Report: Riverside County’s unfunded pension gap close to $4 billion

RIVERSIDE, Calif. (KESQ) - Riverside County government's unfunded pension liabilities are now close to $4 billion, up more than a half-billion dollars in the last two years, though projections are for the pension gap to narrow over the coming decade, according to a report the Board of Supervisors will review tomorrow.  

The 2025 Pension Advisory Review Committee report, which the board will have the opportunity to scrutinize during its policy agenda Tuesday, stated that the county's retirement apparatus is now 75% funded, compared to 75.3% previously. The key metric reflective of a sound pension system is considered 80% funded status.  

The county's total unfunded pension gap is $3.94 billion, compared to $3.67 billion estimated in the 2024 report, according to PARC. The figures are trailing indicators, based on calculations that end in fiscal year 2022-23 -- the most recent period for which confirmed data is available via the California Public Employees' Retirement System.  

"Based upon several factors, the long-term pension outlook remains favorable, with increases projected to peak early in the next decade,'' the report stated. "The funded status is anticipated to be more than 80% within ten years, which has suffered a setback due to the negative investment returns experienced in fiscal year 2021-22. Projections will be tempered by year-to-year financial market performance, impacting investment returns."  

The county's current asset base supporting the pension system is $11.82 billion. The "actuarial accrued liability'' is $15.76 billion.  

There are two main categories in the local pension system -- safety and miscellaneous. The safety category covers sheriff's deputies, District Attorney's Office investigators, probation agents and others, while the miscellaneous rolls cover clerks, custodians, nurses, social workers, technicians and remaining employees not involved in any law enforcement function.

The amounts available to fund workers' nest eggs in CalPERS fluctuate with the pension system's investment performance. The most recent estimate tentatively showed a 9.3% rate of return for last year. The assumed rate of return going forward is 6.8%. In 2021-22, the investment portfolio ran a negative 6% return.  

Poor investment returns going back to the Great Recession have required the county to pay higher amounts to CalPERS to cover loses in the safety and miscellaneous categories.

The aggregate contribution rates in the next fiscal year will be the equivalent of 51.1% of payroll for the safety category, and the equivalent of 27.2% of payroll for the miscellaneous category, according to the report.   

Employees across the spectrum in county government generally contribute less than 10% of gross earnings toward their defined-benefit plans with CalPERS.

General fund allocations to support the retirement system will steadily rise over the next decade, approaching $900 million in support by the mid 2030s, according to PARC.

The county gained some near-term relief from higher pension costs by selling $716 million in bonds at low interest rates in May 2020 and applying the proceeds to pension debt reduction, or what then Supervisor Kevin Jeffries compared at the time to ``using a credit card to pay off a credit card.''

The 2020 bond debt was added to similar issuances in 2005 that were also intended to pare down long-term pension obligations, relying on advantageous interest rates. The county will be able to repay the IOUs before 2040.

In the past, Jeffries and other supervisors had expressed a desire for the county to phase out some defined-benefit plans in favor of defined-contribution plans, as exist in most private sector retirement guarantees. But Executive Office staff have described the process as riddled with hurdles because of requirements in state law, potentially incurring prohibitive expenses for the county.

Under pre-2012 plans negotiated with collective bargaining units, safety workers accrued retirement earnings according to a "3% at 50'' formula, fixing compensation at 3% 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% at 60'' formula.   

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

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