Report: County’s unmet pension obligations over $1 billion

Riverside County’s unfunded pension obligations now exceed $1 billion, but reforms to the county’s pension system are beginning to pay off, according to a report that the Board of Supervisors will review today.

The Pension Advisory Review Committee’s 47-page study of county retirement IOUs highlighted what lay ahead on the financial horizon, which has improved slightly since defined-benefit plans were amended last year.

According to the PARC report, while the county’s long-term unfunded pension obligations have swelled to $1.01 billion compared to five years ago — when unfunded liabilities totaled just over $250 million — the county’s assets are valued at more than $6 billion.

Actuarial estimates show that if the county had to meet all its retirement obligations for 38,000 current and former workers today, it would be able to make good on around 85 percent of the annuities. The PARC report noted that pension plans are generally considered “sound” whenever the funded ratio is above 80 percent.

County payments into the California Public Employees’ Retirement System — CalPERS — to strengthen retirement plans for public safety personnel and “miscellaneous” employees, who include clerks, technicians, administrators and nurses, will increase about 2.5 percent in fiscal year 2013-14. That will translate to an additional $22 million in county outlays, according to the report.

Despite the recent bull market in stocks, worries linger about CalPERS’ investment performance. The nation’s largest public pension fund — with more than $250 billion in assets — has lowered its projections for long-term annual average investment returns from 7.75 percent to 7.5 percent. Every quarter-point decline in returns leads to about $20 million more that the county has to pay into CalPERS to make up any shortfalls, according to county officials.

The PARC report pointed out that the county’s implementation of pension reforms for its public safety and miscellaneous workforces would ease some of the pressure on the county treasury. In 2012, the board ratified new retirement formulas designed to save the county about $850 million over 10 years.

Under pre-2012 plans negotiated with collective bargaining units, safety workers accrued retirement earnings according to a “3 percent at 50” formula, fixing compensation at 3 percent of the average of the three highest-paid years of an employee’s career, multiplied by the number of years on the job. An employee could begin collecting full retirement at age 50. Miscellaneous workers received benefits based on a “3 percent at 60” formula.

Beginning last fall, all new hires in the safety category began accruing retirement benefits under a 2 percent at 55 formula, while newly hired miscellaneous workers began accruing benefits under a 2 percent at 60 formula.

A third “tier” was added to the retirement scheme with the passage last year of Assembly Bill 340, the Public Employee Pension Reform Act. That formula calls for a 2 percent at 62 formula for miscellaneous workers and a 2.7 percent at 57 formula for safety officers.

Which formula an employee qualifies for depends on the conditions of his or her employment. County workers hired prior to the pension reforms remain “grandfathered” into their original plans.

Some of the biggest savings netted from the board-approved pension modifications will come from the phasing out of so-called “employer-paid member contributions,” or EPMC. The practice, instituted in the early 2000s, has spared workers from having to pay their own contributions into CalPERS accounts, shifting the expense instead to taxpayers.

For miscellaneous workers, the contribution amount equals 8 percent of gross earnings, and for safety workers, it’s 9 percent. That’s on top of the county’s matching contributions. EPMC will be completely phased out next year.

The county has roughly $347 million in outstanding pension obligation bonds. One of the PARC’s recommendations was for the board to approve paying down the debt ahead of schedule or advancing payments to CalPERS in the next fiscal year to stay ahead of the cost curve.