-Connected percentage Disability pension Former Tier 3/Tier 4 or Tier of member’s 5 hired on or after 1/1/02: 3% cap on COLA, salary base 75% of Final Average Salary no COLA Bank if service-connected death DEATH AFTER SERVICE- while active or death CONNECTED DISABILITY: due to service-connected 75% of Final Average cause(s) within 3 years Salary if death due to after effective date service-connected of Service-Connected cause(s) within 3 years Disability pension after effective date 3% cap on COLA, with of Service-Connected COLA Bank Disability pension, otherwise 60% DEATH AFTER SERVICE- of member’s CONNECTED DISABILITY: Service-Connected Former Tier 2: 50% of Disability pension Normal Pension Base with less than 25 YOS 3% cap on COLA, no COLA Bank 3% cap on COLA, with COLA Bank or 55% of Normal Pension Base with 25 or more YOS 3% cap on COLA, with COLA Bank Former Tier 3/Tier 4 or Tier 5 hired on or after 1/1/02: 75% of Final Average Salary if death due to service-connected cause(s) within 3 years after effective date of Service- Connected Disability pension, otherwise 60% of member’s Service- Connected Disability pension 3% cap on COLA, with COLA Bank

Fire and Police Pension System 77 Tier 1 Tier 2 Tiers 3 and 4 Tier 5 d. Eligible children’s If no QSS, the eligible If no QSS/QSDP, the If no QSS/QSDP, the If no QSS/QSDP, the benefit as a children will receive a eligible children will eligible children will eligible children will percentage monthly pension equal receive a monthly receive a monthly receive a monthly of Qualified to the pension the pension equal to the pension equal to the pension equal to the Surviving QSS would have been pension the QSS/QSDP pension the QSS/QSDP pension the QSS/QSDP Spouse’s (QSS) eligible to receive, would have been would have been eligible would have been eligible or Qualified otherwise: eligible to receive, to receive, otherwise: to receive, otherwise: Surviving • 25% for one child otherwise: • 25% for one child • 25% for one child Domestic • 40% for two children • 25% for one child • 40% for two children • 40% for two children Partner’s • 50% for three or • 40% for two children • 5 0% for three or • 50% for three or more (QSDP) benefit more children • 50% for three or more children children more children Pension not payable Pension not payable Pension not payable after child reaches Pension not payable after child reaches after child reaches age age 18 unless child after child reaches age 18 (age 22 if in 18 (age 22 if in school is disabled before age 18 unless child school full time) unless full time) unless child is age 21 is disabled before child is disabled disabled before age 21 age 21 before age 21 Uncapped COLA 3% cap on COLA, with Uncapped COLA 3% cap on COLA, COLA Bank no COLA Bank

e. Eligible dependent If no QSS or eligible If no QSS/QSDP or If no QSS/QSDP or If no QSS/QSDP or parent’s benefit children, the eligible eligible children, the eligible children, the eligible children, the as a percentage dependent parent eligible dependent eligible dependent eligible dependent of Qualified will receive a monthly parent will receive a parent will receive parent will receive a Surviving Spouse’s pension equal to the monthly pension a monthly pension monthly pension equal (QSS) or Qualified pension the QSS would equal to the pension equal to the pension to the pension the QSS/ Surviving have been eligible the QSS/QSDP would the QSS/QSDP would QSDP would have been Domestic Partner’s to receive have been eligible have been eligible eligible to receive to receive to receive (QSDP) benefit Uncapped COLA 3% cap on COLA, with Uncapped COLA 3% cap on COLA, COLA Bank no COLA Bank

5. DeaTH WHILE ELIGIBLE TO RECEIVE A SERVICE PENSION ON ACCOUNT OF YEARS OF SERVICE a. Eligibility 20 years of service 20 years of service Tier 3: 10 years 20 years of service of service Tier 4: 20 years of service

b. Eligible Qualified 100% of member’s 100% of member’s 80% of service Former Tier 2: 100% of Surviving Spouse’s accrued service accrued service retirement member member’s accrued service (QSS) or Qualified retirement member retirement member would have received, retirement member would Surviving would have received, would have received, not to exceed 40% of have received, not to Domestic Partner’s not to exceed 50% of not to exceed 55% of Final Average Salary exceed 55% of Normal (QSDP) benefit as Normal Pension Base Normal Pension Base 3% cap on COLA, Pension Base a percentage Uncapped COLA Uncapped COLA no COLA Bank 3% cap on COLA, with of member’s COLA Bank salary base Former Tier 3/Tier 4 or Tier 5 hired on or after 1/1/02: 80% of service retirement member would have received, not to exceed 40% of Final Average Salary 3% cap on COLA, with COLA Bank

78 Department of Fire and Police Pensions 2008 Annual Report Tier 1 Tier 2 Tiers 3 and 4 Tier 5 c. Eligible children’s If no QSS, the eligible If no QSS/QSDP, the If no QSS/QSDP, the If no QSS/QSDP, the benefit as a children will receive a eligible children will eligible children will eligible children will percentage of monthly pension equal receive a monthly receive a monthly receive a monthly Qualified Surviving to the pension the pension equal to the pension equal to the pension equal to the Spouse’s (QSS) or QSS would have been pension the QSS/QSDP pension the QSS/QSDP pension the QSS/QSDP Qualified Surviving eligible to receive, would have been would have been would have been Domestic Partner’s otherwise: eligible to receive, eligible to receive, eligible to receive, (QSDP) benefit • 2 5% for one child otherwise: otherwise: otherwise: • 40% for two children • 25% for one child • 25% for one child • 25% for one child • 50% for three or • 40% for two children • 40% for two children • 40% for two children more children • 50% for three or • 50% for three or • 50% for three or Pension not payable more children more children more children after child reaches Pension not payable Pension not payable Pension not payable age 18 unless child after child reaches after child reaches after child reaches is disabled before age 18 unless child age 18 (age 22 if in age 18 (age 22 if in age 21 is disabled before school full time) unless school full time) unless age 21 child is disabled child is disabled Uncapped COLA before age 21 before age 21 Uncapped COLA 3% cap on COLA, no 3% cap on COLA, with COLA Bank COLA Bank d. Eligible dependent If no QSS or eligible If no QSS/QSDP or If no QSS/QSDP or If no QSS/QSDP or parent’s benefit children, the eligible eligible children, the eligible children, the eligible children, the as a percentage of dependent parent eligible dependent eligible dependent eligible dependent Qualified Surviving will receive a monthly parent will receive a parent will receive a parent will receive a Spouse’s (QSS) or pension equal to the monthly pension equal monthly pension equal monthly pension equal Qualified Surviving pension the QSS would to the pension the to the pension the to the pension the Domestic Partner’s have been eligible QSS/QSDP would QSS/QSDP would QSS/QSDP would (QSDP) benefit to receive have been eligible have been eligible have been eligible Uncapped COLA to receive to receive to receive Uncapped COLA 3% cap on COLA, no 3% cap on COLA, with COLA Bank COLA Bank

6. DEATH AFTER SERVICE RETIREMENT a. Eligibility Member was receiving Member was receiving Member was receiving Member was receiving a service pension a service pension a service pension a service pension b. Eligible Qualified Same as member’s Same as member’s 60% of member’s Former Tier 2: Same Surviving Spouse’s pension up to 50% pension up to 55% pension benefit as member’s pension of member’s Normal of member’s Normal up to 55% of Normal (QSS) or Qualified 3% cap on COLA, Pension Base Pension Base Pension Base Surviving Domestic no COLA Bank Partner’s (QSDP) Uncapped COLA Uncapped COLA 3% cap on COLA, with benefit as a COLA Bank percentage of member’s Former Tier 3/Tier 4 salary base or Tier 5 hired on or after 1/1/02: 60% of member’s pension benefit 3% cap on COLA, with COLA Bank

Fire and Police Pension System 79 Tier 1 Tier 2 Tiers 3 and 4 Tier 5 c. Eligible children’s If no QSS, the eligible If no QSS/QSDP, the If no QSS/QSDP, the If no QSS/QSDP, the benefit as a children will receive a eligible children will eligible children will eligible children will percentage of monthly pension equal receive a monthly receive a monthly receive a monthly Qualified Surviving to the pension the QSS pension equal to the pension equal to the pension equal to the Spouse’s (QSS) or would have been pension the QSS/QSDP pension the QSS/QSDP pension the QSS/QSDP Qualified Surviving eligible to receive, would have been would have been would have been Domestic Partner’s otherwise: eligible to receive, eligible to receive, eligible to receive, (QSDP) benefit • 25% for one child otherwise: otherwise: otherwise: • 40% for two children • 25% for one child • 25% for one child • 25% for one child • 50% for three or more • 40% for two children • 40% for two children • 40% for two children children • 50% for three or • 50% for three or • 50% for three or more children more children more children Pension not payable after child reaches Pension not payable Pension not payable Pension not payable age 18 unless child is after child reaches after child reaches after child reaches disabled before age 21 age 18 unless child is age 18 (age 22 if in age 18 (age 22 if in disabled before age 21 school full time) unless school full time) unless Uncapped COLA child is disabled before child is disabled before Uncapped COLA age 21 age 21 3% cap on COLA, 3% cap on COLA, with no COLA Bank COLA Bank

d. Eligible dependent If no QSS or eligible If no QSS/QSDP or If no QSS/QSDP or If no QSS/QSDP or parent’s benefit children, the eligible eligible children, the eligible children, the eligible children, the as a percentage of dependent parent eligible dependent eligible dependent eligible dependent Qualified Surviving will receive a monthly parent will receive a parent will receive a parent will receive a Spouse’s (QSS) or pension equal to the monthly pension equal monthly pension equal monthly pension equal Qualified Surviving pension the QSS would to the pension the to the pension the QSS/ to the pension the QSS/ Domestic Partner’s have been eligible QSS/QSDP would QSDP would have been QSDP would have been (QSDP) benefit to receive have been eligible eligible to receive eligible to receive to receive Uncapped COLA 3% cap on COLA, 3% cap on COLA, with Uncapped COLA no COLA Bank COLA Bank

7. R NonSE VICE-CONNECTED DEATH OR DEATH AFTER NONSERVICE-CONNECTED DISABILITY a. Eligibility Five years of service Five years of service Five years of service Five years of service

b. Eligible Qualified 40% of highest 40% of highest NONSERVICE- NONSERVICE- Surviving Spouse’s monthly salary as of monthly salary as of CONNECTED DEATH CONNECTED DEATH (QSS) or Qualified member’s retirement member’s retirement 30% of Final Average Former Tier 2: 40% of Surviving Domestic for basic rank of for basic rank of Salary or, if eligible to highest monthly salary as Partner’s (QSDP) Police Officer III or Police Officer III or retire based on years of member’s retirement benefit as a Firefighter III, and Firefighter III, and of service, 80% of the for basic rank of Police percentage the highest length of the highest length pension the member Officer III or Firefighter of member’s service pay of service pay would have received III, and the highest not to exceed 40% of length of service pay salary base Uncapped COLA Uncapped COLA Final Average Salary 3% cap on COLA, with 3% cap on COLA, COLA Bank no COLA Bank Former Tier 3/Tier 4 or DEATH AFTER Tier 5 hired on or after NONSERVICE- 1/1/02: 30% of Final CONNECTED Average Salary or, if DISABILITY eligible to retire based 60% of member’s on years of service, 80% pension of the pension the member would have 3% cap on COLA, received, not to no COLA Bank exceed 40% of Final Average Salary 3% cap on COLA, with COLA Bank

80 Department of Fire and Police Pensions 2008 Annual Report Tier 1 Tier 2 Tiers 3 and 4 Tier 5 DEATH AFTER NONSERVICE- CONNECTED DISABILITY Former Tier 2: 40% of highest monthly salary as of member’s retirement for basic rank of Police Officer III or Firefighter III, and the highest length of service pay with 3% cap on COLA and COLA Bank Former Tier 3/Tier 4 or Tier 5 hired on or after 1/1/02: 60% of member’s pension 3% cap on COLA, with COLA Bank c. Eligible children’s If no QSS, the eligible If no QSS/QSDP, the If no QSS/QSDP, the If no QSS/QSDP, the eligible benefit as a children will receive eligible children will eligible children will children will receive a percentage a monthly pension receive a monthly receive a monthly monthly pension equal to of Qualified equal to the pension pension equal to the pension equal to the the pension the QSS/QSDP Surviving the QSS would have pension the QSS/ pension the QSS/QSDP would have been eligible to Spouse’s (QSS) been eligible to QSDP would have would have been receive, otherwise: or Qualified receive, otherwise: been eligible to eligible to receive, • 25% for one child Surviving • 25% for one child receive, otherwise: otherwise: • 40% for two children Domestic • 40% for two • 2 5% for one child • 25% for one child • 50% for three or more Partner’s children • 4 0% for two • 40% for two children • 50% for three or children children (QSDP) benefit Pension not payable after more children • 5 0% for three or • 50% for three or child reaches age 18 (age 22 more children more children Pension not payable if in school full time) unless after child reaches Pension not payable Pension not payable child is disabled before age 18 unless child after child reaches after child reaches age 21 is disabled before age 18 unless child age 18 (age 22 if 3% cap on COLA, with age 21 is disabled before in school full time) COLA Bank age 21 unless child is disabled Uncapped COLA before age 21 Uncapped COLA 3% cap on COLA, no COLA Bank d. Eligible If no QSS or eligible If no QSS/QSDP or If no QSS/QSDP or If no QSS/QSDP or eligible dependent children, the eligible eligible children, the eligible children, the children, the eligible parent’s benefit dependent parent eligible dependent eligible dependent dependent parent will as a percentage will receive a monthly parent will receive parent will receive receive a monthly pension of Qualified pension equal to a monthly pension a monthly pension equal to the pension the Surviving the pension the QSS equal to the pension equal to the pension QSS/QSDP would have been Spouse’s (QSS) would have been the QSS/QSDP would the QSS/QSDP would eligible to receive eligible to receive have been eligible have been eligible or Qualified 3% cap on COLA, with to receive to receive Surviving Uncapped COLA COLA Bank Domestic Uncapped COLA 3% cap on COLA, no Partner’s COLA Bank (QSDP) benefit

Fire and Police Pension System 81 Tier 1 Tier 2 Tiers 3 and 4 Tier 5 8. COST-OF-LIVING a. Generally Full annual cost-of- Full annual cost-of- Annual cost-of-living Annual cost-of-living increase applicable living increase living increase increase or decrease or decrease not to exceed 3% or decrease or decrease not to exceed 3% provisions Amounts above the maximum Cost-of-living Cost-of-living Cost-of-living of 3% are banked to be credited adjustments adjustments adjustments during years when the compound, and compound, and are compound, and are Consumer Price Index is less are based upon the based upon the based upon the than the maximum Consumer Price Index Consumer Price Consumer Price Index Cost-of-living adjustments for local Urban Index for local for local Urban compound, and are based upon Consumers Urban Consumers Consumers the Consumer Price Index for Survivors’ pension Survivors’ pension City Council may grant local Urban Consumers includes the includes the discretionary cost-of- City Council may grant percentage of cost- percentage of living increases once discretionary cost-of-living of-living adjustments cost-of-living every three years increases once every three applied to the adjustments Survivors’ pension years. Such discretionary member’s pension applied to the includes the percentage COLAs reduce the member’s prior to death member’s pension of cost-of-living COLA Bank prior to death adjustments applied Survivors’ pension includes to the member’s the percentage of cost-of-living pension prior adjustments applied to the to death member’s pension prior Pro rata adjustment to death in the first year of Pro rata adjustment in the retirement first year of retirement b. Effective date of cost-of-living adjustments i. Service Annual adjustments Annual adjustments Annual adjustments Annual adjustments retirement commence on July 1 commence on the commence on the commence on the July 1 following the later of July 1 following July 1 following the following the effective date the effective date or the later of the effective date the date the member effective date would have been or the date the age 55 member would have completed 25 years of service ii. Service- Annual adjustments Annual adjustments Annual adjustments Annual adjustments connected commence on the commence on the commence on the commence on the July 1 disability, service- July 1 following the July 1 following the July 1 following the following the effective date connected death effective date effective date effective date iii. Nonservice- Annual adjustments Annual adjustments Annual adjustments Annual adjustments connected commence on the July 1 commence on the commence on the commence on the July 1 disability following the date the July 1 following the July 1 following the following the effective date member would have effective date effective date been age 55 or 5 years after the effective date of the pension if earlier iv. Nonservice- Annual adjustments Annual adjustments Annual adjustments Annual adjustments connected commence on the July 1 commence on the commence on the commence on the July 1 death, death following the date the July 1 following the July 1 following the following the effective date while eligible member would have effective date effective date for service been age 55 or 5 years retirement after the effective date of the pension if earlier v. Death after Annual adjustments Annual adjustments Annual adjustments Annual adjustments nonservice- commence on the July 1 commence on the commence on the commence on the July 1 connected following the date the July 1 following the July 1 following the following the effective date disability, death member would have effective date effective date after service- been age 55 or 5 years connected after the effective date disability of the pension if earlier

82 Department of Fire and Police Pensions 2008 Annual Report Tier 1 Tier 2 Tiers 3 and 4 Tier 5 9. MEMBERS’ CONTRIBUTION AS A PERCENTAGE OF ANNUAL PAY 6% 6% plus 1/2 cost 8% 9% No member of cost-of-living No member contributions City pays 1% of 9% if contributions benefit up to 1% required after 30 years Plan is at least 100% required after 30 years (currently 7%) of service actuarially funded of service No member No member contributions contributions required after 33 years required after 30 years of service of service

10. QUALIFIED SURVIVORS a. Qualified Surviving Spouse (QSS) or Qualified Surviving Domestic Partner (QSDP) eligibility requirements i. Nonservice- Married at least one Married or registered Married or registered Married or registered connected death year prior to date of the domestic partner the domestic partner the domestic partner nonservice-connected at least one year prior at least one year prior at least one year prior death and as of date to date of nonservice- to date of nonservice- to date of nonservice- of death connected death and connected death and connected death and as of date of death as of date of death as of date of death ii. Service- Married as of the date Married or registered Married or registered Married or registered connected death of service-connected the domestic partner the domestic partner the domestic partner death as of the date of as of the date of as of the date of service-connected service-connected service-connected death death death iii. Death after Married at least one Married or registered Married or registered Married or registered service pension year prior to the the domestic partner the domestic partner the domestic partner effective date of at least one year prior at least one year prior at least one year prior service pension and as to the effective date to the effective date to the effective date of date of death of service pension and of service pension and of service pension and as of date of death as of date of death as of date of death iv. Death after Married at least one Married or registered Married or registered Married or registered nonservice- year prior to effective the domestic partner the domestic partner the domestic partner connected date of nonservice- at least one year prior at least one year prior at least one year prior disability connected disability to effective date of to effective date of to effective date of pension and as of date nonservice-connected nonservice-connected nonservice-connected of death disability pension and disability pension and disability pension and as of date of death as of date of death as of date of death v. Death after Married as of effective Married or registered Married or registered Married or registered service- date of service- the domestic partner the domestic partner the domestic partner connected connected disability as of effective date as of effective date as of effective date disability pension and as of date of service-connected of service-connected of service-connected of death disability pension and disability pension and disability pension and as of date of death as of date of death as of date of death b. Minor child Legitimate or adopted Legitimate or adopted Child or adopted Child or adopted eligibility child of a deceased child of a deceased child of a deceased child of a deceased requirements member, until age 18 member, until age 18 member, until age member, until age or marries, whichever or marries, whichever 18 (22 if a full-time 18 (22 if a full-time comes first comes first student) or marries, student) or marries, whichever comes first whichever comes first c. Dependent Legitimate or adopted Legitimate or adopted Child of a deceased Child of a deceased child eligibility child of a deceased child of a deceased member who, prior member who, prior requirements member who, prior member who, prior to turning age 21, to turning age 21, to turning age 21, to turning age 21, became mentally or became mentally or became mentally or became mentally or physically disabled physically disabled physically disabled physically disabled and cannot earn a and cannot earn a and cannot earn a and cannot earn a livelihood livelihood livelihood livelihood

Fire and Police Pension System 83 Tier 1 Tier 2 Tiers 3 and 4 Tier 5 d. Dependent Natural parent of a Natural parent of a Parent of a deceased member Parent of a deceased parent deceased member deceased member who had at least one-half member who had at eligibility who had at least who had at least of their necessary living least one-half of their requirements one-half of their one-half of their expenses provided by the necessary living expenses necessary living necessary living member for at least one year provided by the member expenses provided expenses provided prior to the member’s death for at least one year prior by the member by the member and is unable to pay necessary to the member’s death for at least one for at least one living expenses without and is unable to pay year prior to the year prior to the the pension necessary living expenses member’s death member’s death without the pension and is unable to and is unable to pay necessary living pay necessary living expenses without expenses without the pension the pension

11. MISCELLANEOUS a. Vesting After 20 years After 20 years Tier 3: After 10 years After 20 years of service of service of service of service of service retirement Tier 4: No vesting until retirement (20 years)

b. Return of On termination On termination or Tier 3: On termination or On termination or death contributions or death if no death if no other death if no other benefits if no other benefits are with interest other benefits benefits are payable are payable (except basic payable (except basic are payable death benefit) death benefit) Tier 4: Upon death if no other benefits are payable (except basic death benefit). No refund upon termination

c. Basic death None None If member has at least one If member has at least one benefit year of service, in addition year of service, in addition to return of contributions, to return of contributions, beneficiary receives the beneficiary receives the member’s one-year average member’s one-year average monthly salary times years monthly salary times years of completed service (not to of completed service (not exceed 6 years) to exceed 6 years)

d. Optional forms None None At service or disability At service or disability of benefit retirement, member may retirement, member for Qualified elect higher QSS/QSDP benefit may elect higher QSS/ Surviving with corresponding actuarial QSDP benefit with Spouse (QSS) reduction of retirement corresponding actuarial or Qualified benefit reduction of retirement Surviving benefit Domestic Partner (QSDP)

e. Deferred None None Tier 3: Upon termination, can Tier 5: Upon termination, pension elect deferred pension option can elect deferred pension option if member has at least 10 YOS option if member has at and leaves contributions in least 20 YOS and leaves Fund. Upon reaching age 50, contributions in Fund. Upon member is entitled to receive reaching age 50, member a service pension using Tier 3 is entitled to receive a retirement formula service pension using Tier 3 retirement formula Tier 4: No deferred pension option

84 Department of Fire and Police Pensions 2008 Annual Report milestones

Fire and Police Pension System 85 MILET S OneS 1927. Members entering service after January 17, 1927 would receive a pension after 25 years of 1899-1901. The California State Legislature service equal to 50 percent of the average salary enacted legislation in 1899 that enabled cities during the three years preceding retirement, and counties to establish pension systems for plus 1-2/3 percent for each of the next 10 years police officers and firefighters. The City of of service. A monthly limit of $1,800 for service Los Angeles authorized a system for police pensions was established. Member contributions officers effective June 7, 1899 and for firefighters to the System were set at 4 percent of salary. effective June 10, 1901. It provided for a pension Pensions for widows were made fixed amounts. at age 60 after 20 years of service, at an amount of one-half of the salary of the rank held for 1933. The actuarial requirements were eliminated one year preceding retirement. Disability and and the System was placed on a “pay-as-you-go” survivor benefits were also provided. Member basis effective May 15, 1933. contributions were set at $2 per month. 1947. Members hired after January 17, 1947 1911-1919. In 1911 a Charter amendment could retire after 20 years of service with a pension empowered the City Council to make changes equal to 40 percent of the average salary of the in the pension systems. Effective September 16, last three years of service with an additional 1913, the Council adopted an ordinance that 2 percent for each of the next five years of lowered the minimum retirement age to 55 service and 1-1/3 percent for each of the next ten and eliminated member contributions. In 1919, years of service. A maximum pension of two-thirds ordinances were adopted allowing retirement of the average salary was retained, with a cap after 20 years of service regardless of age. based on the salary level of a Police Captain or Fire Battalion Chief. Member contributions were 1922. Fire and police pension plans were increased from 4 percent to 6 percent of salary. merged into one system. Effective June 16, 1947, a Charter amendment created a nonservice-connected disability pension 1923-1925. The System was placed on an actuarial of 40 percent of the highest salary attached to basis effective January 29, 1923 and a provision the rank of firefighter or police officer; an equal was added increasing pensions for members amount was to be paid to any surviving spouse with more than 20 years of service, based on a with additional percentages allowed for unmarried formula of 1-2/3 percent for each year of service minor children under the age of 18. over 20 up to two-thirds of the salary of the rank held at retirement. The new City Charter that 1957. The maximum limit attached to rank became effective July 1, 1925 added a provision for service pensions was removed effective that service and disability pensions would April 18, 1957. remain fixed amounts. 1958. The California Supreme Court ruled that the 1928 Charter provisions for fixed pension did not apply to members employed prior to July 1, 1925 or to surviving spouses of members employed prior to January 27, 1927.

86 Department of Fire and Police Pensions 2008 Annual Report 1959. Effective May 6, 1959, the System was 1969. Amendments to Articles XVII and XVIII again placed on an actuarial basis with a effective May 2, 1969 applied cost-of-living 50-year amortization period for the unfunded adjustments to disability and survivor pensions. liabilities. Investment provisions were changed Service pensioners were allowed to apply for return to permit investment of up to 35 percent of to active duty under certain conditions and fund assets in common stocks. restrictions. The authorized limit for common stock investments was raised to 50 percent 1961. A one-time cost-of-living increase was of fund assets. provided for all member and surviving spouse pensions based on service-connected disability 1971. Articles XVII and XVIII were amended or death. effective July 1, 1971 to remove the 2 percent per year cost-of-living ceiling from all eligible 1967. Article XVII was extensively amended, and pensions and pegged increases to the Consumer a New Pension System (Article XVIII) adopted Price Index; to increase the minimum pension effective January 29, 1967 provided: to $350 per month; to grant pension credit for partial years of service; and to add two (1) a pension equal to 55 percent of annual elected employee members to the Board of salary at retirement with 25 years of service Pension Commissioners. plus an additional 3 percent for each year of service over 25, up to a maximum pension 1974. Article XVII and XVIII amendments enabled of 70 percent of salary at retirement with the City Council to adopt ordinances providing 30 years of service; health insurance premium subsidy benefits and other programs for eligible pensioners. (2) a 2 percent cap on the annual cost-of-living adjustment to all member and surviving 1975. Amendments to Articles XVII and XVIII spouse pensions that were based on allowed cost-of-living adjustments for service- length of service; connected disability pensions upon the July 1 following the date of retirement. Certain waiting (3) a minimum pension of $250 per month periods for those eligible to receive this adjustment to be adjusted each year by the were eliminated. cost-of-living formula; 1976. The health insurance premium subsidy (4) an extension of the amortization period for ordinance was amended effective September the unfunded liabilities to 70 years; and 30, 1976 to include the spouse and dependents of eligible members. (5) changes in the investment authority to provide for mortgage investments and 1977. The mandatory retirement age provision public improvement financing. of Article XVII was eliminated effective April 15, 1977. 1968. Overtime compensation was excluded from computation of contributions and benefits under Articles XVII and XVIII.

Fire and Police Pension System 87 1980. Article XXXV, The Safety Members’ Pension 1983. Article XVII and XVIII active members Plan, was created effective December 8, 1980. were no longer required to contribute to It provided for a pension at age 50 with 10 years the pension system upon completion of 30 of service based on a formula of 2 percent per years of service. year of service up to 20 years and 3 percent for each additional year up to a maximum pension 1984. The City Charter was amended to of 70 percent of annual salary at retirement; refund permit banks and insurance companies to of member contributions with interest upon act as investment advisors to the System. termination; and a surviving spouse pension equal to 60 percent of the member’s pension. 1985. Authority was extended to include investment in real estate by all City of 1981. Extensive revisions to the investment Los Angeles pension systems. provisions of the Charter provided for: 1989. The System began pre-funding the health insurance premium subsidy benefits. (1) the investment of up to 70 percent of fund assets in common stock and up to 1990. A series of measures was enacted that 25 percent of the 70 percent without allow the City to protect the integrity of the dividend record and registration on a pension system in response to new tax code national securities exchange; regulations. The waiting period was removed for cost-of-living adjustments for surviving (2) the investment of 35 percent of fund assets spouses of members hired before December 8, in short-term securities; 1980 who die in the line of duty. (3) the appointment of a securities custodian bank; The 3 percent cap on cost-of-living increases (4) a requirement to retain investment advisors instituted in 1982 for Article XVII and XVIII registered under the Investment Advisor Act; members was overturned by court order.

(5) the selling and repurchasing of covered call 1993. The Board of Pension Commissioners was options; and given authority to increase investments under (6) authority to conduct transactions and the “prudent person” provisions of the Charter exchanges of securities without specific prior from 25 percent to 50 percent. Retired Article Board approval, within established guidelines. XVIII members may be recalled for up to one year after retirement. 1982. Significant revisions to Articles XVII and XVIII provided a 3 percent cap on the cost-of- 1995. The amount of salary to be used to calculate living adjustment for all future service earned pension benefits was capped at $150,000 (adjusted by active members and a refund of member annually) for members hired on or after contributions upon termination. Cost-of-living July 1, 1996. The City Council was authorized adjustments were prorated for the first year of to enact ordinances required to maintain the retirement. Paramedics and civilian ambulance tax-qualified status of Article XXXV under drivers were transferred from the City Employees’ federal law. Retirement System to the Safety Members’ Pension Plan (Article XXXV).

88 Department of Fire and Police Pensions 2008 Annual Report 1996. In January 1996, a new federal law A provision was established so that members prohibited states from taxing retirement income hired July 1, 1997 through December 31, 1997 of nonresidents. could irrevocably elect to transfer from Article XXXV, Plan 2 to Article XXXV, Plan 1. Effective December 5, 1996, pension benefits The provision allowed the Metropolitan to the qualified surviving spouse of a deceased Transportation Authority officers who merged police officer or firefighter continue even if the into the Police Department to join either Plan 1 spouse remarries. or Plan 2 of Article XXXV. A delay in the merger made it necessary to add this provision so that 1997. Article XXXV, Plan 2 was established negotiated benefits could be provided. effective July 1, 1997. All Article XXXV members hired between December 8, 1980 and June 30, As of June 30, 1999, the actuarial value of 1997 were given until June 30, 1998 to make an the System assets equaled 104.7 percent of the irrevocable transfer to Plan 2. Plan 2 provides actuarial accrued liability of pension benefits. retirement benefits at any age after 20 years of service based on a formula of 2 percent per year 2000. Effective January 17, 2000, domestic partners of service up to 20 years and 3 percent for each became eligible to receive survivor benefits under additional year up to a maximum pension of the same eligibility requirements as surviving 70 percent of Final Average Salary; member spouses, after filing a Declaration of Domestic contributions are non-refundable; deferred Partnership with the Board of Fire and Police retirement is not an option. Pension Commissioners. Surviving spouses and domestic partners became eligible to receive Article XXXV members retiring on or after July 1, a health insurance premium subsidy at the time 2000 at a rank no higher than Fire Captain or of the member’s death, subject to eligibility Police Lieutenant shall receive some pension requirements. credit for prior hazard pay even if no hazard pay was received during the 12-month period The new City Charter became effective July 1, used to determine Final Average Salary for 2000. The primary changes affecting the pension purposes. Pension System provided: (1) The official department name became the Effective July 1, 1997, at the discretion of the Department of Fire and Police Pensions. City Council, administrative expenses, which shall include investment management expenses, (2) The plans were reorganized under a new shall be paid from fund assets. Charter Article number. Articles XVII, XVIII, XXXV Plan 1 and XXXV Plan 2 are referred The City Council approved an ordinance lowering to as Tiers 1, 2, 3 and 4, respectively. the health insurance premium subsidy eligibility (3) T he Board of Commissioners was expanded age to 55 for members retiring on or after from seven to nine members and includes an July 1, 1998 with at least 10 years of service. elected retired fire member and an elected 1999. The City Council was given authority to retired police member. establish by ordinance domestic partner benefits (4) The Board selects the General Manager, subject and pension benefits for sworn employees to confirmation by the Mayor and Council, brought into City employment by merger or and may remove the General Manager, contract for fire and police services. subject to confirmation by the Mayor.

Fire and Police Pension System 89 (5) Assistant General Manager positions are receive a service pension benefit of 50 percent appointed on an exempt basis. of Final Average Salary, plus 3 percent for each additional year of service to a maximum of (6) The powers, duties and responsibilities of 90 percent of Final Average Salary for 33 or the Board are more expressly recognized more years. The exception is year 30, in and include: which 4 percent credit is given for that year (a) language consistent with the provisions of service. Members contribute 8 percent of of California Constitution Article XVI, salary; 9 percent if Plan assets fall below the Section 17; 100 percent funding level. (b) the prudent person investment standard; The Deferred Retirement Option Plan (DROP) became effective May 1, 2002. DROP is a voluntary (c) sole and exclusive power to provide program whereby a member with a minimum actuarial services; of 25 years of service (members of Tiers 3 and 5 (d) control over litigation and settlement of must also be at least age 50) may file for a service litigation that involves policies and funds pension but continue to work and earn salary and under Board control; and benefits as an active member. The monthly service (e) d eletion of the Council’s right to veto any pension benefit is deposited into a DROP Board decisions. account that earns a 5 percent per annum return, payable upon exiting DROP. Participation in (7) The definition of dependent parent was DROP is limited to a maximum of 5 years. revised so that United States residency at the time of member death is no longer an eligi- A dental subsidy for retirees became effective bility requirement. January 1, 2002. To qualify, a member must be age 55 with a minimum of 10 years of service. 2001. Charter changes were approved to: For each year of service, a member earns (1) Enable the City Council to establish by 4 percent of the maximum available subsidy. ordinance a Deferred Retirement Option Effective January 1, 2001, retirees and surviving Plan (DROP). spouses/domestic partners not able to enroll (2) Co mbine all tiers into a single plan for in a City-approved and subsidized health plan funding purposes. because they live out of state or outside the (3) Require the City Council to create by service area of a City-approved HMO became ordinance a Tier 5 effective January 1, 2002. eligible to receive a health insurance premium (4) Allow surviving spouses who remarried prior reimbursement. Administration of the program to December 5, 1996 to collect “surviving began in 2002, retroactive to the effective date. spouse” benefits. The first payment under the Excess Benefit Plan (5) Enable the City Council to provide by was made. This plan was first authorized in 1990 ordinance a dental subsidy for retirees. to supplement the benefits to certain employees to the extent such benefits are reduced by the 2002. By Council ordinance, a new Tier 5 pension limitations on benefits imposed by Section 415 plan became effective January 1. Active members of the Internal Revenue Code of 1986 as amended. of existing tiers could elect to irrevocably transfer This plan is nonqualified under the Internal to Tier 5 during the period January 2, 2002 to Revenue Code. December 31, 2002. Tier 5 members are eligible to retire at age 50 with 20 years of service and

90 Department of Fire and Police Pensions 2008 Annual Report 2003. Annual active member statements of 2006. Council Ordinance Number 177214, authorizing service credit and recorded contributions were the transfer of Sworn Port Police Officers to Tier issued to members for the first time since 1985. 5 of Fire and Police Pensions, became effective Based on recent federal and state legislation, January 4, 2006. The ordinance gave current Port active members may use funds from deferred Police Officers the choice of transferring to Tier 5 compensation to purchase service credit. or remaining in their current retirement system. Persons appointed on or after January 8, 2006 2005. On January 20, 2005, an ordinance became as specified in the ordinance became members of operational allowing former Tier 2 members Tier 5 upon graduation from academy training who transferred to Tier 5 and who had prior required by the Harbor Department. service as paramedics or civilian ambulance The actuarial valuation of 2005 found the Plan personnel under LACERS to purchase this less than fully funded for pension benefits. As period of service. required by Administrative Code Section 4.2014, In the March 2005 election, the voters approved Tier 5 member contributions were increased to two Charter amendments. 9 percent effective July 1, 2006. The first amendment authorized the Council to 2007. The election period for Sworn Port Police amend the Charter to transfer the Sworn Port Officers to transfer to Tier 5 closed on January 5, Police Officers to Tier 5 of Fire and Police Pensions. 2007, with 40 Port Police Officers electing The second amendment provided the following: membership in Tier 5. (1) Instituted return-to-duty provisions similar to Internal Risk Assessment — On February 1, 2007 those in Tier 2 to members in Tiers 3, 4 and 5. the Board created an Audit Committee and an (2) Authorized the Council to allow a City Defrayal Internal Audit Division. of Employee Contributions by Ordinance. On March 6, 2007, voters passed a Charter This means the City may pay a portion of the amendment giving the City Council authority to employee contributions to Tiers 3, 4 and 5, establish by ordinance a voluntary Public Service not to exceed 2 percent of the required Purchase Program. The program is to provide a contributions, in lieu of a salary increase or a means for Plan membership to purchase eligible portion of an increase. This provision is to be full-time service with the military and/or with other used during Memorandum of Understanding public agencies for the purpose of increasing negotiations as part of a total economic pension credits. The member must assume the package and the cost will be evaluated at full actuarial cost of the purchase. that time. (3) A uthorized the City Council to set sworn The Deferred Retirement Option Plan (DROP) retiree health insurance premium subsidies by completed its fifth year on April 30, 2007. ordinance. Prior to this change, the Charter Participants who enrolled in DROP from its limited the maximum sworn retiree health inception, May 1, 2002, were required to exit the insurance premium subsidy to the lesser of plan by April 30, 2007. There were approximately 200 the maximum active sworn member health mandatory exits processed in April and May 2007. subsidy or the maximum civilian retiree health subsidy. The Council can delegate authority for setting sworn retiree subsidies to the Pension Board.

Fire and Police Pension System 91 The City Council approved an extension of that the City Controller, the Office of the Mayor DROP, commencing May 1, 2007 and ending and the Los Angeles City Council shall jointly April 30, 2012, and excluded participation by cause, once every five years, a management audit the Chief of Police and the Chief Engineer of to be conducted by an independent, qualified the Fire Department. management auditing firm. The purpose of Audit of the Relief Associations — In July 2007, the audit was to examine whether the pension the System began consultant-supported audits system is operating in the most efficient and of the retiree medical and dental plans offered economical manner. The audit found that the by the Los Angeles Firemen’s Relief Association System was generally operating efficiently and (LAFRA), Los Angeles Police Protective League in accordance with best industry practices, (LAPPL), Los Angeles Police Relief Association providing good investment returns overall, (LAPRA) and United Firefighters of Los Angeles utilizing reasonable actuarial assumptions and City (UFLAC). The principal areas of the audits methods and pre-funding health insurance are an eligibility audit, a benefit audit, an premium subsidy benefits. administrative audit and a financial analysis. 2008. The Public Service Purchase (PSP) ordinance was adopted by the City Council on Carbon Disclosure Project — On September 6, 2007 April 8, 2008 and became effective April 22, the Board voted to revise its proxy voting 2008. On June 1, 2008 a PSP calculator was guidelines to vote “FOR” shareholder proposals made available online to eligible members to that request management to report on climate perform cost estimates for the purchase of service. change. This change was in light of survey results In addition, the program was implemented, released by an advocacy group known as the with the first purchase completed in June. Carbon Disclosure Project (CDP). The study determined that 80 percent of U.S. companies The City Council adopted the following believe that climate change poses commercial amendments to the Deferred Retirement risks for their businesses. As a result, investors Option Plan (DROP): are encouraging more environmental disclosure (1) July 3, 2008 — A DROP member who is from companies. The Supreme Court had subsequently appointed Fire or Police Chief ruled in April 2007 that greenhouse gases are prior to exiting DROP shall be allowed to a pollutant that may be regulated by the rescind his/her DROP election. Environmental Protection Agency. (2) November 4, 2008 — A definitive ending Management Audit — The first management audit date for the DROP Program was removed, of the System was conducted by Independent and a member must be on active duty status Fiduciary Services and the results released on at the time of entry into the program. December 3, 2007. Charter Section 1112 requires

92 Department of Fire and Police Pensions 2008 Annual Report