The combination of reality and responsible caution is getting expensive for Marin public agencies that provide their workers with generous pensions.
The member agencies in the Marin County Employees’ Retirement Association are getting the latest dose and the association’s board voted to reduce its annual assumption rate on investment returns to 6.75%. It is a quarter of one percent reduction, but one that will cost agencies such as the county and the city of San Rafael thousands of dollars every year.
That’s money that will be diverted from the city’s general fund to meet its long-term pension obligation.
The board’s move is a prudent, but costly, step necessary to ensure the long-term financial stability of the fund and meeting its obligations.
It recognizes a combination of expected returns on its stock market and real estate investments and that the number of pensioners is not only growing, but they are living longer and drawing more from the fund.
Living longer may be great news for the retirees, but it is an increased cost for MCERA.
In many cases, the agencies have more retirees drawing pension checks than it does active employees paying into the fund.
MCERA’s new rate recognizes the realities of the retirees and current workers for which it has a financial obligation. The rate will increase the cost to its member agencies, among them the county — Marin’s largest employer — San Rafael, the Novato and Southern Marin fire districts, Marin Superior Court, the Marin City and Tamalpais community services districts and the Marin/Sonoma Mosquito and Vector Control District.
The state’s largest public pension and the one to which most public agencies in Marin belong — CalPERS — has been, over the last three years, incrementally lowering its annual assumption rate from 7.5% to 7%.
To its credit, MCERA has led the way in moving toward more reality-based rates. Its critics say both pension funds have further to go.
As the rate has dropped, the cost to member agencies has risen.
It is painful, typically locking in more of agencies’ budget to meeting this legal long-term obligation while pinching the amount of money needed to cover the cost of public services and programs.
Many agencies have had to borrow by issuing bonds to meet their obligation. For many years, that financial move was reserved for capital projects, but the rising cost of their pension obligations has led local officials to issue bonds for payroll obligations.
A recent example is Corte Madera, which is refinancing its pension obligation bonds to take advantage of lower interest rates today’s market affords.
Still, rising pension costs has been a primary driving force in the rise of local taxes, fees and other charges. They have also cost workers their jobs in budget cuts, reductions that have led to the elimination or paring back of local public services and programs.
MCERA’s move to drop its assumption rate is an overdue reality check from the days when the rate reflected those heady times of steady double-digit investment returns and less demand on the funds.
It is long overdue, according to critics of the public pension system, who have pressed for lowering the rate even further, even as low as 6%, advocated by the Marin-based Citizens for Sustainable Pension Plans.
That may be where they are heading.
Public discussions of actuarial rates, indexes and assumptions usually don’t draw much of an audience. But we have all felt the rising cost — short and long term — of public pensions in increased taxes and fees and cuts in local services.
Those fiscal pressures will continue.
MCERA’s decision is a prudent and necessary move that seeks to balance the rising financial demand on the pension fund and its cost to member agencies.
