By BRETT WILKISON
THE PRESS DEMOCRAT
Sonoma County taxpayers and county government employees will have to pay roughly $6.4 million more in contributions to the county’s pension system starting in July 2012.
The increase is the result of a unanimous vote Thursday by the pension system’s board members to lower their fund’s estimated earnings projection by a quarter percent.
The old rate, in place since 2003, was 8 percent. The change to 7.75 percent is a more conservative projection that shrinks the assumed annual income from investment earnings, which make up the largest source of pension funding.
That leaves taxpayers and county employees to make up the difference, which they’ll begin doing next year. The exact cost and share for each group will be calculated this spring.
“If we made the decision with the cost hanging over us, we might be reluctant to make it,” said Rod Dole, the county auditor-controller who is a board member of the Sonoma County Employees’ Retirement Association, or SCERA.
Forecasting lower long-term market returns, scores of public pension systems across the state and nation have made similar moves. CalPERS, the state-government pension system and the nation’s largest public retirement fund, is expected to soon lower its rate from 7.75 percent to 7.5 percent.
Dole said SCERA’s move was one of several steps taken recently to keep the pension fund fiscally sound. Another was the county’s issuance of a $289 million pension bond last year, a step county officials said would save taxpayers nearly $92 million over 20 years and was the best way to cover $670 million in stock market losses from 2008, plus other mounting pension costs.
Already taxpayer contributions in the form of payments by the county and other public agencies are set to increase by millions of dollars over the next six years to cover market loses and other benefit changes.
Taxpayer and pension overhaul advocates criticized the county’s pension borrowing and Thursday’s move, saying it delays changes to a system they claim is “unsustainable.”
“It does nothing to solve the problem,” said Tom Lynch, a Guerneville resident and county planning commissioner who has called for reform of public pensions.
Lynch, former North Bay Assemblyman Joe Nation and others have called for the county to adopt an even lower earnings projection of about 4 percent, in line with the earnings rate on bonds, they said, and more realistic over the long term.
A 7.75 rate won’t bring revenue assumptions in line with retirement benefits, Lynch said. “We’ll continue to see massive increases in unfunded obligations and general pension system underfunding.”
SCERA administrator Gary Bei said the board studied the move over several months last year. He said the lower bond rates advocated by pension critics don’t comply with accepted accounting practices or reflect the system’s long-term investment performance.
Over a 20-year period, those returns now stand at 8 percent. Over a 30-year period, they are at 9.5 percent.
“The board’s job is to set the right assumption,” Bei said after the vote. “We’re looking at a 30-year horizon on this.”
Pension officials said the change will increase the total contribution shared by employers and employees by about a 2 percent rise on a pension fund’s latest $322 million payroll, or $6.4 million.
The taxpayers’ share of that total will likely be larger.
Taxpayer contributions to the pension fund for the County of Sonoma and several smaller agencies included in SCERA currently total about $47.6 million, or 56 percent of the non-investment contributions. Those figures do not factor in annual county payments on roughly $600 million in debt from a trio of pension bonds. The payments are now about $45 million a year, and are set to peak at $57 million in 2023.
Employee contributions are at about $37.3 million, or about 44 percent of non-investment income.
Based on the 56-to-44 percent split, taxpayers share of the increase could amount to about $3.6 million. The pension system’s nearly 4,000 employees would be responsible for about $2.8 million, or about $700 per worker annually.
“It’s a big deal,” said Ed Clites, president of the Sonoma County Law Enforcement Association, one of the county’s largest employee groups. He said the change does not need approval from employees, who already pay among the highest amounts into their pension systems in the state.
He added, however, that employees would probably accept the extra burden knowing that it’s designed to preserve retirement benefits and keep the pension fund solvent.
“It’s a tough balance,” he said.
Starting in 2012, the rise in contributions to Sonoma County pension fund are:
– Employer contributions: Up 7.6 percent, or $3.6 million, to $51.2 million.
– Employee contributions: Up 7.5 percent, or $2.8 million, to $40.1 million
Figures based on estimates provided by SCERA