Stanislaus County’s employee retirement costs will climb to $75.6 million in the next budget year, a $9.4 million increase in what the county pays annually to fund retirement benefits.
The county’s pension costs have not been in the spotlight since the Stanislaus County Employees’ Retirement Association recovered from staggering investment losses in the economic downturn.
About $4 million of the increase will come out of the general fund in the fiscal year that begins July 1, while a $5.4 million impact will be spread among county departments.
The higher costs are partly tied to poor performance on investments. StanCERA’s $1.8 billion investment portfolio suffered almost a 2 percent loss in the year ending June 30, 2016. A yearly gain of 7.25 percent is needed to maintain viability of the pension fund. StanCERA’s board also lowered the expected rate of returns from 7.5 percent to 7.25 percent, which raises the costs for member agencies.
The county’s rising costs are also attributed to salary increases for county employees with vested benefits and to higher-than-expected cost-of-living increases in the pension checks for retirees.
In addition, StanCERA needs to make adjustments because of changes in retirement rates, death rates, disability and employees leaving the county workforce, which were documented in a 2016 study.
A report by Brenda Kiely, a senior management consultant for the county, says the cost increases were partly offset by pension reforms. Under those reforms, the county provides less lucrative retirement benefits for newly hired workers.
The rising costs mean that the member agencies of StanCERA – the county, Ceres, the Superior Court and special districts – are expected to up their contributions to the system. StanCERA is allowing the member agencies to phase the increase in contributions over three years.
Kiely said the member agencies are entering the second year of the gradual increases.
StanCERA’s unfunded liabilities have climbed $63.4 million to $691.3 million as of June 30, 2016. That means the pension promises made to employees and retirees are $691.3 million greater than the value of the fund that pays the benefits.
StanCERA can reduce the unfunded liabilities with improved investment returns over time and larger contributions from member agencies.
County Supervisor Terry Withrow said the incremental pension-cost increase can be absorbed in next year’s budget. A proposed budget for 2017-18 will be released in June.
Retirement costs are one of several anticipated challenges in the county budget for 2017-18.
In California, the unmet pension liabilities of state and local government have been estimated at $240 billion, not counting the costs of promised health benefits. Stanislaus County does not provide retiree health insurance.
Withrow said that traditional pensions like those given to public employees fell out of favor with private-sector employers decades ago. “It was breaking them so they eliminated them,” Withrow said.
The supervisor would rather the county offer profit-sharing plans for the county workforce. With that type of benefit, the county would make payments into employees’ retirement accounts in years of financial health. It’s doubtful, however, that unionized employees would support the idea.
“It would take a lot of political will on behalf of elected officials to do that,” Withrow said.
Ken Carlson: 209-578-2321