County Pension Gap Widens to $257 Million, An old warning of troubles ahead, April 2007

County Pension Gap Widens to $257 Million
By Barney McManigal
Wednesday, April 25 2007

The hole in the county’s retirement fund has widened to $257 million, but an analyst told the Board of Supervisors on Tuesday he expects the number to fall after officials finish paying off stock market losses from several years ago.
While the county has amassed $1.86 billion in its fund to pay retirees, actuaries reported that the overall deficit climbed more than $10 million over the previous year.

Still, the forecast remains solid, retirement administrator Oscar Peters said.

“Our current processes are prudent and good going forward,” Peters told supervisors at a meeting on Tuesday in Santa Maria.

The outlook wasn’t always so rosy. Five years ago, a market downturn saddled the county with millions in debt, forcing the board to push the losses out years into the future.

Since that wave of red ink, observers have closely followed the pension fund because of the critical role it plays in determining budget priorities – from employee raises to spending cuts.

Like many government entities, the 4,000-employee county offers "defined benefits," which guarantee workers a set retirement salary each year until death. The complex system requires regular employee contributions, and it pays benefits out of an investment fund managed by professional financiers.

On Tuesday, the supervisors expressed concern about the shortfall, quizzing an actuarial analyst about the health of the system.



Supervisor Salud CarbajalSupervisor Salud Carbajal asked about potential strategies for bringing the deficit to zero.

“Certainly, we need to learn from what has transpired,” Carbajal said, alluding to the shortfalls from previous years.

Peters said officials could expect the deficit to begin dropping as early as next year because the county has absorbed the bulk of losses from previous years.

“We have now finally reached the end of that smoothing period,” he said, adding that the fund has grown by about $800 million since 2003. “Our goal is to move you toward 100 percent funding.”

In light of the deficit, Supervisor Brooks Firestone said the county might need to re-think spending practices, including one that offers automatic increases in employee health benefits.



Supervisor Brooks Firestone“Our analysis indicates that a continuation of the health benefit policy is going to jeopardize the fund,” Firestone said.

Auditor-Controller Bob Geis seemed to agree, suggesting that the county may need to slow benefit increases in the future.

One major challenge, Geis said, is the practice of sharing pension fund profits – known as excess earnings – with employees. In the past, workers have claimed a portion of market gains – taken as benefit increases – despite the looming deficits.

“We have some issues to work out,” Geis said.

On the whole, Geis, who joined Treasurer-Tax-Collector Bernice James at the meeting, praised the county system for its long-term solvency.

“It has been run responsibly over a long period of time,” Geis said