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By BRETT WILKISON
THE PRESS DEMOCRAT
Sonoma County government’s pension system has passed a historic threshold.
For the first time in decades, and likely in its entire 65-year past, the fund’s retirees now outnumber its active workers. Retirements last month pushed the number of pensioners to 3,792, while current employees affiliated with the Sonoma County Employees’ Retirement Association total 3,754.
The system now enters an era that experts say brings increased investment risk and the likelihood of higher pension contributions for taxpayers and smaller gains from pension overhaul.
The tipping point, spurred in recent years by large reductions in the county work force, is common for pension systems that have been around for 50 years or more, pension officials said.
The shift was noted at the top of the SCERA’s February meeting agenda, but drew no comments from retirement board members at their Feb. 17 meeting.
“It’s not a significant issue,” SCERA Administrator Gary Bei said later.
The first consequence of the shift, however, likely will be an increase in county payments to the pension fund.
Bei said the increase would be “nominal,” or “a fraction of a percent” on the county’s roughly $300 million payroll. He said he could not provide an exact number until an actuarial study is released in May.
But a 0.5 percent increase on the county’s payroll would equate to a first-year hike of $1.5 million. That would be in addition to the millions more the county expects to pay over the next several years to recoup pension-fund stock market losses from 2008, and an additional estimated $3.6 million, starting in 2012, related to a lowering of the fund’s earnings assumption rate.
Employee contributions, which are based solely on changes to salary and benefits, mortality rates and earnings assumption rates, will not change because of the demographic shift.
Most pension experts agree the shift itself does not portend the same fallout for pensions as for Social Security, which relies on a proportionally smaller pool of current workers to pay a larger number of retiree benefits.
Instead, pensions work, ideally, by requiring enough contributions from employers and, in many cases, from each worker, along with investment earnings, to pay for the worker’s benefits upon retirement. In pension parlance, the practice is known as “pre-funding.”
Because pension systems with more retirees than active workers have more of their funds tied up in payouts, they are less immune to the problems that can throw that equation off-balance, experts said.
“The risk is so much greater that you can get in a position of insolvency, especially in a stock market drop,” said Marcia Fritz, a pension overhaul advocate who leads the California Foundation for Fiscal Responsibility.
Investment underperformance and long-term underfunding by employers and employees are more chronic problems for mature pension systems, experts said.
Examples of the effect on both public and private sector pension systems abound. State systems in Illinois and New Jersey are struggling to pay their retirees because of past underfunding. Contributions for current employees may have to rise to correct those problems, experts said.
And aging pension systems were a big factor in the financial distress of large American industrial employers last decade, including General Motors and other automakers. When it went bankrupt in 2003, Bethlehem Steel Corporation, the 146-year-old shipbuilder and metal producer, had nine retirees on its books for every worker, pension records show.
“When something goes wrong in a mature plan, it’s harder to recover,” said Joe Nichols, a Kansas City-based actuary who works with public and private sector pension plans across the country.
Private firms can close their doors or declare bankruptcy — and hand their pension obligations off to the federal government — but such options are generally not available to public employers.
“In the public sector, there’s a belief that governments don’t go bankrupt. They can weather any storm,” said Ethan Kra, chief actuary for Mercer, the global consulting company.
Governments shed jobs and services to meet rising retirement costs and taxpayers fill in the pension shortfall.
“Until they revolt,” Kra said, in a nod toward current events in Wisconsin and elsewhere. “You can reach the point where taxpayers say they won’t vote for more taxes.”
Among the 20 county-run pension systems in California, Sonoma County’s is the first to have its number of retirees surpass active workers, according to Bob Palmer, executive director of the State Association of County Retirement Systems.
“At some point, it happens to all pension plans,” Palmer said. “It’s all planned. It’s part of the process.”
The number of active employees covered by SCERA has declined since its recent peak at 4,444 in 2002.
In the past three years especially, county work force reductions, including layoffs and regular and incentive-driven retirements, have sped the growth of retirees.
Last year, SCERA’s retired ranks swelled by a record 282 former workers — most of them from the county and a share from several smaller agencies participating in the system.
Bei, SCERA’s administrator, said a high number of retirements also is expected this year with the county’s plans for further layoffs and separation incentives.
Similar patterns are common nationwide, pension experts said.
And for systems that have reached the tipping point on retirees, there is almost no going back.
“You’d have to see incredible growth rates in your work force,” said Nichols, the Kansas City actuary. “I don’t think we’ll see an economy that would allow that to happen.”
County pension and government officials insist they are prepared to deal with financing and funding issues that will arise with an aging pension system.
SCERA has long seen its annual payouts to retirees surpass its annual contributions from employers and employees. In the past decade, those payout deficits have ranged from $2.3 million to $12.6 million annually.
The deficits may rise as retirees make up a larger pool of SCERA’s overall membership, Bei said.
But investment earnings, except in years of market loss, have more than made up the difference, he said. In 2009, SCERA took in a total of $84.9 million in employer and employee contributions and paid out $91.7 million in benefits. The same year, the fund’s investments earned $226.6 million.
“What’s a $7 million dollar difference on a base of $1.85 billion in assets?” he said, referring to the 2009 payout deficit and the current worth of the pension fund.
As a ratio, it equates to a 0.3 percent payout deficit. Mature pension systems considered to be in trouble commonly see a 10 percent annual payout deficit.
“It’s a small impact,” Bei said.
And unlike other pension systems that have run into underfunding problems, state law governing county pensions systems ensures that employers pay what is required to keep the systems well-funded, Bei said.
“When we set the rates as a pension fund, the county has the requirement to make the necessary contribution,” he said.
The county’s annual contribution to the pension fund has more than tripled in the past decade, to about $45 million. Including payments on roughly $550 million in pension bond debt, the total annual payment is about $90 million and rising.
The latest available study in mid-2010 on the pension system’s unfunded liability — the difference between its assets and what it will owe retirees — showed roughly $400 million remaining after the county’s issuance of a $290 pension obligation bond in August.
Recent market gains have eliminated some of that shortfall, most of which was from 2008 stock market losses, with a smaller share due to changes in salary and benefits, mortality rates and other actuarial changes.
The higher number of retirees will put additional upward pressure on the system’s unfunded liability, resulting in the likely increase in the county’s contribution rate.
Sonoma County Administrator Veronica Ferguson declined to comment on how much of an increase she expects, saying she would wait to see the results of the actuarial report in May.
“We’ve been tracking the pattern of retirees and actives over time,” she said. “We’re prepared, given where we are with a contracting work force, to look at those numbers. This was not a surprise to us.”
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RE: Pay to Play – So, which is it? First you start with “People will gripe, nothing will change, life goes on.”
Then, you end with “It takes money and there isn’t as much of it now. What was going on 5 years ago cost less than today. What will be going on 5 years from now will cost more. Get over, pay more tax or accept less services but don’t expect the county to cut all the pay and benefits and keep everything you want.”
I guess your conclusion is pretty much confirming that everything is different five years later, and hence there will be change. Based on the higher costs of today’s labor, health and retirement benefits, we can’t sustain all the county employees at our reduced tax-intake levels. Some will have to go.
Buckle-up county and city employees: it’s likely that some of you will be moving over to the private sector due to lay-offs. But that’s a good thing, since government employee’s claim that private-sector jobs pay more and offer more.
But, beware, there isn’t ‘seniority’ or the SEIU to protect those that just can’t do the job.
JOE NATION AT KZYX, NEXT FRIDAY
I’m inviting all bloggers here on this site to listen to “The Truth About Money” at KZYX, Friday, March 11, at 9-10 AM.
Our guests are Brett Wilkison and Joe Nation.
Brett Wilkison is the reporter at the Press Democrat who has been covering the crisis in the public pension system. One of his articles was about Joe Nation.
Joe Nation is the termed-out California Assemblyman, and current Stanford University professor and director of Stanford’s Public Policy Practicum, who has recently described the public pension system as a Ponzi scheme.
The broadcasts of our shows are heard live at KZYX, 88.3, 90.7, and 91.5 FM, in all of Mendocino County, west Lake County, south Humboldt County, and north Sonoma County.
For listeners out of our broadcast area, our shows can be heard streaming live from the web at http://www.kzyx.org.
Shows are also archived and can be found at KZYX’s website.
Shows are occasionally posted to the Public Radio Exchange, depending upon demand and interest, and the availability of staff resources to post shows.
We will take a few listener calls during Friday’s show. Our call-in number is: (707) 895-2448.
Questions of guests can also be emailed before the show to thetruthaboutmoney@kzyx.org, or during the show to dj@kzyx.org.
For the record, Lisa Maldanado, of the AFL-CIO North Bay Labor Council, has a standing invitation to be a guest on “The Truth About Money” show. We air every two weeks. Lisa has my contact information.
Thank you.
I see a lot of whinning here from all sides. Here is the way it will be. People will gripe, nothing will change, life goes on. Sonoma County is not ready for the third world. They want more than bare bones services that only keep the water flowing. They want Cadillac services like road dept, jails, deputies on the street, people answering the phone at the different departments and county sponsored community events.
Guess that? It takes money and there isn’t as much of it now. What was going on 5 years ago cost less than today. What will be going on 5 years from now will cost more. Get over, pay more tax or accept less services but don’t expect the county to cut all the pay and benefits and keep everything you want. Save money and accept less, pay more and keep it the same, either way, make a choice and shut up already.
How do you equate big business giving money to politicians to helping their employees? They are only helping themselves and not sharing it. But the unions are a direct line to employees. And you talk about taken reduced salaries is a joke, Just look at the last 10 years while everyone around you in private jobs have been going down yours have gone up. Plus the private sector has to make it or they go broke and right now the county is broke and is shutting down services to protect a few.
RE: Jadeapu –
Well, excuuuuse me! Jadeapu; County Worker said ‘pay period’, with no mention of being paid 26 times per year. If someone is going to put specifics in a post, then put in all the specifics so anyone can do the math. State employes, for example, get paid once a month; other people get paid every week. You happen to be a county employee, so you know first hand that you’re paid every other week, or 26 times a year. I guess I need to improve my mind-reading abilities to ascertain all the facts.
Additionally, County Worker should post his expected monthly retirement earnings after 25 years. Based on the typical life-expectancy, he will draw out FAR more than he ever put in. Typical government retirement payouts balance out at approximately 11-12 years; after that, your retirement check is on someone else’s dime.
Lastly, County Worker stated that he put ‘$193.13 into my retirement last pay period’, using that number, twice a month, over 25 years, to come up with his number of $125k. Since his contribution is based on his monthly earnings, I doubt very seriously he was paying that amount 25 years ago, and all along, for 25 years, for a total of $125k. That would mean he had the exact same month rate pay, for 25 years. No raises, no COLA. Maybe County Worker will post what he’s really paid into the system, not some artificially inflated number to make his case.
I don’t think I’m the ‘ignorant’ one here and it appears you’re both pretty loose with the ‘facts’ and ‘you really should do your research before you make comments.’
As was said in ‘My Cousin Vinny’, you’re argument doesn’t hold water.’
@LaMujerObrera tweets, “Why they’re picking on public workers http://shar.es/3kHxl ”
Nobody is picking on anybody here. We are all in the same boat. It’s simple math, not emotion. The public sector is running out of private sector funds.
As President Thomas Jefferson said in his inaugural address, “Take not from the mouth of labor the bread it has earned.” That famous line works for all “labor”.
“Labor” IS the tax payer. That is you an me, not just union “workers’. If you shoot a hole in my side of the boat….and I in turn shoot a hole in your side, we are both in the same boat. Who sinks faster?
We better start working together, before California sinks to the bottom, where all workers (CA taxpayers) will be equally destitute.
FUBAR (but still hopeful we can come together)
@Ricardo Sorentino, yet another post by you showing your ignorance of how much County workers pay into retirement. Yes we get paid bi-weekly = 26 pay periods = over 125K in contributions. You really should do your research before your make comments.
@ Ricardo Sorentino…He said pay period…he gets paid 26 times a year as a county worker…
@Ricardo Sorentino all I’m saying is right now that’s what I put in and I want what I put in back I’m sure I will be paying more as the years roll on, must you pick what people say apart.
RE: County Worker – \I put $193.13 into my retirement last pay period. I started working with the county at 25. After 25 years I will have put in roughly $125,000.00 I want that back with interest. As with most county employees we aren’t going to get Rod Dole’s retirement.\
Your math doesn’t calculate out: $125,000 over 25 years, your contribution would have to be $416 per month, and I’m certain that you would be paying in far less at the beginning of those 25 years.
The math works out, of course, with tax-payer bailouts…
Lets see, it is wrong for unions to donate to political parties and candidates? That must also make it wrong for corporations to donate. I wish there was as much concern about Wall Street crooks going unpunished, the health care monopolies, mortgage/foreclosure scams, and unregulated mega-banks.
Sonoma County employees contribute to their retirement fund and for years have taken reduced salaries with the promise of a guaranteed pension and health care insurance, which, by the way they also contribute to. Additionally, most work for an average of 11% less than their private sector counterparts.
I put $193.13 into my retirement last pay period. I started working with the county at 25. After 25 years I will have put in roughly $125,000.00 I want that back with interest. As with most county employees we aren’t going to get Rod Dole’s retirement.
Recently, President Obama announced a freeze of the salaries of civilian federal workers. How could he do that? What about the contracts that mandated step and COLA raises? How did he void those?
By law, unions representing federal employees have no, that’s right, no bargaining rights over wages. I guess that makes the federal government anti-union.
How’d that happen. In 1978, when Democrats, by a wide margin, controlled both houses of Congress passed the law that made it so. The law also made it illegal for most federal workers to strike. It’s why Reagan was able to fire all striking air traffic controllers in 1981.
Who signed this act into law? Jimmy Carter.
So, the federal govt, which has something no city or county has–the ability to print money–has more financial flexibility than local government.
To be honest, we have an issue of “pension envy.” People my age are starting to seriously think about retirement. They’ve lost everything they invested in the market, their house value is in the potty, their 401Ks are worth almost nothing, and they’re getting old and tired. Of course they’re jealous of people who are going to get a salary for life. I understand. I became a government worker about ten years ago, although it was five years of temp work before I became a regular employee WITH BENEFITS. I made the move form the private sector because of teh pension.I really wanted it and that’s why I’m here. I understand why people are jealous. Everyone NEEDS a pension. The stupid 401Ks are NOTHING. That’s why we need, in the private and public sectors,unions who can get us all pensions.
And, as for the current situation, what do you do about someone who has worked for years because he or she was promised a pension? Does our own government take this away from its workers? That’s renegiing on an agreeement! They can’t do that. Things could change for future, I guess, but I hope they don’t. We need pensions, and we need unions.
@Lionel
That’s a nice little fact to “Google” but no County employees belong to (AFSCME). Again KNOW YOUR FACTS
If the Press DemoRAT actually reported at anything beyond the 3rd grade level the general public might understand more about public and private pensions.
‘
Most of the PD staff that could read and write at the 4th grade level were hired as Disinformation Officers at Sonoma County Water Agency.
Per CBS News: “The American Federation of State, County and Municipal Employees (AFSCME), a 1.6 million member public sector union, has taken the lead as the biggest outside campaign spender in the 2010 election cycle, the Wall Street Journal reports.
AFSCME is contributing a combined $87.5 million to support democratic candidates in the upcoming election, it confirmed to CBS News. It now leads prominent conservative groups like the Chamber of Commerce and the Rove-supported American Crossroads in expenditures on the campaign, according to the Journal.”
The union contributions help elect Democrats who are then beholden to the unions and keep the money spigots turned on for them.
That’s how it works. That’s how we got to where we are now.
Google it.
Kudos to John Dickerson.
Go to his blog http://www.yourpublicmoney.com to read more about the pathetic state of affairs at the Mendocino County Employee Retirement Association.
Again, Mendocino County is but a microcosm of everything that’s wrong with the public pension system.
I understand Sonoma County sold $290 million of new Pension Bonds last year.
Actuaries calculate how much the COunty is supposed to pay into the Pension Fund every year to fully fund the part of future pension payments that employees are earning that year.
Those “normal” yearly contributions and investment profits are the only money the Pension Fund should ever need.
If the Pension Fund develops a deficit – something is wrong. Period!
Your County reported that yearly contribution calculated by the Actuary as its pension expense each year. But later the County discovered the Fund had $290 million less than it should have.
It’s critical to understand that those unfunded pensions were completely earned by employees before those bonds were sold. Those deficits arose because the true economic cost of the pensions earned in previous years was a lot more than your County reported.
Your County cost $290 million more to operate over the past 10 years or so than it has ever reported in its financial statements.
I assume Sonoma County is doing the same thing as Mendo – where I’ve been reporting on our County’s debt at my website http://www.YourPublicMoney.com for the past 3 years. That is – it reports the pension expense associated with those bonds as it pays the principal payments.
Mendo sold $90 million of bonds in 2002. The last payment will be in 2027. Every dime of that 90 million Pension deficit was earned by employees before the bonds were sold. But in 2027 Mendo County will add the last year’s payment of principal – about $8 million – to that year’s pension expenses.
Does that pass the “stink test” – do you believe that $8 million is really an expense of the staff in 2027 – when every dime was earned by employees before 2002?
That’s called “capitalization of expenses” – it’s wrong. It’s devious – it isn’t the truth.
Officials responsible for our Counties’ finances owe four fundamental financial duties to the people:
1) Tell us the financial truth.
2) Manage Our Public money competently and transparently.
3) Protect and build our counties’ financial strength.
4) Don’t force unfair financial burdens on our kids.
Our County’s officials have horribly failed in those duties. And We the People failed to hold them accountable.
The main fault belongs to those officials – and to us.
The “rank and file” public union members just took a job at face value. They were told what they’d get and they simply believed it.
But the leadership of their unions – while being no where near as culpable as govenrment officials – nonetheless significantly contributed to this mess.
They held polticians they supported accountable to make promises – they didn’t hold them accountable to fulfill them.
To “Let’s Be Reasonable” — Hey dude, let’s be honest!
Public employees contribute only a small fraction of the cost of their plans, typically about 15 per cent over time.
County contributions account for about twice that amount.
The difference? The difference is that “chimera” known as returns on investments. I call it a chimera because portfolio managers are always chasing those mythical returns. But they never catch up. It never happens.
Sorry.
Here in Mendocino County, we’ve had 16 straight years of negative amortization — 16 straught years! In plain English, that means that in the last 16 years, the Mendocino County Employee Retirement Association (MCERA) hasn’t paid down what our actuaries told us was needed to just break even.
Public pension systems were never intended to break even.
So how do we keep the public retirement system solvent? By borrowing, of course!
Borrowing is The American Way!
In 1997 and 2002, Mendocino County issued bucko bucks in Pension Obligation Bonds — just like Sonoma County is doing now. Incidentally, what are you guys panning to issue? Was it $200 million or $300 million.
Astronomical, given these tough economic times. Here in Mendocino County, given the sociopathic tendencies of past county officals, one might even say criminal.
Think about it. Think about those hundreds of millions of dollars in new debt. That debt is added to pre-existing debt. It’s more weight on the backs of taxpayers.
Meanwhile, tax revenues are falling. So are realignment dollars from Sacramento.
One more thing. And this will really keep you up tonight. It’s very, very bad news for counties like ours.
In January, 2011, Moody’s, the bond rating company, announced that thay would start using pension liabilities — funded and unfunded — as a factor in calaculating the bond ratings of state and local governments. Previously, pension obligations weren’t a factor.
That means massive bond downgrades across the board. Look it up. Read it and weep.
It’s why I’m betting on a tidal wave of municipal bond defaults. Government won’t be able to borrow their way out of deficits. Their bond ratings will be too low, and, consequently, the cost of borrowing will be too high.
Here’s the link to Public CEO Magazine about Moody’s announcement.
http://publicceo.com/index.php/local-governments/151-local-governments-publicceo-exclusive/2537-moodys-begins-treating-pension-liabilities-like-bond-debt
I’m really sorry about this new development. Care to change your mind about Ponzi schemes?
Do the research, know the facts. Check with more than one source, before reacting to an article. The problem is not a new problem, nor is the subject of the article the problem. Look to the past, history repeats itself. The top 1% hold the spending power. You, I, the County Workers, are all the middle class. Do not let the Politicians divide us.
Ok, the City pension benefits are ” unsustainable” along with the County, other ‘Agencies’ , the State and the Feds.
What part of ” UNSUSTAINABLE” do you not get ?
If the ” Pension Fund” has over a BILLION dollars, why can’t our Kindergarters get paper to crayon upon ?
Oops, have to pay someone $150,000 a year for life, plus $15,000 a year in medical benefits, as that is such a burden to them if they had to pay their own at that rate, Sorry kids, but you are going to have to burn this scam down. Us older folks can’t take the tear gas. It’s gonna get ugly. Hope the Army can defend us, as the Police are against us.
Most of one post hear is all about Ponzi Schemes and headlines.
You can denie it all you want. THERE IS NO RETIREMENT CRISIS IN SONOMA COUNTY. This ain’t ostrich talk people. The fund is performing as designed. Employees put money in, the county puts money in and it is invested. Right now the fund is paying from earnings. They put in the $290mil in bonds that pay out less than the investments earn. Like it should.
There are arrogant know it alls here who will calmly type in, “unsustainable”. Bull. They probably looked at the stupid Stanford report done by a student and claim to be informed. THE STANFORD REPORT USED 3% FOR EARNINGS AND CLAIMED THINGS WERE UNFUNDED. They didn’t use the 9% 30 year average or the 13% they made this last year. They used 3%. What an idiot. Who puts those numbers together to sensationalize an non-existent problem? An idiot. But they did get headlines. Stanford wishes they never heard of it because it has their name on it and is fantasy.
Go ahead, slam this post and say they should only be projecting a bond rate. If I hear that one again I know the population is too close to the shallow end of the gene pool… If my money manager returned the bond rate I would move my money in a heartbeat.
Since it ain’t broke, stop trying to fix it. Now pull your head out , of the sand.
I know one person in a corporate job who has a pension when he retires. Everyone else I know has a crappy 401K with $3,000 in it if they’re lucky. It is very hard to feel sorry for a person with a $200,00 pension for life and really I don’t want to pay for that thank you. If you want pensions like that- get someone else to pay for it. Tax dollars – um no.
RE: No Fix Here – “I see people saying the county cut back for 3 years to pay for pensions. I hate to break the news to some of you but the housing market tanked big time, devestating property taxes. HHMMM, where does the county get most of it’s money? Oh yeah, from property taxes.”
Which came first, the chicken or the egg? Sure, you can point out that since the housing market has collapsed, the tax-basis has dropped. Quite true, but in my mind, I feel that the problem is the government spending levels BEFORE the property value run-up. The state, county and cities went on a spending spree with more employees, more programs, wage increases, benefit increases, new equipment, etc, because of this new-found wealth. The motto in government has always been spend, spend, spend, so then you can ask for more, more, more the following fiscal year. Ten’s of thousands of dollars are spent just before the current fiscal year ends, not on things that are absolutely necessary, but to zero out the budget to justify an increase. Don’t really need that new $60k truck for your department? Hey, don’t worry, it was ‘in the budget’, so we’ve got to spend it. Start new programs, so then we can tell the tax-payers, come on, we need the sales tax hike, we need to increase our fees, we need you to vote in higher taxes, otherwise… we’ll have to cut programs. Oh, you mean the very ones that never should have been started in the first place?
So, the real ‘I hate to break it to you’ news is not the decline in property values, with a run-up that was not sustainable, but rather the gross over-spending and give-ways of the County, and spending more than every last dime, rather than looking to the future and putting up money for… what’s that word? oh, future ‘reserves’.
It would be fine with me if the amount that was taken out of my check was set aside for when I retire. I’m not asking for anything more, just to get back what I put in.
@Sakowicz – yes, I would take that bet, because you obviously don’t know diddly about how the public sector retirement system works. And to have you equate it to Maddoff’s ponzi scheme is insulting. Maddoff used new “investor” money to pay off the older “investors” – as far as I know, he wasn’t actually investing any of that money. Public sector retirement is actually very much like a 401k – there are contributions made to an investment pool during the working career, and then that money is used to pay a pension at retirement. That investment is earning a return both during the working portion and the retirement portion of an employee’s life. In both 401k and the defined benefit retirement, contributions are made by the company and the worker in some combination. In the public sector, the employee portion, like wages, are all part of negotiation. Some employees pay a lot, while others have agreed to have lower salaries in return for not paying as much toward the contribution. The DIFFERENCE between the two is who takes the RISK. In a 401k, the risk is all on the worker, whereas with a defined benefit plan, the risk is all on the public agency. When the risk is taken by the worker, then you will see some making at well, and others not, depending on how well they know how to invest. With the defined benefit, the public agency takes the risk. But this risk is spread out amoung all employees, and they are managed by professionals. For many years, the City of Santa Rosa paid nothing towards retirement because the investments were doing so well, and the funds were “super-funded.” Now that the stock market is doing less well, they are having to pay more because the funds are “under-funded.” If the City had managed its money better, and put money aside during the good times, it would not be so painful now. It is true that there are some cases of abuse (Rod Dole’s pre-retirement bonus comes to mind…), but this is not the case for most gevernment non-public safety employees, the majority of whom will end up with retirements in $30,000 to $55,000 range after working 30 years. This hardly seems excessive for the Bay Area!
Great comments.
It is clear the house of cards are falling.
The unions had no right to promise a set divedend that was subject to decreased revenue due to market fluctuation.
It’s time to eliminate the promised set retirement benifit and reduce it to a IRA type benifit based on market returns.
The county sold bonds without our vote, Not to build infastructure, but to pay union benifits.
Hardworking taxpayers had no say and the debt rises daily.
Today, New York Magazine, just released their prison interviews with Bernie Madoff, who is serving a 150-year sentence for his $65 billion Ponzi scheme. The cover article of the magazine’s current edition is written by Steve Fishman and is titled, “Am I a Sociopath?”.
In the article, Madoff asserts that he wants to “set the record straight.”
Guess what his rationalization for his terrible crime was?
Yup, you guessed it.
Madoff said that his Ponzi scheme was no worse — and probably less serious — than government’s various Ponzi schemes at the national, state, and local levels in issuing more bond debt than can ever be repaid.
And you know what?
Although Madoff’s assertion offers little solace to his victims, he’s right.
“The whole of government is a Ponzi scheme,” he states. “Regulatory reform is a joke.”
Mind you, this is an expert opinion. Madoff may or may not be a sociopath — I’m not qualified to say; I’m not a shrink — but Madoff is a world-class expert on fraud.
The U.S. national debt ceiling currently stands at over $14 trillion, and counting. It was never intended to be repaid, except with devalued dollars in an inflationary economy. Incidentally, last year’s annual federal deficit was a record $1.6 trillion.
California’s budget deficit? A sickening $26 billion.
The budget buster? CalPERS.
Sonoma County? Don’t ask. Mendocino County? Worse. Much worse.
The budget buster? That’s easy — our county’s pension systems.
What makes Mendocino County noteworthy is that $50 million of our unfunded pension liabilities are attributable to an accounting trick known as “excess earnings”. Meanwhile, we haven’t had excess earnings on our investment portfolio in a long time. But what we’ve had are 16 straight years of negative amortization — 16 straight years of negative amortization!
And oh, I almost forget. Of that $50 million, $9.6 million was diverted from the pension account by our former treasurer and pension administrator, Tim Knudsen?
Truth be told, when I first saw the New York Magazine article, “Am I a Sociopath”, I thought that maybe it was an interview with Tim Knudsen.
The sad reality is that every state, county, and city in the United States probably has their own version of Tim Knudsen. The Ponzi schemes are rampart at every level of government.
As an investor, I’m betting on a wave of defaults in municipal bond debt. I’m short munis across the board. I’m betting that our elected officals don’t have the stones to stand up to SEIU. Why should they? They owe their offices to SEIU. They are bought and paid for by SEIU.
I think Bernie Madoff would be short muni bonds, too.
Wanna take the long side of that muni trade and bet against me?
From another PD article on the subject from today:
“Across California, some 100,000 to 150,000 local and state jobs could be cut by 2020 to pay for increased pension and retiree medical benefits, said Girard Miller, a senior strategist with PFM Asset Management who specializes in public sector retirement plans.”
http://www.watchsonomacounty.com/2011/02/county/options-limited-to-overhaul-public-pension-system/
to Mr Sorention
Rod Dole actually got an 11.79% raise but who’s counting.
Raise $29124
add 5% 401 on raise $1456
add 160 hrs admin leave increase $1680
Total pensionable raise $32,260
times 24 year life expectancy
=$774,240
on top of salary, mileage allowance, full admin leave, full 401
99% of this raise and a huge % of Mr Doles retirement paid by younger county workers (many being laid off) and taxpayers
What are the soon to be retired union heads doing to protect workers jobs
Thank you for a well written article. This pension issue is very complicated and needs to be resolved without undermining our quality of life in Sonoma County. I couldn’t believe it when I read that county tax collector Dole retired with pension benefits of about $200,000 per year. How ironic that the person in charge of collecting our property tax dollars was being grossly over paid. Lets face it, you cannot grow money on trees. With property taxes declining where do these select individuals think the money to fund their pensions are coming from. Its also sad that the teachers of our schools are being singled out for their very small pensions when the real problem stems from the likes of Dole and friends.
Folks – does the word “Pre-Funded” mean anything to you? Employees working for a public agency like the County or City have money taken out of their checks for retirement and the public agency also make contributions. This money is then invested. everything is calculated so that the contributions and return on investment will then cover the cost of retirement. Sure, there are differences. Some employees end up having to contribute much more than others. Some units have bargained for lower salaries in return for the agency picking up their portion. On the other hand, non-public safety employees in Santa Rosa wanted the better retirement and gave up 10% of their salary to get it, along with raising their contribution form 7% to 8%. Salary, health care and pensions are all part of the total compensation package, and when negotiations happen, it is all considered. When one agency does a salary survey, all of that is included to get an apples to apples comparison. Ten years ago, friends and family said I was a fool to work for government, with the pay being so low. But there were trade-offs, including the health and pensions, and at the time, security. That no-longer applies. If you read the article, it says that the County work force has declined 15% since 2002. Layoffs are occuring in all government sectors, including City and County.
I work for the county for a simple reason. I enjoy the work and it pays the bills. I am not a top level manager and I was planning on a 60% retirement after about 25 years of service. The rest I plan to offset through my private investment accounts. It is called retirement planning.
A few years ago, the county changed the retiree medical benefits for people who already retired. Some saw their entire retirement check go to medical insurance. Many, who worked for 30-40 years for the county and retired 25 or more years ago, saw their checks vanish. They went from paying $300 a month for medical insurance, to paying over $1400. When your retirement is $1200 a month, that hurts. It was sustainable so it was done, it was financially expediant. Another word for heartlessly cruel. I say cruel because the decision was made, at the same time, to keep very expensive medical plans in place that only the top managers could afford, now or in retirement. Had the move been made to a less expensive plan at the same time, the impact cold have been severely lessened.
I learned at that time, the county will gut you like a fish if it suits them. The “tax payers” will cheer from the sideline and all will be well, except for the fish.
I learned there is a paycheck. You can not count on retirement benefits other than a basic amount you set aside yourself. If you yell loud enough, people will believe you. I do the math monthly about retirement. There is a tipping point alright. A point it is no longer reasonable to work for the county. Once the paycheck no lonter will return a reasonable retirement, it is time to leave. I don’t think 100% retirements are “sustainable” either, but slashing at everyone with the same money hatchet is no more reasonable than irresponsible pension management. The problem is at the top. Can they retroactively reduce retirees pensions? Probably not legal. But they can immediately curtail the spiking and bloating. But they won’t. They will drive out the little guys until the house cards falls.
Yes, the afformentioned boss lost his business. All his employees quit when it was no longer smart to work for him.
I see, in these comments, some are solution oriented and others are jealous. I see things like, “End pension spiking”, sounds good. I also see, “Cut their pay and thats ok with me”…. Ok, the last one screams jealousy. Did Rod Dole deserve a raise his final year? No, that should be investigated since the rest of the county workforce took a cut last year. And the 3 years prior.
I see people saying the county cut back for 3 years to pay for pensions. I hate to break the news to some of you but the housing market tanked big time, devestating property taxes. HHMMM, where does the county get most of it’s money? Oh yeah, from property taxes. Gee, I may be a plain and simple tax payer, but I knew this much and see where the reductions came from.
I also think the pension system needs some rule changes to prevent some of the nonsense. I worked for a company that was in trouble because the owner was pulling too much money out of the coffers and cut everyones pay. People tried to reason with him, and he cut everyone’s pay more. He didn’t get it, the problem was the top was taking too much. Same thing here it looks like. Each top position in the County make more that 500% more than the average worker. Maybe there is another piece of the problem pie.
Cap retirement amounts, reasonably, and end spiking. That will go a long way to a fix.
RE: Tom Lynch “And now we are seeing hundreds of jobs and positions lost in order to fund these benefits. What about the jobs and pensions for the next generation of cops, teachers and social services?”
As an example, the County has been having budget ‘issues’ for the last three years or so. They have cut positions, laid-off employees, asked for pay-cuts and increased the medical costs to employees. If that’s what it takes to get the budget back in line and not keep raising taxes for the rest of us, no problem with me. But then we find out that Rod Dole got an 11% pay raise, with the timing just perfect for his retirement.
That pay raise, and the increase to his monthly retirement, should be rescinded. And I don’t need to hear about how ‘dedicated’ he was as an employee, so he deserves it. I guess we’ve set the bar so low that anyone who comes to work on a regular basis and actually does the job to the best of his/her ability, which is what they are being PAID to do, suddenly walks on water at retirement.
The fact that Mr. Dole collected millions of dollars in salary and benefits over his career, allowing him to live a lifestyle far more comfortable than most of us, doesn’t mean anything when he’s viewed as ‘a dedicated employee’, but that we should give him even more in the end.
It’s this kind of nonsense that tax-payers just can no longer afford.
I think the bottom line is unless and until we, the people, start electing leaders who are willing and able to stand up to these organizations and deal reasonably with these issues, we will just keep getting more of the same, only the packaging will change.
Knee jerk or just a plain jerk? I guess since I work for the county and belong to a union I am seen as a corupt criminal lining my pocket with money I don’t deserve. Well, everyone has the right to an opinion. I see the press is focusing on a lot of opinions and not much fact. The plan seems to be “Buy high and sell low”. Typical. I know a person who had a lot of money in the stock market and when the market tanked in 2008, they sold out and put their money in bonds for protection, unneccessarily losing tens of thousands of dollars. Here come the sell low suggestions. If everyone thinks the market is never going to recover, then by all means, take the money and run. Cut wages and losses and get out.
I here words like, unsustainable, corupt and unfair being tossed around because of headlines. If confronted with a fact, they shout “Liar”, it is effective and gets more headlines.
How about some common sense, real stuff, not the poster. End pension spiking with car allowances and salary boosts. Base the retirement on the last years base wages only. That would end the 100% plus pay outs.
The market is recovering, slowly. Let it recover before changing the entire system. The system was built for sustainability. It was never built to have people take a snapshot of a down turn and start ranting about unsustainability. The pension bonds are designed to take advantage of growth and make a profit for the fund. Let it do it’s job. All investing is a “gamble”. Not taking advantage of market growth is irresponsible money management.
There are those who claim you shouldn’t be investing taxpayers money in the stock market because there is risk. That’s like telling a cop not to arrest criminals because there is a risk. With the right strategy and information, you can invest carefully. The 10 year snapshot mentallity is not the knee jerk decision making needed here. The Sonoma County system is operating as designed and with the returns it is getting, IS sustainable. Make some changes to the pension qualifications, I thinks it needs some…. But sell low because of a market snapshot, you lose every time.
It is funny how some can read an article in the Press Democrat and think they know all about Unions and what should happen to them. First you have to understand not all public employee unions have the same benefits. For example some cities pay for all of the pension contributions and the employees pay none. If you had an reading comprehension skills you would have noticed that County employees make contributions to their pensions and in some cases the contribution is significant.
As for the often quoted “they retiree at 50 with 100%” that is only for safety and only if they started at 20 years old which they can’t because you have to be 20 1/2 at the time of appointment. The true formula for safety only is 3% times the years of service and depending on who you work for there may be a cap.
In addition some current employees pay additional funds to the system to help fund the benefits of those that paid little into the system before they retired
All pensions are different and you only reveal you ignorance when you get on a blog and start spouting off like you know what you are talking about.
You people act like Public Employees hold guns to the heads of City/ County Administrators. In the case of Sonoma County I know for a fact that they can and have imposed contracts on their employees because in their case there is no binding arbitration.
Know your facts.
We work like you do. We didn’t steal anything. We applied for a job and got it. Get off you high horses.
Proud Public Employee rant ended
‘Small impact’
How come they forget to mention that we are paying into 3 bonds to support their retirement system while losing ours.
Well said, Pearl. I laugh at hearing these union folks whining about unfairness when they stacked the deck and were basically negotiating with themselves over my money. Where is the fairness in that? If you’re going to take my money, at least give me a seat at the bargaining table. The only unfairness here is the way taxpayers are treated.
I don’t see many rank and file line workers at the County getting retirement on automobile allowances, administrative leave, 401a contributions, etc. Imagine that; the County gives some a 5-6% 401a, in addition to regular retirement, and allows that to be included as part of the “final salary year”. Retirement on retirement.
The “Corporate Management” at the County (retired elected and managers), have gained the most from the massive retroactive pension increases of 2004 that are leading the County toward insolvency.
And now we are seeing hundreds of jobs and positions lost in order to fund these benefits. What about the jobs and pensions for the next generation of cops, teachers and social services?
What is so hard for the Sonoma County Supervisors and the County Administrator to understand. The county retirement system is bankrupt and the economic realities are going to force vast cutbacks in benefits.
If none of this was a surprise to them, why didn’t the Supervisors take action long ago to fix the system? The incompetentce is staggering.
Maybe it has something to do with the fact the public unions put these supervisors in power and control what the Board does in personnel matters.
A county funded retirement plan with the high level of benefits being paid out is not sustainable.
The county has an obligation to provide basic services to the taxpayers who fund this whole mess. Those services are being cut back while the county retirement system aimlessly goes on and on and on.
We need new management in county government to turn the ship around and get on the right course of providing county services at an affordable rate. This change will require an new relationship with the public unions which puts the people who represent the taxpayers back in the driver’s seat.
Mr. Bei correctly states the 2009 investment income of $226.6 million. A mention of the prior year’s (2008) $553.4 million LOSS to the investment fund would help to give a truer perspective of the problem facing the Sonoma County Tax Payers….
It’s time to outlaw Public Employee Unions.
The adversary relationship between Union Bosses & Corporate management is the healthy “checks & balances” that keeps both parties honest. When Unions are allowed to purchase the people they negotiate with by contributing to their campaigns we get what we have now. It’s really THAT simple!