County's retirement liability tops $1 billion
| Wednesday, Dec 16 2009 06:26 PM
Last Updated Thursday, Dec 17 2009 10:21 AM
Kern County's retirement system now owes its retirees $1.2 billion more than it has.
An actuary told a Kern County Employees Retirement Association committee Wednesday it has only 69 percent of the money it needs to fund future pension obligations to its retirees and employees.
KCERA Executive Director Ann Holdren acknowledged the news from Milliman is bad, but said it's far from unexpected.
Earlier this year the retirement agency learned that market losses stripped more than 20 percent of the value out of KCERA's investments between July 1, 2008, and June 30, 2009.
Holdren said she will take the actuarial report, and an independent audit of that report, to the full KCERA board next month and then to the Kern County Board of Supervisors.
But she isn't recommending drastic changes to the way KCERA does business. The losses of the last few years will be smoothed out over coming years, she said.
"This is not the time to panic," Holdren said. "You adhere to your policies and your (financial) discipline."
But the stark numbers do require some reaction from the county.
Actuarial recommendations indicate supervisors need to invest an extra $35 million in pensions in the 2010-2011 fiscal year in an attempt to shore up the gap -- hiking the annual county contribution to retirements to $170.8 million.
And even that won't stop the county's pension system from slipping deeper into the red ink.
According to actuarial projections, KCERA's funded liability -- the amount of its pension obligation that is funded by its investments -- will dip to just more than 50 percent in 2013 before rebounding to 60 percent by 2018.
Eraina Ortega, a legislative representative for the California State Association of Counties, put those percentage values in context.
"People generally think that something in the 80 percent range is acceptable," Ortega said. "I don't think that 60 percent is considered good."
But given current financial realities, most government pension systems are not realizing ideal liability levels, she said.
"That (80 percent funding) is not going to be the new funded status," Ortega said.
Michael Turnipseed of the Kern County Taxpayers' Association, a longtime crusader against the cost of public pensions, called the county's unfunded liability levels unconscionable.
"They're not increasing it enough to make up for their losses," he said. "It's irresponsible to burden the future with these numbers."
The same note of caution came from Graham Schmidt, vice president of EFI Actuaries. Schmidt audited the Milliman actuarial report on KCERA.
He told the KCERA committee Wednesday that Milliman had done good work on the document.
But Schmidt said KCERA is close to the point at which its contributions to pensions are serving only to pay the benefits of current retirees -- not current employees.
"All the smoothing is based on an assumption you're going to earn 7.75 percent over the long term," he said. "It's responsible to look at what happens if you don't earn that, at least over the short term."
Committee member Phil Franey, the retired Kern County treasurer-tax collector, said the county is facing an unprecedented economic storm.
"We're looking at it from the bottom of the barrel right now. This is probably a once-in-a-lifetime experience," he said.
"I sure hope so," Schmidt said.
Kern County Supervisor Mike Maggard, who sits on the KCERA board, said the county is going to have to take sharp steps to confront this threat to its financial health.
"We're asking current employees to contribute more and future employees are going to have a different benefit," he said.
And KCERA, he said, will have to step up and evaluate where it invests its money and who handles those investments.
"A lot of hard questions about how the system works need to be asked," Maggard said. "KCERA needs to make sure we spend this money like we had to earn it -- because taxpayers had to earn it."
CITY OF BAKERSFIELD
The city of Bakersfield also faces higher pension costs, but real pain won't be felt for a few years.
That's because city payments are based on investment returns from three years earlier. For example, costs in the 2010-2011 fiscal year, which starts in July, will be based on data from fiscal 2007-2008 -- before the stock market hit that ate up retirement fund assets.
The city, like many local governments in California, contracts with the giant public pension fund known as CalPERS, short for the California Public Employees' Retirement System. The lag time allows CalPERS to make actuarial reports for the thousands of local government plans it administers.
CalPERS has a plan to break out heavy fund losses for the year ending June 30 and let cities and counties to pay those off over about 30 years, but those increases are several years away for Bakersfield.
That said, here's a peek at city costs in the next fiscal year, starting July 1, from the most recent CalPERS actuarial reports:
* Total costs: About $19.6 million total will go to CalPERS for the city's three pension plans. Fire, police and miscellaneous employees each have a plan. Costs are up slightly compared to this year's $18.9 million total.
* Unfunded liability: Bakersfield's total unfunded liability -- the amount of retiree benefits earned that exceed the city's assets in the plan -- will top $103 million, up from $98.6 million this year.
-- Californian staff writer Gretchen Wenner contributed to this story
