| Local 1014 Members and the Financial Markets. |
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Updated On: Oct 285, 2008
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We have been getting many calls regarding the current financial market situation and our members retirements. We would like to discuss the impact of the recent stock market crash and alleviate some fears about our members retirements.
LACERA is a big retirement fund, last year valued at over 40 Billion dollars. We keep this much as a vehicle to earn investment income to pay for your retirements - in fact, 74% of retiree payments are paid with investment income, only 26% through employee or employer payments. As a result of keeping this asset pool, we are able to absorb losses like this. As markets improve so will the earnings of the fund.
Some have been wondering if the recent market losses will increase the member contributions. The answer is "not much". Contributions to LACERA for most of your retirement are based on "normal cost", that is the level amount it will take to pay your retirement regardless of market losses. The assumed earning rate (7 3/4%) is applied to that future assumption. The only way (most) of your payment can increase or decrease is for an assumption (age, age of death, length of service, etc) changes - NOT market market volitility. The only portion of your contribution that chages according to the markets is the STAR-COLA contribution, and that is a very small part of your contribution.
LACERA has a very long time horizon for investments. We assume after market ups and downs that we will earn
7 3/4% per year. Even though LACERA has earned over 10% for the last 10 years, we still keep our conservative 7 3/4 % assumed rate of return - we anticipate market situations like this. The key for LACERA is to keep steady, stay with our investment plan and keep our investment managers busy earning us out of this hole.
Horizons (Great West 457 Plan) is currently providing our members with the most worry. They open thier accounts and see the market losses and panic sets in. There are 3 important things to understand about the Horizions losses.
- 457 Plan members that may soon need their retirement assets and are heavily invested in stocks may be hardest hit by this recent crash. Since they may need their money soon, they will not have the opportunity to see thier stocks gain value, and recover from this bad market.
- Learn from 1. - As you prepare for retirement, look at your retirement income and decide when you will need to use your 457 account. As you prepare to or start to take this money, move to mare stable investments so you will not be withdrawling from a depressed stock market.
- If you are still a few years from retirement, stay with it. Most, nearly all participants that move their money in bad markets will be slower to recover than if they left their money in their stock portfolio. Stocks have always, ALWAYS rebounded from major market losses and that recovery is faster than if your were only invested in fixed income investments.
The upcoming (Nov. 1) transition of Horizons from named market managers to asset classes will help in larger market losses. The theory behind this move is to use several managers for each asset class, not just one. These managers should provide diversification of investment styles and level losses. Also including real estate investment options in the portfolio should help further diversify the fund. For more on the LA County 457 plan transition see www.countyla.com.
Retirement accounts are long term investments. Even though markets are in turmoil, retirement accounts are prepared for this situation. The true test of the next 2 years (the predicted recession length) will be the overall economic outlook for the County economy. As wages, home prices lower and unemployment rises along with inflation local governments, including the County, will begin to feel the pinch. We can only hope the economic turnaround will be quick and long lived.
If you have any retirement related questions please call Will Pryor at 310 - 639 - 1014 or sign is as a member and get my e-mail account off the "Officers and Staff" page.
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