Stanislaus County pension fund shy $17.3M

Actuaries propose that Stanislaus County pour an additional $17.3 million into the public service retirement system next fiscal year to make up for dramatic investment losses.

It is the second consecutive year the county has faced a steep increase in its contribution to the Stanislaus County Employees' Retirement Association, which administers pension benefits for almost 8,200 active and retired employees of the county, Ceres, the courts and five special districts.

Last year, the county was asked to pump an additional $22.7 million into the StanCERA pension fund because of mistakes made by the retirement system's previous actuarial firm. But the county avoided the increase through a compromise with StanCERA.

This time, the public agencies are expected to prop up the fund as StanCERA recognizes its huge investment losses tied to the recession. EFI Actuaries is scheduled to present the report to the StanCERA board of directors today.

The additional pension costs would account for about half of a county budget shortfall projected for the fiscal year that starts July 1, estimated at almost $33 million.

The county plans to use $8 million in general fund reserves to lower the deficit and is certain to ask StanCERA to consider other options besides raising the contribution rate, said county Chief Executive Officer Rick Robinson.

"We will be looking at reducing services, and adverse staffing impacts, even if we get support from the retirement board like we did last year," Robinson said.

The pension system is threatening to become a financial drain on the county. Records obtained through a Bee lawsuit showed that 50 retirees are getting pensions of $100,000 to $241,440 a year, that the lucrative benefits encourage early retirement and that most of the system's 2,800 retirees get annual cost-of-living increases that keep driving up the cost of their pensions.

To rein in long-term pension costs, county leaders have vowed to create benefit tiers with less generous pensions for new hires.

Last year, the county avoided a financial hit by persuading StanCERA to shift $60 million in supplemental benefit reserves to reduce the county's contribution. County officials could make a similar request at a future meeting, but plan only to listen at today's session.

What else could be done?

In addition, a county-hired actuarial firm will analyze the EFI report and could suggest other strategies for dealing with the investment losses, which reduced the fund's value by $403 million over two years before rebounding last year.

Last year's StanCERA decision to appease the county triggered a lawsuit from the Retired Employees of Stanislaus County, charging that the transfer was an unlawful raid on pension fund assets. The Superior Court case is set for an initial court date in April.

"It is not their money; it is retirees' money," said Mi- chael O'Neal, former president of RESCO. The county faces steeper rates partly because it granted generous benefits to employees seven to eight years ago without putting more money into the system, the retiree group says.

"The county wants to take from the retirees to pay for their mistakes in dealing with current employees," O'Neal said.

Robinson said the fund transfers are justified because the pension system is underfunded and the supplemental reserves pay for extra benefits, such as a health stipend, which were never guaranteed in labor contracts. The health stipend and a supplemental cost-of-living increase have been suspended.

The county's contribution, equal to 9 percent of payroll, was artificially low because of errors in StanCERA's previous actuarial reports, Robinson said. Buck Consultants miscalculated retirement patterns and overestimated the number of people who would take refunds on pension benefits when going to work elsewhere.

StanCERA replaced Buck with EFI in late 2008.

EFI proposes to smooth some of the investment losses over time and raise the county contribution rate to 18.5 percent of payroll. The cost could rise to almost 25 percent of payroll in a couple of years because $195 million in losses have not been recognized yet.

If the county goes along with the EFI proposal, its total pension costs would be more than $52 million in 2010-11, up from $36.36 million this year. The cost would include the $42 million contribution and a more than $10 million debt payment on a pension obligation bond.

The StanCERA fund lost hundreds of millions of dollars during the stock market collapse before rebounding to $1.06 billion as of June 2009, well below the 2007 level of $1.46 billion.

Thanks to a policy decision in the mid-1990s, the gains and losses of the retirement fund have not affected the contribution rates for Ceres and the special districts. But EFI proposes a policy change, potentially raising their contribution rates from 14 percent of payroll to almost 25 percent of payroll.

"At this point, we don't know what the actual financial impact is," Ceres City Manager Brad Kilger said Monday. "We have serious concerns about their changing the methodology."

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

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