Merced County retirement board discusses new funding policy

Merced County’s retirement board on Thursday discussed a new funding policy in an effort to increase financial stability and pay off the county retirement system’s debt.

One possibility is setting a minimum contribution rate – the percent the county pays into employee pensions – for a set period of time. The county is paying 47.64 percent toward its employees’ plans, but that rate will increase to 49.93 percent in the next fiscal year.

The minimum contribution rate under consideration is 50 percent, officials said. That means the county could be required to pay higher rates during bad economic years, but would not pay below the minimum percent.

“They get the stability, and they have the benefit of being able to budget the payments,” said Steven Bland, plan administrator for the Merced County Employees’ Retirement Association. “It’s beneficial to the county to have employer contribution rates be more stable. The constant up and down is stressful.”

Employer contribution levels change based on a number of factors. The county’s rate in 2013 increased from 44.1 percent after an actuarial report forecast improvements in future mortality rates. Put another way, retirees are living longer, which leads to continued payments over expanded lifespans.

But the goal would be to adopt a minimum contribution rate for a longer period of time, such as 15 years, with the rate decreasing gradually toward the end of the payoff period. Making the employer contribution rate more stable could help the board make steadier payments toward its unfunded liability, which is $438.9 million.

The unfunded liability is for pensions promised in future years.

David Ness, vice chairman of the retirement board, said the employer contribution rate was 20 percent when he first started – now it’s almost 50 percent. Revising the funding policy would reduce volatility and the cost of the plan long-term, he said.

“We’ve had an unfunded liability for some time now, and the desire is to reduce that unfunded liability and lower contribution rates for the employer in the long-term,” Ness said during a board meeting Thursday.

Another strategy being discussed is asking the county to contribute more money to the retirement system during good years. Merced County was contributing an extra $1 million to $2 million dollars to the system when its financial position was strong. But as the economy took a dive, money for county services was stretched thin.

County Executive Officer Jim Brown, who attended Thursday’s meeting, said there are signs the economy is improving, but county administrators want more time to think about a new funding policy. He estimates a new plan could be in place by the end of the calendar year.

Brown said the county agrees with retirement officials that a stable funding plan is crucial and much-needed. After the meeting, Brown said he’d like to see a plan that allows officials to periodically “check in” on its status to address changes and uncertainties.

“It’s hard for me to commit to a long-term plan that doesn’t have check-in points because I don’t know what the future holds,” Brown said Thursday. “If there’s a significant improvement in the economy, and the plan becomes well funded, we need to be able to sit down and review it.”

Also Thursday, the retirement board unanimously adopted its valuation report as of June 2014. The report, which contains information about the plan’s assets, liabilities and employer contribution levels, reflected a few notable changes.

According to the report, the retirement system’s unfunded liability dropped from $518 million in 2013 to $438.9 million in 2014. The employer contribution rate decreased slightly, and the retirement system saw a 3 percent increase in its plan membership, including current employees and retirees.

This story was originally published February 26, 2015 at 7:49 PM with the headline "Merced County retirement board discusses new funding policy."