Retirement funds spike for county agencies

How soon will your city or county go bankrupt due to CalPERS?  How many cops will be fired, roads not repairs or library hours cutback, to finance the mismanagement, over trillion dollar in unfunded CalPERS?

“Retirement funds have rapidly increased for a number of civic entities in Humboldt County, including the city of Eureka and the county itself, raising concerns among officials.

The county contributed over $41 million to retirement and health funds in 2016, while the city put in more than $4 million. Compare that to 2009, when the two governments paid just less than $11 million and $2 million, respectively, toward employees’ retirements.

The simple reason, for a complex issue, is that local governments have had to contribute more to their employees’ pension accounts since a state retirement fund agency lowered its expected return rates. Now, local governments are paying into retirement accounts at much higher rates, prompting some to look for alternate routes.

Eureka is but one example of how CalPERS is controlling the budgets of local governments and forcing families and businesses to pau more money==meaning less money to grow jobs and help families.

CalPERS needs immediate reform, before we are all forced to leave California to the very rich and the very poor.

SACRAMENTO, CA - JULY 21:   A sign stands in front of California Public Employees' Retirement System building July 21, 2009 in Sacramento, California. CalPERS, the state's public employees retirement fund, reported a loss of 23.4%, its largest annual loss. (Photo by Max Whittaker/Getty Images)

Retirement funds spike for county agencies

Issue a ‘big concern’ for municipalities

Shomik Mukherjee, Times Standard,  12/2/18

Retirement funds have rapidly increased for a number of civic entities in Humboldt County, including the city of Eureka and the county itself, raising concerns among officials.

The county contributed over $41 million to retirement and health funds in 2016, while the city put in more than $4 million. Compare that to 2009, when the two governments paid just less than $11 million and $2 million, respectively, toward employees’ retirements.

The simple reason, for a complex issue, is that local governments have had to contribute more to their employees’ pension accounts since a state retirement fund agency lowered its expected return rates. Now, local governments are paying into retirement accounts at much higher rates, prompting some to look for alternate routes.

“It’s not sustainable,” said Eureka City Manager Greg Sparks. “Costs are going up faster than our (city’s) revenues.”

On a long enough timeline, that’s a “big concern” for local governments, Sparks said. Left unchecked, it could lead civic agencies to deal with the prospect of bankruptcy.

“It impacts our ability to provide services,” Sparks said. “It’s a huge problem for us.”

Rising tensions

California Public Employees’ Retirement System manages pension funds for state and public agencies. Each year, governmental agencies in Humboldt County put money toward their employees’ retirement accounts. CalPERS invests the funds so they can grow from long-term interest.

But in December 2016, CalPERS announced it was lowering its “discount rate,” or the rate of money it expects to make back on investment. If local entities want employees to enjoy the same post-retirement benefits they signed up for, then more money from their end has to go into the accounts.

“We had to sustain the fund for what we were looking at for long-term projections,” said Amy Morgan, CalPERS information officer. Retirement funds have somewhat become a more volatile long-term investment, Morgan said.

A major reason for CalPERS lowering its rate was the 2008 financial recession, from which many retirement funds never recovered. Another factor is that baby boomers have begun retiring at higher rates.

The discount rate, previously 7.5 percent, will drop incrementally each year, hitting 7 percent in the 2020-21 fiscal year. In the meantime, local agencies will likely pay more into retirement accounts each year.

“We did a phase-in approach over the last three years,” Morgan said. “That way, employers have time to prepare for the new rates.”

No quick fix

Employers have the option of re-negotiating post-retirement benefits with workers. Faced with a higher retirement contribution costs, they can always push to simply offer fewer benefits, at the risk of being a less desirable place to work.

Recognizing the problem in 2015, the Humboldt County Board of Supervisors began the process of establishing a separate trust for pensions. Now, that fund will generate its own interest, which lightens the county’s dependency on CalPERS’ discount rates.

“As that separate fund grows, when we come to a point where the retirement rate increases, we can use that money that’s been growing and contribute that to our retirement,” said Sean Quincey, county spokesperson.

Eureka took similar steps, putting $2 million into a separate reserve for pension relief. But it’s just a start — CalPERS’ discount rate still drives the local agencies’ next move.

“The difficult thing about it is there’s not some easy solution,” Sparks said. “Even if people thought the solution was getting out of CalPERS, we’d still have all the liability. It’d affect our ability to attract employees.”

Public employees tend to stay at their jobs longer than private sector workers, according to the U.S. Bureau of Labor Statistics. That usually means more contributions, said Chris Harris, general manager of the Humboldt Bay Municipal Water District.

“If you have very stable employees who work for around 35 years, as their wages increase, the district’s contributions increase,” Harris said.

The district now pays more than double in retirement funds what it did in 2009.

To deal with the tougher rates, the district has opted in part for an alternate payment method that allows employers to frontload retirement contributions.

But the long-term fix, Sparks said, will need to come from a much higher level.

“The cities will need to get the state to address this at a legislative level and make some fixes to the system,” Sparks said. “The potential decisions of the (Supreme Court of California) will impact this for the future.”

 

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.