Report: County's Pension System Falls Below Previous Funding Levels

By CIty News Service:

RIVERSIDE, CA - Riverside County's pension system is underfunded by nearly $1.5 billion, but the asset side of the equation remains strong, according to a report that the Board of Supervisors is slated to review Tuesday.

The Riverside County Pension Advisory Review Committee's annual report will be examined during the board's policy agenda Tuesday.

The PARC analysis showed that the county's defined-benefit retirement system, as a whole, is roughly 73 percent funded, with $6.89 billion in assets and $1.49 billion in unfunded liabilities.

The funding status of the county's annuities declined over last year's level, which had reached 84.6 percent. Documents indicated that revisions to accounting methodologies used by the California Public Employees' Retirement System were partly to blame, though CalPERS' overall investment performance was also a factor.

In fiscal year 2014-15, the pension fund behemoth earned a negligible 2.4 percent in returns, according to the PARC report. The value of CalPERS' holdings since the start of the Great Recession in 2008 is down 21.2 percent, despite double-digit returns in four of the last six fiscal years, documents show

The county's pension fund adviser, San Mateo-based Bartel Associates, said the pension system should be viewed as a "very long-term proposition" and not fall prey to short-term manipulation. However, Bartel also pointed out that the U.S. Government Accountability Office cautions that a funding ratio below 80 percent may be cause for concern.

Due to actuarial changes and flat market returns, the county will have to hike its pension payments in the next fiscal year and beyond, according to the report.

The county is continuing to pay down its pension obligation bonds, issued in 2005 to reduce the long-term liabilities. The balance on the unpaid debt is $304.5 million, and the county has another 19 years to amortize that.

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 is $97.3 million.

Under pre-2012 plans negotiated with collective bargaining units, 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.

(Image via Shutterstock)