By GARY BEI
Gary Bei is administrator for the Sonoma County Employees’ Retirement Association
This is in response to the recent Close to Home column by Joe Nation (“Trying to regain control of public employee pensions,” Sunday) and a Press Democrat editorial on the same subject (“Deep red: County needs to do more with pension debt than cross its fingers,” Tuesday).
For the past 20 years, which included the worst national financial collapse since the Great Depression, the Sonoma County Employees’ Retirement Association (SCERA) has earned an average of 8 percent annually on pension fund assets. Over the past 30 years, SCERA’s annualized investment return has been 9.5 percent. These investment returns have been provided through a well-diversified investment portfolio and proven long-term investment strategy based on established expectations for returns for various asset classes.
Yet the recent guest opinion article by Joe Nation suggested that the Sonoma County Employees’ Retirement Association should use a 4 percent discount rate, utilizing a risk-free treasury return when valuing pension liabilities. Had the Sonoma County Employees’ Retirement Association done that for the past 30 years, the pension liability would have been significantly overstated, which would have resulted in misleading information for members, policymakers and the public over this same time period.
Instead, the Sonoma County Employees’ Retirement Association used a discount rate in the range of 8 percent over the years, based on standards for valuing pension liabilities set by the national Governmental Accounting Standards Board and Actuarial Standards of Practice.
This discount rate is validated based on actual experience of SCERA’s long-term investment returns.
The guest opinion article’s suggestion of a funded ratio of 43 percent and a funding shortfall of $2.3 billion is a dramatic misstatement, given that the market value of assets of the retirement trust fund is $1.75 billion as of Oct. 31, and the actuarial liability is $1.97 billion as of the most recent valuation date, utilizing calculations based on established professional standards.
The projections in the Close to Home and in The Press Democrat editorial are not based on accepted and well-established methodologies. The resulting statistics do not present a fair or accurate picture of the retirement system funding.
Public pension system funding is an important policy issue, but productive dialogue must be grounded in a balanced view of the topic and based on facts.