Nine public entities and their employees in Marin County will have to contribute more to their pension fund starting July 1.
The Marin County Employees Retirement Association’s board voted 8-1 this month to accept a set of economic and demographic assumptions that will determine how much members and their employees will have to pay into the system.
Chief among these assumptions is the annual rate of return. A majority of the board voted to cut the retirement fund’s assumed return from 7% to 6.75%, as recommended by consulting actuary Graham Schmidt.
Other key assumptions include the inflation rate, the longevity of the fund’s retirees and the rate at which employees are retiring.
If the fund earns a lower return, then both employers and employees, who share the cost of paying for pensions, have to pay more. The Marin association reviews its assumptions every three years. The assumed rate of return was last cut in 2017, from 7.25% to 7%.
The retirement association includes Marin County, the city of San Rafael, the Novato Fire Protection District, Marin County Superior Court, the Marin City Community Services District, the Southern Marin Fire Protection District, the Marin Local Agency Formation Commission, the Marin/Sonoma Mosquito and Vector Control District and the Tamalpais Community Services District.
As a result of the assumptions approved by the board, the cost to Marin County and its employees will increase 1.29%. The cost to the city of San Rafael and its employees will go up 0.56%, and the cost to the Novato fire district and its employees will increase 1.31%.
The exact dollar cost to each of these groups won’t be known until the board meets on Feb. 10 and receives an update on their share of the fund’s unfunded liability, which enters into the calculation.
Jeff Wickman, administrator of the Marin County Employees Retirement Association, said the key demographic change was a decision to reduce the longevity assumption for retirees.
“We had changed this assumption a couple of years ago because we saw there were mortality improvements,” Wickman said. “People were living longer.”
However, when the actuary looked at the latest data, including recent studies done by the California Public Employees Retirement System, it was evident that retirees weren’t living as long as projected, and this was before the coronavirus pandemic began, Wickman said.
“The adoption of that change had the impact of reducing the cost of the plan,” he said.
Joe Valenti, the Novato fire district’s finance director, said, “I estimate our annual pension cost increase would be less than half of my initial estimate, or about $100,000 each year over the next three years.”
Nadine Hade, San Rafael’s finance director, said the city expects pension costs to increase between $102,000 and $195,000 a year.
“Although the decrease in the economic assumption resulted in an increase to the city’s pension cost, some of this was offset by the favorable demographic assumptions,” Hade said.
Bret Uppendahl, the county’s budget manager, said the new assumptions will result in a net increase to the county’s required contributions of approximately $2 million next year. Uppendahl estimated that when the changes are fully phased in by fiscal 2023-24, the increase will amount to about $3.5 million.
“Although the reduced earnings assumption will increase costs for the county and our employees, we feel that the decision was made with the best long-term interests in mind,” Uppendahl said.
Retirement board member Steve Block, who cast the dissenting vote, wanted to reduce the price inflation assumption further. The assumption approved by the board was measured by the consumer price index of 2.5%.
Block, who also serves on the Belvedere City Council, said he favored 2.25%. That would have required association members and their employees to contribute even more to the fund. Contacted after the meeting, Block declined to elaborate on his thinking.
Pension hawks have long advocated for cutting the fund’s assumed rate of return, which they say is overly optimistic.
Richard Tait, a spokesman for the Marin organization Citizens for Sustainable Pension Plans, said it recommended an earnings assumption no higher than 6.75% three years ago. Tait believes now the rate should be set at 6%.
“But with the stock market doing well,” Tait said, “the higher percentage prevailed.”
