RIVERSIDE (CNS) – Riverside County’s pension liabilities are taking the county “off a cliff” financially and it’s time to find solutions, a supervisor said Tuesday, vowing to initiate efforts to address the matter before it gets worse.
“We need fundamental changes,” Supervisor Jeff Hewitt said after reviewing the Pension Advisory Review Committee’s annual assessment of the county’s retirement assets and liabilities. “It starts with a revolution, and radical things need to happen on both ends (county and state). Either we act, or we go another year and be that much closer to catastrophe.”
According to the PARC report, as of the most recent fiscal year, the county’s unfunded pension gap had widened from roughly $3 billion to $3.505 billion today, and the county will have to increase appropriations over the next fiscal year to sustain the retirement system.
With $8.1 billion in assets, the county’s retirement apparatus is about 70% funded in both the miscellaneous and safety categories.
The safety category covers sheriff’s deputies, District Attorney’s Office investigators, probation agents and others, while the miscellaneous rolls cover clerks, custodians, nurses, social workers, technicians and other employees not involved in any law enforcement function.
The amounts required to fund workers’ nest eggs in the California Public Employees’ Retirement System will escalate over the next decade, according to PARC.
A major influence on pension costs is CalPERS’ investment performance, which county officials have long complained has lagged the markets as a whole due to a state preference for narrow investment focuses — what Supervisor Kevin Jeffries referred to as “politically correct” choices — over broader money-making opportunities.
According to the report, the mammoth public pension fund’s assumed rate of return on investments — also known as the discount rate — in the most recent fiscal year was 6.55% — nearly half a percentage point below the anticipated rate of return of 7%.
“CalPERS is unsustainable and expensive,” electrical contractor Matthew Johnson told the Board of Supervisors. “Why not get into something that’s sustainable and manageable? That would be fairer to the people who have to pay the bill.”
In order to make up for losses, the county will have to push its contribution rates up in the current fiscal year — to the equivalent of 24.5% percent of payroll for the safety category, compared to 21.6% currently, and the equivalent of 43% of payroll for the miscellaneous category, compared to 37.3% now, according to the report.
Employees across the spectrum in county government generally contribute less than 10% of gross earnings toward their defined-benefit plans with CalPERS, figures showed.
General fund allocations to support the retirement system will steadily rise over the next decade, approaching $1 billion in general fund support by the early 2030s, according to the report.
Officials noted that surrounding counties, including San Bernardino, Orange and San Diego, are detached from the state retirement system and are making independent changes to their own plans to net savings.
“Our plan is the cart pushing the horse, and the horse and cart are going off a cliff,” said Hewitt, who has been a staunch advocate of pension reform since taking his seat on the board a year ago. “We have to stop the bleeding … and do whatever it takes to get out of this toxic program.”
Hewitt lauded other jurisdictions for going to defined-contribution plans, which prevail in the private sector and require employees to fund their retirement vehicles, with matching contributions from employers. Costs are substantially lower than defined-benefit plans, which guarantee income thresholds to pensioners for life.
County Chief Financial Officer Don Kent explained that exiting CalPERS would require legislative authorization, and it would likely come with a payout tab totaling over $9 billion.
Kent noted that the county is making steady progress lowering the debt service levels on its pension obligation bonds, and the hybrid retirement tiers implemented by the state over seven years ago are beginning to produce savings.
Hewitt dismissed the minor gains and said he could not stand by and do nothing while “kids unborn” are saddled with the pension debts of retired county employees or those waiting to retire.
“This is a big deal,” he said. “Our unfunded liability climbs every day. There needs to be tough love all the way around.”
Hewitt submitted a request to the board seeking to permit him to open dialogue with actuarial experts, investment managers and legislators on finding remedies, and the supervisors voted 5-0 in favor.
“If we can make a lot of noise about this, it’s all the better,” the supervisor said. “I will be coming up with specific proposals.”