Pay Cut

Tuesday, January 13, 2015 – 10:30 a.m.

In San Bernardino County, California, administrators are putting the writing on the proverbial wall.

It appears little or no employee raises will be the mantra for the foreseeable future.

The reason? Higher pension costs.

The San Bernardino County Employees Retirement Association (SBCERA), the county’s pension fund, recently delivered bad news to the county in the form of higher employer contribution rates.

The price tag for the 2015-16 fiscal year will be a whopping $35.6 million increase. The most recent figure comes on the heels of a heavy increase for the 2014-15 fiscal year.

Recent comments made in a local newspaper by County Chief Executive Officer Greg Devereaux are very blunt.

Here is an interesting quote:

“And so even though they’re not seeing more money, we’re having significantly bigger costs for every single position and every single employee,” Devereaux said. “It’s certainly costing the county a great deal more.”

When translated, the statement means employees aren’t getting any raises for the foreseeable future, so don’t ask. But if they do it’ll be a token amount under the guise of the county doing everyone a favor.

The reason for the rising pension costs is multifaceted.

  • Lackluster investment performance of the pension fund.
  • Reduction of the assumed annual rate of pension fund from 7.75% to 7.50%. (This is the return necessary for the fund to breakeven.)
  • Higher life expectancy of plan participants.
  • More than $1.88 billion in unfunded liability (This number is essentially accrued investment losses.)

The 0.25% reduction in the assumed annual rate of return is long overdue, and should likely be lowered even further to match reality. Furthermore, the current investment policy makes it highly unlikely the fund will make any big dent in recapturing prior losses. This is because the pension fund has adopted a strategy to prevent heavy losses when the markets decline in the “future”. In the event the pension fund should under-perform even further, the county’s contribution burden will increase again.

County management has been on a mission to force employees to pay their full employee contributions. It’s an admirable goal, and something employees should, in fact, do. However the county has also resisted giving employees any form of cost-of living adjustments that would increase their base wages, which in turn would affect pension costs. (This has resulted in the advent of the bonus or allowance concept.)

Neighboring Riverside County was able to get employees to forever pay their full employee contributions. But the kicker was the county gave cost-of-living adjustments to initially offset employees paying into the pension system.

San Bernardino County will do nothing of the sort.

The county’s employee associations, as a group, have grown into politically and operationally inept bunch. The situation makes it unlikely employees will be able to attain relief of any kind into the foreseeable future. Even as the county continues to pack away millions into its reserves each year. (SBCO Budget Reserves FY2014-15)

For years the take home pay of county employees has been shrinking due to higher health insurance costs, and other reductions. Now it looks as if that decline will continue for years to come.