Kern County will continue to struggle with rising pension costs over the next six years, supervisors were told Tuesday.

Gloria Dominguez, executive director of the Kern County Employees’ Retirement Association, delivered a report that showed the county’s annual contribution to the retirement agency will increase from $230.9 million in the next fiscal year to $312.6 million in the 2022-23 fiscal year.

That doesn’t include the additional cost to repay pension obligation bonds taken out in the late 1990s and early 2000s.

When, supervisors asked, will the county see the relief they bargained for in 2012 when they reduced the pension benefits for new employees and shifted the payment of Peportions of retirement contributions to employees?

Those changes, said Deputy County Administrative Officer Elsa Martinez, are making improvements.

“We’re seeing a benefit when the employees who have the higher benefit retire and the employees with the lower benefits you approved continue,” Martinez said.

But it will still take a long time for those benefits to make a major impact as the cost of the higher 3-at-50 and 3-at-60 retirements will last until the people who earned them die.

There are other hopeful developments on the horizon.

In the 2022-23 fiscal year, one of two existing pension obligation bonds will mature and those bond costs that come on top of the contributions to KCERA will drop by $18 million, Martinez said.

The following year, the second pension obligation bond will mature and the county’s costs will drop by another $26.8 million.

But that light at the end of the tunnel has some shadows as well.

Martinez said there are also challenges that could wipe out any gains the county would make when it pays off two of the bonds.

One of those challenges could develop later this year when the KCERA board of directors meets to vote on whether to lower the system’s assumed rate of return.

The rate — an estimate of how much KCERA investments should earn on the market each year — is currently set at 7.5 percent.

If the KCERA board reduces that rate, Kern County, and a host of other special districts that have their retirements in KCERA’s investment pool, will need to chip in more money to make up for investment losses that aren’t expected to materialize.

The last time the rate of return was dropped — by one-quarter of a percent — it was estimated Kern County’s pension contributions would jump by between $21 million and $22 million.

That kind of increase could, Martinez said, wipe out any gains the county would make by retiring the pension bond debt.

(1) comment

Nathan
Nathan

Let the stated facts sink in.

In the next five years the County will need to increase its funding by $81.7 million per year ($312.6 projected less $230.9 current) . And that's before the retirement board finally capitulates to market realities by reducing its anticipated rate of return from 7.5% to 7%.

Do the math. If a previous .25% reduction increased the annual contribution by $21-22 million annually, what is a .5% reduction going to do to the required annual funding? $40 million perhaps? Or more?

So do we anticipate that in five years the County will need to come up with an additional $121.7 million ($81.7 plus $40), per year?

How in the world will the County pay for essential services if $121.7 million in additional pension funding will be required just to keep the pension system afloat?

I would say a "Mixed Picture" is quite an optimistic way to describe Kern County's pension debacle. Yes, debacle.

Now ponder what happens to Kern County's finances if Sacramento is successful in destroying or crippling California's oil industry.

A challenging time to be a County supervisor.

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