Pensions deepen county's red ink

Stanislaus County's cost of funding pensions and other benefits for retired employees is higher than previously thought, a report shows, and that will make it harder to bridge a county budget deficit next year.

The county may need to contribute an additional $25 million to the retirement system in the 2009-10 fiscal year. The previous estimate was a $15 million to $17 million increase.

If the county has to pay more to fund pension costs, it will leave less money to pay for law enforcement, county parks and other public services. More county employees could face furloughs or layoffs.

About $4.2 million of the $9 million difference in additional costs would come out of the county general fund, which is used for law enforcement and other spending at the discretion of elected officials, said county Chief Executive Officer Rick Robinson.

It would push the budget deficit in 2009-10 to more than $38 million.

"One of the consequences is going to be staffing reductions," Robinson said Monday. "We're certain it can't be made up without reducing staff."

The new estimate came in an actuarial report by EFI Asset/Liability Management Services Inc., which will be presented Wednesday to the Stanislaus County Employees' Retirement Association, the agency that administers benefits for retired county employees, plus retirees from Ceres and five special districts.

The StanCERA board watches over a retirement system fund that has lost more than $500 million from the stock market decline and other investment losses since the end of 2007. But the investment losses are only part of the problem.

The report says that unreasonable assumptions were made when evaluating the assets and liabilities of the retirement system.

For example, more employees are opting for early retirement than projected in a June 2006 valuation by another firm, and that's causing the retirement system to pay more for pensions, health care and other benefits.

Previous studies had assumed that most local government workers would retire at ages 60 to 65, but retiring in the 55 to 60 range has become more common.

The report cited other factors that are driving up the county's costs:

The number of employees covered by the retirement system grew by almost 3 percent from June 2006 to June 2008, as 1,100 people were hired to expand the government work force or replace departing employees. The additional payroll increased the plan costs by $6.7 million.

As a result of faulty assumptions, contributions by the county and other employers were not sufficient in previous years. That created a $38 million shortfall in assets from June 2006 to June 2008.

The report warns that severe investment losses in 2008-09 "will result in a large increase in contribution rates." Those losses won't be accounted for until later this year. The report includes recommendations to avoid making false assumptions.

County officials will attend the StanCERA meeting to discuss their concerns with the cost increases and retirement fund accounting.

They are expected to talk about nonmandated benefits that are paid to retirees, including health care subsidies and supplemental cost-of- living increases not stipulated in labor contracts. The retirement system pays the benefits from a reserve account that grows when the association's investment earnings exceed 8.16 percent in a year.

Robinson suggested that those reserves could be used to lower the county's contribution rate.

StanCERA administrator Tom Watson said Monday he is sure the option will be explored.

Watson said the association can take other measures to soften the blow to the county, such as amortizing the retirement system's unfunded liabilities over 30 years instead of 20 years.

Jim DeMartini, county board chairman and one of four county appointees to the nine-member retirement board, has questioned how StanCERA accounts for the reserves used to pay the nonmandated benefits. He said that despite gyrations in the financial markets, the reserve account never seems to lose value.

During years when the retirement system loses money on investments, however, the county is required to increase its contributions to the system, he said.

Over 35 years the nonmandated benefits have cost the retirement system $91 million.

"The retirement board has no business giving away extra benefits when the retirement fund has been in this kind of shape," DeMartini said.

Wes Hall, a retirement board member chosen by retirees, said the nonmandated benefits help retired employees cope with the rising cost of health insurance. The subsidy has been $12.33 per month for each year of serv-ice or $308 monthly for a person with 25 years of service.

"We have built up some good reserves, and maybe this time we need to use some of that to assist the county," he said. "We all have to work together."

The retirement board meets at 1 p.m. Wednesday at the Salida library, 4835 Sisk Road.

Bee staff writer Ken Carlson can be reached at or 578-2321.