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PD Editorial: True extent of pension mess comes into focus

Published: Sunday, February 3, 2013 at 3:00 a.m.
Last Modified: Friday, February 1, 2013 at 6:13 p.m.

The Dow Jones Industrial Average closed above 14,000 for the first time since 2007 on Friday. Also worth celebrating, is that the county's pension investments grew roughly 14.8 percent last year. Great news.

But despite the market recovery, Sonoma County is still deep in the red when it comes to meeting the long-term promises it has made to employees regarding retirement benefits.

The hard truth is that the Dow would probably have to be twice what it is today in order for the county to be able to afford the generous benefits county officials started giving out roughly 10 years ago.

We're gratified to see that the overseers of Sonoma County's retirement system are finally recognizing this and are taking some of the rose-colored tint out of their long-term expectations on investment returns. For the second time in two years, the board of the Sonoma County Employees Retirement Association has cut its projected earnings assumptions over the next 20 years — to 7.5 percent, down from 8 percent two years ago.

The change mirrors a similar move by the boards of pensions funds for state employees and public school teachers, which both went to 7.5 percent last year. But even that, according to some financial prognosticators, is overly optimistic.

Moody's, for example, is pushing for a more conservative 5.5 percent earnings rate, particularly for cities and counties that are well behind on meeting their long-term obligations.

Given all of that, it's hard not to side with Sonoma County Supervisor David Rabbitt, who has encouraged his fellow board members at SCERA to cut the discount rate to 7.25 percent.

Lowering the discount rate is no cause for celebration. Each quarter-point drop means the county and employees need to set aside more funds to pay for long-term retirement benefits.

In this case, the cut to 7.5 percent means the county will have to pony up an additional $4.6 million in annual contributions. Before this era of enhanced benefits, the annual amount the county spent on pensions equaled about 10 percent of payroll costs. During the past decade, it has climbed to 20 percent.

Although supervisors have set a goal of getting back to 10percent, this assures it will be going in the other direction. The count's annual pension costs of $94 million will increase 4.9 percent.

Such a boost will have real impacts on the lives of Sonoma County residents as it means less money available to repair roads, maintain parks and provide public health services and keep offices open. It also means many county employees will see an increase in their annual contributions toward their retirement benefits — a 1.9 percent increase.

Overall, it means the county's pension shortfall has grown from $303 million to $353 million. That's roughly 10 times what the county spends each year on transit and road repair.

The impacts of lowering the discount rate is not a welcome change. But getting a better picture of the county's real pension shortfall — as well as getting a better understanding of the negligence that went into making promises the county couldn't afford — certainly is.

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