Layoffs, hiring freezes loom for Riverside County

Containing Riverside County’s pension costs may require gradually downsizing, or at the very least, freezing payrolls, the county’s chief financial officer told the Board of Supervisors today.

CFO Paul McDonnell submitted his observation during a hearing on the Pension Advisory Review Committee’s annual report, which showed the county has $6.89 billion in assets and $1.49 billion in unfunded liabilities.

A prominent change from last year’s report was the defined-benefit retirement system’s funding status — roughly 75 percent, according to McDonnell. The 2015 PARC report showed the county’s long-term pension commitments were 84.6 percent covered.

McDonnell attributed the decline to revisions in accounting methodologies used by the California Public Employees’ Retirement System. However, he also acknowledged that the pension fund behemoth — sixth-largest in the world — was under-performing, and with no sign of a return to the buoyant investment climate of the early 2000s, cost pressures on CalPERS’ clients, like Riverside County, will persist.

“There’s nothing we can do to reduce the current pension fund obligation,” McDonnell told the Board of Supervisors. “As we move forward, we have to look for opportunities to keep the headcount at current levels, or allow the headcount to reduce through attrition … Providing these benefits is very costly.”

Supervisor Kevin Jeffries expressed concern that the county’s cumulative debt obligations, including a $100 million structural budget deficit, could become untenable without austerity fixes.

McDonnell appeared confident in the county’s general financial position but conceded that it was time for “serious discussions” regarding how to bolster the bottom line — hopefully with a “soft landing and not layoffs,” he said, all of which would ultimately be left to the board to decide.

According to the PARC report, CalPERS earned a negligible 2.4 percent in investment returns in fiscal year 2014-15. The value of the pension fund’s holdings since the start of the Great Recession in 2008 is still down 21.2 percent.

According to the report, due to actuarial changes and flat market returns, the county will have to hike its pension contributions to CalPERS in the next fiscal year and beyond.

The county is continuing to pay down its pension obligation bonds, issued in 2005 to reduce long-term liabilities. The balance on the unpaid debt is $304.5 million, and the county has another decade to amortize that, according to McDonnell.

As with last year’s digest, the PARC report touted the anticipated annual savings the county will realize as a result of pension reforms implemented in 2012. Projected savings in the 2016-17 fiscal year come to $97.3 million.

Under pre-2012 plans negotiated with collective bargaining units, county workers were not required to pick up any of their employee contributions into PERS. But under renegotiated agreements, employees began paying into the retirement system, though the county continues to pay a disproportionately higher sum toward pension obligations.

Under the old agreements, public 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, including clerks, technicians and nurses, received benefits based on a “3 percent at 60” formula.

Beginning in September 2012, new hires in the safety category began accruing retirement benefits under a 2 percent at 50 formula, while newly hired miscellaneous workers began accruing benefits under a 2 percent at 60 formula.

Legislation later signed into law added another category for public sector employees hired after Jan. 1, 2013. The lower benefit formula is 2 percent at 62 for miscellaneous and 2.7 percent at 57 for safety workers.