MODESTO -- Stanislaus County's employee pension costs are expected to increase by $6.1 million in the next budget year because of unfunded liabilities and a new policy for covering the administrative costs of the retirement system.
The increase could push the county's annual cost for funding retirement benefits to $58 million in the year starting July 1, an amount that includes a $10.7 million payment on a pension bond issued in 1995.
Top county officials said the increase raises budget concerns because about 45 percent of retirement costs are covered by the general fund.
Wednesday, the Stanislaus County Employees' Retirement Association board considered policy changes that could have translated into a $10 million budget hit for the county. But a recommended policy to fund employee benefits equally over a person's career will not be implemented for current employees for a year or more.
County Assistant Executive Officer Stan Risen said a retirement board decision Wednesday to adopt the funding policy for new hires has no immediate impact on the county budget. StanCERA is certain to consider the funding policy for thousands of current employees at this time next year — and that will threaten to increase the county's costs. "With these kind of changes, where they are just changing the methodology, it would be nice to do it in years that have some good investment earnings," Risen said.
StanCERA board member Darin Gharat said: "Our current policy is still an accepted practice, but we recognize things are changing."
Under the old policy, the cost for funding an employee's benefits has fluctuated during his or her career, depending on circumstances such as going on disability. With the new method, the benefits are funded evenly throughout the career.
StanCERA oversees a $1.45 billion pension fund for the county, Ceres, the Superior Court and five special districts. In addition to annual contributions from the agencies and their employees, the retirement benefits are funded by investment earnings, which were less than 1 percent for the year that ended June 30.
Retirement costs became a major budget issue for the county after the nation's financial crisis of 2008, when the investment portfolios of StanCERA and other public service pension systems suffered staggering losses. StanCERA's funding ratio dipped to 70 percent, forcing the county to boost its annual payments to the system and straining budgets for law enforcement and other services. County leaders negotiated with unions to establish less generous pension benefits for newly hired employees.
In a report Wednesday, EFI Actuaries said the funding ratio has climbed back to 79 percent as of June 30. Today, the retirement association is dealing more with changes to methodology and accounting practices, some of which have grown out of pension reform initiatives in California.
Based on changes discussed at a board workshop last month, StanCERA no longer will cover administrative expenses with investment earnings. It will add a $2.1 million administration charge to employer contributions.
According to EFI's report, StanCERA's obligations for benefits promised to employees and retirees grew from $1.76 billion to $1.83 billion in the year that ended June 30. The unfunded liability shrank from $385.7 million to $382 million because of factors such as pay reductions for employees.
Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or (209) 578-2321.
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