The county pension board’s investment earnings assumption fell more than 30 percent short last year and the system’s unfunded liability is rising, but a preliminary analysis indicates contribution rates can be cut at the Civic Center and the Novato Fire Protection District.
San Rafael, however, faces a hike in contribution rates in light of growing debt.
Although pension investments yielded 5.01 percent, less than the pension board’s assumption of 7.25 percent growth, a “smoothing” program under which past gains exceeding assumption rates are allocated over five years enables a dip in payments next fiscal year.
Pension administrator Jeff Wickman said the system’s assumption that the stock market will enable pension investments to grow 7.25 percent a year “is one of the most conservative in the county systems.” He added that the Marin pension program performed “in the top 10 percent of public pension funds as measured by our investment consultant, Callan Associates.”
Wickman said that “although missing the target return increased the cost of the plan, deferred investment gains from prior years offset this increase.” He added that “the overall impact of all gains and losses produced a slight reduction in the preliminary net employer contribution rate for the plan and the projected employer contribution rates for Marin County and Novato Fire for the upcoming fiscal year.”
The Marin County Employees Retirement Association, or pension board, has an actuary recalculate the cost of the pension plan each year, measuring its demographic and economic assumptions with actual experience.
“The net impact of the plan’s gains and losses are used to adjust the contribution rates charged to employers and employees to help fund the promised benefits,” Wickman noted.
Actuary Graham Schmidt outlined “preliminary” findings of his latest study Wednesday and will report back next month with a final report. Financial officials of key agencies that are members of the county system, including the city of San Rafael and the Novato Fire Protection District, attended to determine how much they must budget to pay the tab. Those figures were not immediately available.
Contribution rates
In San Rafael, the employer contribution rate will rise to 60.95 percent, up from 60.67 percent, meaning that for every dollar of payroll at City Hall, taxpayers will pay nearly 61 cents more just to cover pension costs. Total city pension costs last year were $17.8 million.
The Novato fire district’s rate will be 48.68 percent, down from 50.90 percent, and the Civic Center’s rate will be 26.50 percent, down from 26.86 percent.
Unfunded pension liability, the cost of benefits promised by elected officials but for which no money has been banked, is rising. The county government’s is $244 million, up about 12 percent from $218 million; San Rafael’s is $141 million, up from $136 million; and the Novato fire district’s is $18.4 million, up about 10 percent from $16.7 million.
The figures do not include the often larger costs of unfunded retiree health benefits. And county liability does not include $100 million in pension bond debt carried on a separate set of books that costs taxpayers about $8 million a year in interest. All together, the county administration says the Civic Center’s pension liability, pension bond and retiree health liability tops $638 million this March, down from $644 million last year, thanks to extra retiree health payments approved by the Board of Supervisors.
The actuarial report reflects a burst of hiring by public agencies plumping up after the recession, with the system hosting 2,607 active employee members, up 3 percent. The workforce for agencies in the system is rising faster than the number of retired workers — which at 2,939 is up just 2.5 percent.
“The payroll grew more than we expected,” escalating faster than the retiree rate, Schmidt said. “That has not been the trend.”
The average pay per active employee in the system is $89,000.
Schmidt pointed out the annual report was a “snapshot” in time that changes according to variables including investment returns, the pace of retirements and the composition of the workforce. Agencies with a higher proportion of safety employees, such as the Novato fire district and San Rafael, generate higher costs.
‘Pension roulette’
Members of pension watchdog Citizens for Sustainable Pension Plans urged pension board members to determine what costs would be if, rather than 7.25 percent, the system’s portfolio earned nothing at all — or even lost money. Stanford academics say the Marin system’s unfunded liability could triple under a more conservative 4 percent investment assumption rate.
A 2013 “pension roulette” study by the citizens group reported Marin’s city and county governments had mounted a retiree debt of as much as $2.3 billion, making the average resident’s share of the bill $25,000. In that study, Corte Madera was at the top of the per-household debt list.
A new database at pensiontracker.org that provides data for California agencies allows citizens to measure agency fiscal affairs by 20 metrics, including percent of revenue spent to pay for pensions. By this measure, the Ross Valley Fire District ranks No. 7 across the state at 17 percent; the Kentfield Fire Protection District is No. 18 at 15 percent; and the county of Marin is No. 39 at 11.5 percent.
City Manager Jim Schutz said later the city already has budgeted money to cover pension costs as projected by the report. “We plan as we always have to fully fund the pension liability,” he said. “It’s a long-term plan.”
Pension board members did not express alarm this week. Two years ago, several trustees called San Rafael’s debt “worrisome” and flirted with asking the city to bank more money to pay for benefits it has promised.
