With all this Marin Municipal Water District rate increase talk, I just looked at the MMWD pension actuarial valuations on the CalPERS website. Following are the annual pension employer (paid by ratepayers) contribution rates:
Pension cost fiscal year 2016-17:
• Employer normal cost: $2.3 million
• Unfunded liability cost: $4 million
• Total employer annual pension cost: $6.3 million (paid by ratepayers)
• Cost as a percentage of payroll: 25.93%
Three years later …
Pension cost fiscal year 2019-20:
• Employer normal cost: $2.5 million
• Unfunded liability cost: $6.5 million
• Total employer annual pension cost: $9 million (paid by ratepayers)
• Cost as a percentage of payroll: 36.37%
Actuary’s projection to fiscal year 2024-25:
• Employer normal cost: $3.1 million
• Unfunded liability cost: $9.2 million
• Total employer annual pension cost: $12.3 million (paid by ratepayers)
• Cost as a percentage of payroll: 43.8%
The estimated employer pension cost (paid by ratepayers) almost doubled ($6.3 million to $12.3 million) and is projected to be a completely and totally abusive 43.8% of payroll! These numbers are a good part of the reason the district needs rate increases.
During this time the annual pension cost that the employees’ pay actually goes down, from 7.9% in 2016-17 to 7.6% of payroll in 2019-20. Let me get this straight? The pension cost doubles for ratepayers while the cost paid by the employees who will actually receive the pensions goes down.
It is no wonder ratepayers are upset not only with the method in which the rate increases were communicated but many of the real reasons that the increases are needed.
MMWD is not alone in these huge required pension cost numbers. The city of San Rafael is considering another property tax increase to pay for fire prevention. San Rafael has a required annual pension taxpayer contribution rate in excess of 57% of payroll.
The city of Novato has budget problems due to increased pension cost. Most school districts have budget problems due to increased pension cost.
Yet none of our public officials support real public pension reform that would actually allow public entities to reduce the future pension benefit accrual rate of all participants. New employees — not even part of these huge unfunded pension liabilities — must accept lower pension benefits while the existing public employees, who created the unfunded liabilities in the first place, continue to accrue pension benefits at their excessively high rates.
The California Rule is a long-standing public pension rule stemming from a series of state court decisions interpreted to mean that a pension promised at hire becomes a “vested right,” protected by contract law, that can’t be cut unless offset by a comparable new benefit. This interpretation must be changed if pension costs are ever going to be controlled.
From a fiscal responsibility standpoint, the problem is that virtually all public pension benefit formulas are based on an employee’s compensation. Thus, every time the employee gets a raise or promotion his or her pension goes up. Public officials who determined these pension benefit formulas may not have anticipated that salaries in the public sector would increase to the levels we currently see. This has resulted in pension benefit levels that are unsustainable.
To make matters worse, after the stock run-up in the 1990s, virtually every public sector pension plan did an across-the-board increase of approximately 40% to all pension benefit levels under the assumption that the investment returns of the 1990s would continue. Some even made the increased benefits retroactive to the hire date without even collecting contributions for those benefits.
In my opinion, it was fiscally irresponsible to allow such an increase in an environment where benefits cannot be reduced if the assumptions are not met. As taxpayers we should demand that the supervisors, county administrator and other public officials support some real public pension reform. The current system is not fair to new public employees and certainly not fair to taxpayers.
Bob Bunnell of Novato is a pension compliance manager for a third-party administrator of private union pension plans. He is a member of Citizens for Sustainable Pension Plans, a Marin public pension reform organization.
