Stanislaus County retirement system starting to recover from losses

The Stanislaus County Employees' Retirement Association has started to show signs of recovery from the stock market downturn and other problems of the past two years.

A full recovery is certain to require county government and other local agencies to make catch-up payments to the system that pays retirement benefits to former employees of the county, Ceres, the court and five special districts.

At a workshop Tuesday, StanCERA officials said the association's investment portfolio lost $223 million in value during the fiscal year from July 2008 through June 2009. That marked a bit of an improvement after the value of its stocks, bonds and other holdings fell $313 million between July and December 2008.

Since the market bottomed out in March, StanCERA's investment nest egg has steadily improved, giving the retirement system an end-of-year balance of just more than $1 billion, down from $1.3 billion the previous year.

StanCERA Administrator Tom Watson said the value of investments has trended upward in the first four months of this fiscal year as the market continues to rally.

Investment returns covered about 63 percent of StanCERA's expenses last year, while 25 percent was covered by employer contributions and 12 percent by deductions from employee paychecks. When investment returns are lagging, the employers are expected to use tax dollars to increase their contributions.

"You don't have to make up the shortfall in one year," said Graham Schmidt of EFI Actuaries, which entered a contract last year to advise StanCERA. He described a process of smoothing the pain over several years.

"If that wasn't done, the employer contributions would really jump from year to year," he said.

The investment losses are not the sole reason that StanCERA faces an uphill climb. Last December, an auditing firm said employer contribution rates would have to increase because of the inappropriate assumptions of previous actuarial reports.

Stanislaus County was faced with a $22.7 million increase in its contribution to StanCERA for 2009-10, a problem that was mitigated in April when the retirement board shifted $60 million from nonvested benefit reserves to lower the county's obligation.

Because of increased retirement rates and other factors, the employer contribution rates may have to increase from 12 percent of payroll in 2008 to 18 percent in five years. The retirement fund, which was about 85 percent funded in 2008, is on a downward course to be 60 percent funded in 2013.

Local agencies such as the county and city of Ceres are struggling with budget shortfalls, so they are not looking forward to increasing their contributions for the fiscal year that starts July 1.

StanCERA could give the employers an estimated contribution rate in late January.

"We are anticipating an increase," said Rick Robinson, chief executive officer of the county. "It will certainly affect our base operating costs and affect what we will be able to do with the budget next year."

Robinson said he expects the county will have to contribute more to the system in the next few years. The county will pay off a pension obligation bond in 2014, freeing money for meeting pension obligations for the growing number of county employees retiring.

Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or 578-2321.