StanCERA, county facing hard decisions

The Stanislaus County Employee Retirement Association board has had to make some difficult choices in the last two years, since its investments lost big dollars -- like everyone else's -- and a new financial consultant determined its long- term forecast was well off the mark.

The situation is best summed up in these two figures:

In 2007, the long-term pension obligations were almost 97 percent funded.

As of June 30, 2009, they were about 70 percent funded.

In 2009, the retirement board made the necessary, but unpopular, decision to suspend ad hoc (that is, nonguaranteed) health benefits for retirees in 2010. The benefit, which didn't have to be spent on health care, amounted to $370 a month, and many retirees had grown to depend on the extra income.

The retirement board also transferred $60 million of so-called supplemental reserves into the main fund, where they figure in the formula for funding. A retiree group has sued over this transfer.

While the stock market has rebounded, the association's portfolio still stands at nearly $200 million below its peak in 2007, according to retirement administrator Tom Watson.

Thus, more tough decisions await.

Over to Stanislaus County, which expects to have to cut general fund spending by $20 million for next year. The county also faces tough decisions regarding retirement benefits.

One already has been made. County Chief Executive Officer Rick Robinson and the Board of Supervisors have limited the amount of unused vacation time that managers can use to increase their pension upon retirement. The new policy, which went into effect in January, is a good first step, albeit a small one.

Far more significant, the county is starting to talk to its unions about changing the retirement formulas. The county wants to raise the retirement age and reduce the pension percentage for future hires.

While this won't provide any immediate relief, it is essential to address the long-term burden of public employee pensions. Several cities and counties have moved in this direction.

The county also should evaluate the fact that it pays both the employer and all or part of the employee contribution for some of its bargaining units, specifically those in public safety.

All of California's public agencies need to look for a way to amend state law to get around a 1997 state Supreme Court decision, often referred to as the Ventura decision, that allows uniform allowances, pay for bilingual skills and so forth to be used in calculating pension amounts. Those, along with unused vacation, explain why some public employees receive more in retirement than when they worked.

The county and the retirement association are separate entities, but their interests are inextricably linked. The county is by far the largest contributor to the retirement fund. The retirement association represents both retirees (about 2,800) and active county employees (about 3,900). The retirement board must consider them all in its decisions.

On Monday, the challenges facing the county and the retirement association will intersect in a very direct and clear way.

The retirement board will discuss policies that will determine how much Stanislaus County, the city of Ceres and other association employers will have to pay into the retirement system for 2010-11.

The county is asking the retirement board to once again shift supplemental reserves into the main account as a way to offset a predicted $15 million jump in retirement obligations. (For the current year, the county's retirement costs total $50 million -- almost $25 million to StanCERA, $11.4 million to pay off a pension obligation bond from 1995 and $13.8 million to Social Security.)

The county is requesting a $12 million shift for 2010-11. Watson, the retirement administrator, is supporting that proposal and, in fact, proposing a higher transfer to also provide relief to Ceres and other employers.

If the retirement board does not accommodate the county's wishes, it could result in about 120 county employees having to be laid off.

If the retirement association continues to shift the supplemental reserves into the main account, it will signal that it's likely to continue to suspend the health benefits. This isn't a pleasant choice, but it's in the wider interest of the community to keep people at work in county government than to be using the money to pay nonguaranteed benefits.

None of these decisions is easy, but the county and the retirement board have to keep their eye on the same shared goal -- to make this local retirement system sustainable.

Without significant changes, it is a financial train wreck in the making.

The retirement board meets at 2 p.m. Monday in the association office, 832 12th St., Suite 600, Modesto.