Pension problems: Stanislaus County trails piper it can't pay

Eight years after giving a major boost in pension benefits to employees, Stanislaus County is trying to keep from getting buried in retirement costs.

The pension system for the county and several smaller agencies is only 71 percent funded, creating an unfunded liability of $482 million. That is coupled with nearly $48 million in bond debt -- a collective shortfall more than twice the size of the county's general fund budget.

The pension costs are a huge strain on county government as officials deal with budget deficits tied to the recession.

It's unlikely that pension-fund investments can support the lucrative benefits given to public service employees or that the county can keep pouring taxpayer funding into the system. So officials are looking to control pension costs.

The current benefits allow sworn law enforcement employees to retire with up to 90 percent of salary at age 50 and other county employees to retire at 55 with more than 75 percent of pay.

By claiming vacation cashouts, unused sick leave, bonuses and additional pay, retirees can spike their pensions even higher. And they receive cost-of-living increases compounded annually which continue to drive up retirement costs.

The Stanislaus County Employees' Retirement Association is paying between $100,000 and $241,000 a year to 50 top retirees; 32 of them are paid more in retirement than when they worked.

According to an evaluation in January, StanCERA's investment portfolio has $1.17 billion to cover $1.65 billion in pension promises to 8,200 employees and retirees of the county, Ceres, the Superior Court and five special districts.

The county's pension troubles are only partly tied to the stock market collapse, which took down the value of the Stanislaus County Employees' Retirement Association portfolio by more than $400 million between early 2008 and mid-2009.

StanCERA's previous actuarial firm made glaring mistakes in predicting how many employees would draw pension benefits; as a result, the county and other agencies did not properly fund the system.

In addition, officials relied too heavily on expected investment returns to fund the system after more lucrative benefits went into effect in 2002.

Investment success shared

To understand how the county got into this mess requires going back to the dot-com stock market bonanza of the late 1990s.

During that time, StanCERA's annual returns on investments ranged from 12 to 25 percent. The county and StanCERA enjoyed wild success investing a $108 million county-issued pension bond on the market. The proceeds helped fund the system and the deal called for StanCERA to give the county a percentage of the earnings, which helped pay for county projects such as the Ag Center and Public Safety Center.

In fall 1999, Gov. Gray Davis signed a bill authorizing the 3-percent-at-50 benefit for police officers and firefighters in California. The Modesto City Council approved the benefit for police officers in May 2000, within six months of it becoming available.

As other cities and counties granted the benefits to bargaining groups, it put pressure on Stanislaus County to follow suit.

County supervisors granted the pensions in a wage and benefit package for law enforcement approved in June 2001, three months before the Sept. 11 attacks sent stocks into a dive. The vote was 3-2, with supervisors Nick Blom and the late Tom Mayfield opposed to the contract over the pension issue.

Blom, who served on the retirement board before retiring in 2002, said he knew there would be ramifications. "I said, 'People are living longer and, if you let them retire at 50, you are asking for major problems,' " he said.