Thursday, September 11, 2014 – 09:45 a.m.

The pension fund for San Bernardino County employees exceeded its assumed rate of return of 7.75% for the 2013-14 fiscal year, but that’s about it.

News has finally come out that the San Bernardino Employees Retirement Association (SBCERA) earned 11.8% in the aforementioned period. It’s not a bad number on its face. But it’s an issue nevertheless.

The problem? The fund expected to earn 17.1% based on current investment policy.

That’s a 5.3% underperformance.

Since the pension fund was valued at $7.1 billion on June 30, 2013, the underperformance represents $376 million the fund didn’t earn, but thought it would. An amount needed to help erase well over a billion dollars in accrued investment losses from prior years.

Just to tread water, the fund needs to earn the aforementioned 7.75% per year.

The California Public Employees Retirement System (Calpers) earned 18.1% in the same period. The California State Teachers retirement System (Calstrs) earned 18.66%.

The S&P 500 returned 24.6%.

The pension fund has realigned its investment portfolio to reduce volatility and limit losses in a down market. The strategy also limits gains in up market periods. Periods were pension systems can recoup losses from prior years. Last years performance raises the spectre that the fund will be carrying a signficant unfunded liability for years to come. The current actuarial funding numbers will be released sometime between now and November.

The not-so-good news comes on the heels of the departure and replacement of the pension fund’s CEO, and the departure of the senior investment officer.

Future down years, where the fund doesn’t meet the 7.75% minimum, will be more damaging depending on how severe the decline is.