Riverside County's Unfunded Pension Gap Closes

RIVERSIDE COUNTY, CA — Riverside County supervisors Tuesday signed off on a report indicating that the county's unfunded pension liabilities are slowly shrinking, thanks partly to improved investment returns, but the county remains shy of the funded status needed to validate robust financial health.

In a 5-0 vote without comment, the Board of Supervisors received and filed the Pension Advisory Review Committee's 22-page annual report, which stated that the county's "funded status is showing significant improvement."

"PARC will keep the board updated with strategic options in the future management of the county's pension and related liabilities," according to the report.

It noted the county's retirement apparatus is now 76.4 percent funded, compared to 71 percent a year ago. The key metric that reflects a sound pension system is considered 80 percent funded status.

The county's unfunded pension gap is $2.24 billion, compared to $2.49 billion estimated in the prior year, according to PARC.

There are two main categories in the county's 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 required to fund workers' nest eggs in the California Public Employees' Retirement System will rise and fall over the next decade, according to PARC. But the report indicated that achieving 100 percent funded status in the future — possibly by 2040 — is within reach, provided there are no damaging hits to the economy.

A major influence on pension costs is CalPERS' investment performance, which in fiscal year 2020-21 boasted the most impressive results in the last decade, with a 21.3 percent gain in market assets, well over the 7 percent assumed rate of return that had been projected, according to the report.

However, the county continues to have to make up for poor investment returns in previous years, particularly during the Great Recession, and that will mean paying an additional 1.82 percent to CalPERS in the next year to cover loses in the miscellaneous category, and 1.59 percent for safety, the report stated.

The aggregate contribution rates will be the equivalent of 47.2 percent of payroll for the safety category, and the equivalent of 29 percent of payroll for the miscellaneous category, according to the report.

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

General fund allocations to support the retirement system will steadily rise over the next decade, approaching $1 billion in support by the early 2030s, according to officials.

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 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 over the next 17 years.

To save money, Supervisors Jeffries and Jeff Hewitt have both 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.

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 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 signed into law soon afterward 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.