Wednesday, Mar. 11, 2009

County pension generates tension

Extra benefits to retirees at risk as costs escalate

Stanislaus County Employees' Retirement Association administrator Tom Watson painted a grim picture of pension costs to the county Tuesday at the Board of Supervisors' meeting.

The bottom line is that the county may need to contribute an additional $15 million to $17 million a year to the retirement system even before considering the $500 million in investment losses the pension fund has suffered in the past year.

That likely will cause more layoffs and public service cuts as the county copes with a looming $34 million deficit in next year's budget, said County Chief Executive Officer Rick Robinson.

County supervisors warned Watson and the retirement board that nonmandated benefits to retirees will have to end. The retirement system pays retirees benefits, including a health cost stipend, that are not required by law. The extra benefits cost the retirement association about $8 million a year.

The issue potentially pits current county employees, who face furloughs and layoffs, against retired employees, who could lose the extra stipends that many depend on to make ends meet.

The $15 million to $17 million is a verbal estimate by an actuarial firm that audited the pension plan's past payout assumptions and found them flawed. A more accurate number will be available in April, when a report by the retirement association's new actuarial firm will be made public.

The higher contribution costs stem from what the audit called flawed assumptions made in the past about what the county will owe to future retirees. The assumptions deal with when employees retire, how they will opt to take their pension benefits, when they will get salary raises, how long they will live, and what the inflation rate and rate of return will be on the pension fund.

The county's contribution to the pension fund would increase by 70 percent to 90 percent if the estimates are accurate, Watson said.

The $500 million loss in the slumping stock market is not as big a problem, Watson said. The loss is about a third of what the fund totaled two years ago. The loss is softened by averaging the gains and losses over five years, Watson said. A rebound in the market in the next few years could alleviate that problem, he said.

"We need to be careful not to get too involved in the moment. Things can turn around," he said.

"The money is real for the county," said Supervisor Vito Chiesa. "We do one-year and three-year modeling. We have to be in the now," he said. "The potential for it to get worse is there, and I'm not sure there is a Plan B. It's so much money."

Some benefits cost jobs

County officials made clear that nonmandated benefits are hard to justify in light of the pension fund problems and the looming county budget deficit.

"We absolutely want to pay our retirees the vested benefits," Robinson said. "The question is how far beyond that we, as partners, can go at a time when real people with real families will lose their jobs."

Watson said the nonmandated benefits are paid out of retirement fund earnings above the targeted 8.16 percent rate of return. Some of the "excess earnings" are also shared with Stanislaus County and other employers in the pension system, Watson said. In addition to Stanislaus County, the retirement association covers seven smaller governmental agencies, including the city of Ceres and superior court employees.

County Board Chairman Jim DeMartini, who is also a member of the retirement board, grilled Watson on a variety of topics but kept returning to the nonmandated benefits.

With the flawed actuarial assumptions problem and the $500 million investment loss, DeMartini said, "I would expect the retirement board would realize it is unwise to continue giving away $8 million a year in unfunded benefits."

Supervisor Jeff Grover urged Watson and the retirement board not to view the situation as adversarial. The county is in a difficult financial position, he said.

"The county fully intends to stand by everything it is legally required to do. We intend to cut out those things we are not legally obligated to do," he said. "This is a very finite goose laying a golden egg."

Bee staff writer Tim Moran can be reached at tmoran@modbee.com or 578-2349.