Riverside County’s pension liabilities now exceed $3 billion, and allocations to support the retirement system will steadily rise over the next decade, meaning less money available for public services, officials said Tuesday.
The Pension Advisory Review Committee’s annual assessment of the county’s retirement assets and liabilities was at the top of the Board of Supervisors’ agenda, and the 20-page PARC report noted that since the prior fiscal year, the county’s unfunded pension gap had widened from just under $3 billion to $3.082 billion as of Tuesday’s date.
The county’s retirement apparatus has roughly $8 billion in assets, and according to the report, it is about 70 percent funded in both the miscellaneous and safety categories.
The safety category covers sheriff’s deputies, District Attorney’s Office investigators, probation agents and others, while the miscellaneous rolls cover clerks, custodians, nurses, social workers, technicians and other employees not involved in any law enforcement function.
The amounts required to fund workers’ nest eggs in the California Public Employees’ Retirement System will escalate over the next decade.
Board Chairman Kevin Jeffries expressed concern about the numbers contained in the narrative, noting that with every dollar diverted to pay pensions, there’s “less and less funding for public services.”
“We’re looking at a big, big hit,” Jeffries told Chief Financial Officer Don Kent, who gave a snapshot presentation of the report’s highlights. “By my math, 4,400 positions must go vacant to maintain the same level of funding we have now (and keep the unfunded liability from growing).”
Jeffries said moves by the city of Menifee to divest its county law enforcement contract beginning in the next fiscal year to form a stand-alone police department were concerning.
Sheriff’s deputies who leave the county payroll to become Menifee cops will still be owed for pensions they’ve accrued, and the county will be paying those expenses without any offsetting gains, the supervisor said.
Kent said it was too early to tell what impact that may have.
A major influence on pension costs is CalPERS’ investment performance, which county officials have long complained has lagged the markets as a whole over the last decade due to a preference for environmental and social justice causes over broader money-making opportunities.
According to the report, the mammoth public pension fund’s assumed rate of return on investments — also known as the discount rate — in the current fiscal year is 7.25 percent. However, over the next 20 years, the rate is expected to fall below 7 percent, meaning more money will be needed from Riverside County, along with other counties and cities statewide, to make up the difference.
The lower rate is a CalPERS projection and may not materialize. The pension fund earned 8.6 percent on its portfolio in the last fiscal year.
The report acknowledged that while the funding ratios for both the safety and miscellaneous categories have slipped 3 to 4 percentage points over the last five years, “Riverside County is in a better position than many California peers that are also participants in CalPERS.”
The report stated that for the safety category, the county’s general fund commitment to CalPERS in the next fiscal year will be the equivalent of 37 percent of payroll for employees in that classification. In the miscellaneous category, it will be the equivalent of 22 percent of payroll.
According to projections, the county’s contribution rates will hit 53 percent and 31 percent, respectively, by 2030.
In dollars and cents, the contributions translate to an estimated total $750 million in annual appropriations just to cover pension obligations at the end of the next decade. The county will spend about $440 million in the next fiscal year to meet these same commitments, according to the report. The costs factor in the expense of amortizing pension obligation bonds issued in 2005, as well as some accounting adjustments.
By way of scale, the county’s aggregate budget is $5.6 billion.
Jeffries has been the chief complainant about the need for reining in pension costs. It was at his urging that the PARC report was moved up this fiscal year and last fiscal year to February, instead of the usual publication window of April-May, to give supervisors an advance impression of what’s in store.
Employees across the spectrum in county government generally contribute less than 10 percent of gross earnings toward their defined-benefit plans with CalPERS, figures showed.
According to the PARC report, questions about whether shifting new workers to defined-contribution plans — the standard in the private sector — in which employees’ take on greater responsibility for their own investments, disburdening the taxpayers, are moot because the Legislature and CalPERS have to approve dispensing with government-insured defined-benefit plans now in place.