Riverside County’s $2.8 billion in unfunded pension liabilities prompted the Board of Supervisors Tuesday to direct staff to analyze whether additional reforms are needed to meet future obligations.
“This is a sobering report,” Supervisor Chuck Washington said of the Pension Advisory Review Committee’s annual assessment of the pension pool. “The gap will widen unless we do something to correct it.”
According to the PARC analysis, the county’s defined-benefit retirement system, as a whole, is roughly 71 percent funded, with $7.8 billion in assets and $2.812 billion in unfunded liabilities.
The overall funding status of the county’s annuities declined over last year’s level, which had reached 75 percent. The county’s pension fund adviser, San Mateo-based Bartel Associates, has noted that the U.S. Government Accountability Office perceives a funding ratio below 80 percent as cause for concern.
Documents indicated that revisions to accounting methodologies, including so-called asset “smoothing” used by the California Public Employees’ Retirement System, were partly to blame, though CalPERS’ investment performance was also a major factor, as well as changes to actuarial assumptions concerning lifespans and the longer periods in which people will be drawing retirement benefits.
“These are devastating numbers going forward,” Supervisor Kevin Jeffries said. “We’re trying to get our projected anticipated (general fund) costs under control, but we haven’t fully (considered) the increased challenges from our pension liabilities.”
In fiscal year 2015-16, CalPERS — the sixth largest pension fund in the world — earned a negligible .6 percent in returns, according to the PARC report. The value of CalPERS’ holdings since the Great Recession in 2008 is down 40 percent, documents show.
According to the report, due to actuarial changes and flat market returns, the county will have to hike its pension contributions to CalPERS in the next fiscal year and beyond.
“Our bill from CalPERS will increase significantly, largely due to circumstances beyond our control,” Chief Financial Officer Don Kent told the board.
Supervisor Marion Ashley, a former commercial accountant, worried that the county may be galloping behind the cost curve for the foreseeable future, never to “achieve success” in reining in pension expenses without serious corrective measures.
“It’s like that third rail that no one wants to touch,” he said, adding that it was time to consider the possibility of creating a new pension “tier” for future employees, or phasing out defined-benefit plans in preference to defined-contribution plans, which are standard in the private sector and place greater responsibility on employees for the management of investments.
Pension reforms were enacted by the board in September 2012 and have netted yearly savings, which in the 2017-18 fiscal year are expected to amount to about $108 million.
Kent said he couldn’t estimate the potential savings from a lower tier, but it would have the immediate effect of “fixing your costs” for some employees.
“We have all these concerns … and somebody has got to do something about it,” Ashley said. “We need to come up with solutions, a plan of action.”
Under pre-2012 plans negotiated with collective bargaining units, public safety workers accrued retirement earnings according to a “3 percent at 50” formula, fixing compensation at 3 percent of the average of the three highest- paid years of an employee’s career, multiplied by the number of years on the job. An employee could begin collecting full retirement at age 50.
Miscellaneous workers, including clerks, technicians and nurses, received benefits based on a “3 percent at 60” formula.
Beginning in September 2012, new hires in the safety category began accruing retirement benefits under a 2 percent at 50 formula, while newly hired miscellaneous workers began accruing benefits under a 2 percent at 60 formula.
Legislation signed into law soon afterward added another category for public sector employees hired after Jan. 1, 2013. The lower benefit formula is 2 percent at 62 for miscellaneous and 2.7 percent at 57 for safety workers.
The board voted unanimously to have Kent and Executive Office staff study the possibility of a lower tier and report back at an unspecified date.
According to the PARC report, the county is continuing to pay down its pension obligation bonds, issued in 2005 to reduce long-term liabilities. The balance on that unpaid debt is $286.5 million, and the county has another 18 years to amortize it.
–City News Service