County pension plan takes huge hit
| Thursday, Sep 03 2009 04:13 PM
Last Updated Thursday, Sep 03 2009 04:15 PM
COUNTY AND CITY: DIFFERENT PLANS
Type
* The county operates its own pension fund through the Kern County Employees' Retirement Association, or KCERA. A nine-member retirement board guides fund investments, recommends contribution rates and sets policy; KCERA staffers administer the plan.
* The city of Bakersfield contracts with the giant California Public Employees' Retirement System, or CalPERS.
Timing
Since the county runs its own plan, investment ups and downs -- a major driver in rate fluctuations -- impact county budgets the following fiscal year. In this case, that's July 2010.
The city has a two-year gap, since CalPERS needs time to process actuarial reports for thousands of plans. The hit CalPERS took in 2008/2009, therefore, won't hit Bakersfield's wallet until July 2011.
Kern County's pension system lost more than one-fifth of its value in the last fiscal year, requiring the county to contribute millions of additional tax dollars annually over decades.
The fund dropped 21.87 percent -- and some $654.9 million -- between July 1, 2008 and June 30, 2009, according to new reports.
The dark news comes on the heels of similar announcements about the city of Bakersfield's retirement systems earlier this week.
Exactly how much more the county can expect to spend next year to balance the loss is still a matter of rough calculation and estimate, said Anne Holdren, executive director of county-funded Kern County Employees' Retirement Association.
"Over time these losses are going to impact contribution rates. No doubt about it," Holdren said.
The cost for the 2010-2011 budget year would likely fall somewhere between $18 million and $20 million, based on previous years' data and estimates from KCERA's actuarial firm, Milliman.
That could push the annual county contribution amount from the $135.6 million it will spend this year into the neighborhood of $156 million in 2010-2011.
That ballpark amount assumes county payrolls won't grow this year and is based on a previously estimated fund loss of 25 percent -- not the actual 21.87 percent loss the fund experienced.
Historically payroll grows by about 4 percent a year, Holdren said.
This year, with hundreds of layoffs and empty jobs, "the county's payroll might actually (shrink) for the first time in a long time," she said.
The true contribution rate for next year will come into clearer focus in November when the raw fund losses reported this week are reviewed by Milliman and developed into a formal actuarial report that will smooth the losses out over five years.
But the harsh reality is that whatever rate is developed won't benefit from an investment reserve fund that helped soften recent market blows to the retirement fund.
Holdren said KCERA has exhausted that "Cost of Living Contribution" reserve of money saved when the investment plan earned more than expected.
In the current year, that fund reduced county contributions to retirement by more than $18 million, 2008 actuarial valuations show.
County General Services Director Jeff Frapwell, who sits on the KCERA board, said saving that money in the "COLA" fund helps soften the blow of swings in the market.
"Had we not had the benefit of the extra smoothing money we would have had to lay off more people," Frapwell said.
Ultimately the county will need to look at other ways to reduce the burden retirements place on the county budget.
A couple of years ago the county took one step on that path, Frapwell said, when it and the Service Employees International Union agreed to re-work the retirement system for new employees from a pure pension plan into a hybrid pension and investment plan.
"It'll take 10 years or so before we start seeing significant changes in real, budgetary ways," Frapwell said. But when most of the county employees hired under the old plan retire, "you're going to see that unfunded (retirement) liability go down dramatically."
