The board of the Marin County Employees Retirement Association has locked in higher pension contribution rates for nine public entities and their employees.
The contribution rate increases include 1.09% for Marin County, 1.55% for the Novato Fire Protection District and 1.8% for the city of San Rafael.
Employers and employees will share the burden of the extra contributions fairly equally, although employers will bear all of the additional costs from a $100 million increase in the association’s unfunded liability.
Employees hired after the California Public Employees’ Pension Reform Act took effect in January 2013 will shoulder more of the higher costs than employees hired before.
“The county’s required contribution for employee pension benefits will increase by approximately $2.4 million next year,” Marin County Budget Manager Bret Uppendahl wrote in an email. “When the demographic and investment return assumptions are fully phased in after 3 years, the county’s annual contributions are expected to increase by a total of $3.5 million compared to required contributions in FY 2020-21.”
Joe Valenti, the Novato fire district’s finance director, said, “I project the district’s pension costs will increase by approximately $200,000 in fiscal 2021-22 and to $477,000 annually by fiscal 2023-24.”
Nadine Hade, San Rafael’s finance director, said, “Our pension cost is expected to increase for all city funds by approximately $750,000.”
Hade said San Rafael has been planning and for an increase and “will be able to sufficiently fund the expected contribution.”
The higher contribution rates are based on a set of economic and demographic assumptions that were approved by the board in December and January. The final contribution rates couldn’t be determined until each employer’s share of the unfunded liability had been calculated.
The association’s unfunded liability grew by just over $100 million to $499.5 million during the fiscal year that ended in June.
Marin County holds the lion’s share of the unfunded liability: $279 million. San Rafael’s share amounts to $148.2 million. The Novato fire district’s portion is $35 million.
The remainder is shared by the association’s smaller members: 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.
Richard Tait, a spokesman for the Marin-based group Citizens for Sustainable Pension Plans, said, “The county’s unfunded liability would have been $85 million more if it hadn’t funded some of its liability with a pension obligation bond, and $19 million more if it hadn’t used its remaining contingency reserves.”
“Most of the increase in the unfunded liability is related to the performance on the assets,” said Jeff Wickman, administrator of the pension association. “When you look at the total increase, $70 million of the $100 million increase was because we underperformed the investment expectation.”
The fund earned a return of 3.26% in the 2019-20 year; its assumed rate of return was 7%. In December, the board voted to follow the recommendation of its consulting actuary and reduce the assumed rate of return to 6.75%.
The rate of return, along with other economic and demographic assumptions, is reevaluated by the board every three years. The rate was last cut in 2017, from 7.25% to 7%.
Wickman said the fund’s poor return in fiscal 2019-20 reflects the severe downturn in the stock market during the early part of the coronavirus pandemic.
“It’s an interesting story,” Wickman said. “If you look at our returns as of March 31, which was right in the heart of COVID, we were down almost 10% for the year through nine months at that point. So in three months, we rebounded to have a positive 3.26% return.”
“For the first six months of this fiscal year,” Wickman said, “our return is over 15%.”
The fund has produced an average return of 6.61% over the past five years and 9.52% over the last decade.
The board unanimously approved the higher rates at its meeting on Feb. 10.
