County’s pension fund may be underfunded by $1.7 billion; could lead to insolvency
July 19, 2012 5:14 PM
Sam Pearson, Staff Writer
SAN BERNARDINO • Third District Supervisor Neil Derry plans to introduce a pension reform measure to be placed on the November general election ballot in a bid to cut costs.
Derry said he plans to introduce the plan at the Board of Supervisors meeting July 31. If the board approves the proposal, it would be added to the ballot for the Nov. 6 general election, where it could be approved by a majority vote.
The plan would make pension benefits for county employees less generous, saving the county money, Derry said.
Derry’s office says pension costs have increased from 3 percent of county expenditures in 1999 to almost 10 percent in 2011. The county’s annual contribution to its pension fund is now $232 million, up from $43 million. The fund is estimated to be underfunded by $1.7 billion.
An insolvent pension fund “could very easily bankrupt the county,” Derry said. “That’s way off on the horizon. That’s why we need to take care of it now and start now. This measure goes as far as I possibly can under existing state regulations to do this.”
It would also decrease what future employees could earn each year towards their pensions, require all employees to contribute to their pensions and would average employees’ annual compensation over their final three years of employment instead of the highest single year, in an attempt to fight pension-spiking. The county budgeted about $61 million this year to cover employees’ share of pension contributions, Derry said.
Both public safety and regular employees would be affected by the proposal. Public safety employees would still be able to retire at age 50 but would receive smaller pensions. Other employees would keep their current level of benefits, but would have to wait until age 62 to retire, instead of 55.
Under current rules, a public safety employee who works 25 years and makes a maximum of $100,000 can retire at age 50. The employee would then receive $75,000 per year for the rest of his life. Under Derry’s plan, that employee would receive $50,000 per year.
A 2011 study by the Institute for Health Metrics and Evaluation at the University of Washington found that the average life expectancy in California is 77.4 years for men and 82.2 years for women. That could mean a loss of $685,000 for a male employee making $100,000 who lives to that age, or $805,000 for an average female employee.
The bill would automatically shift to even less generous pensions if the state approved regulatory changes that would allow the county to do so, Derry said.
Because the county negotiates contracts with employee unions, if voters passed the pension changes, they would gradually take effect as the county agrees on new contracts with the unions, Derry said. The longest existing union contract ends in 2014, he said.
“Simply put, actuarial and investment return assumptions have not lived up to projections and county taxpayers are subjected to an unabated and underfunded pension obligation that cannot be sustained under present conditions,” Derry said in a statement.
A spokesperson for former San Manuel Band of Mission Indians Chairman James Ramos, who is running against Derry in the November election, did not take issue with the outlines of Derry’s plan.
“It isn’t any secret that the county cannot maintain its current budgetary path with its large unfunded pension liability,” Ramos’ spokesperson Andre Levesque said. “James Ramos supports pension reform that will make the program more solvent and bring more fiscal restraint to our county budget.”
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