By KEVIN McCALLUM
THE PRESS DEMOCRAT
An insurance expert told Santa Rosa’s pension reform task force Thursday that the city’s soaring pension contributions alone won’t be enough to dig it out of the $101 million hole created by richer benefits and steep investment losses.
Instead, the city ought to consider giving the California Public Employees Retirement System more than the millions the city pays annually to fund the retirements of current and former employees.
“What it means is you are paying the amount CalPERS is asking you to pay but you really aren’t paying enough,” John Bartel, an actuarial consultant, told the 11-member group during a three-hour session that was heavy on data and light on good news for the city.
Bartel didn’t say how much more the city should pay, and acknowledged the suggestion is “not popular” with many of his cash-strapped public agency clients. The city already is facing sending $3 million more to CalPERS next year than it anticipated. This year the city’s total pension costs stood at $23.5 million, said chief financial officer Laurence Chiu.
Bartel warned the group that the city faces serious financial challenges with its pension obligations. “You’re going to hear me say some things you all might not want to hear,” Bartel said.
The task force is charged with giving the city council some options for reigning in pension costs, which are rising sharply as the number of retirements increase, retirees are living longer, and investment losses from the 2008 and 2009 stock market collapse require the city to boost its contributions.
Bartel didn’t have’s news wasn’t all bad. He said he didn’t consider the state’s pension system to be in a crisis. It’s problems aren’t so severe that the state should consider switching from a defined benefit program to a defined contribution plans, such as the 401k plans common in the private sector, as some have suggested.
“Just because things are not looking good … is not a reason to junk the retirement system,” Bartel said.
There also are signs that the strengthening stock market will continue to make up some of the investment losses. After enduring declines in 2008 and 2009 of 5 and 24 percent respectively, CalPERS experienced a 13 percent investment return last year and is on track for 15 percent returns this year, he said.
But even a long bull market likely won’t be enough to offset the increasing liabilities, Bartel said. Assuming robust 15 percent stock market returns, double what CalPERS projects, Bartel expects the city’s CalPERS contribution rates – the largest and most volatile component of the city overall pension costs – to rise for several years before stabilizing to between 19 and 34 percent of salary costs by 2017.
But if investments returns lag between half a percent and 3.6 percent, the city’s contributions would skyrocket from 28 percent to 46 percent of salary to make up the difference. That doesn’t include the payments on bonds sold to fund the switch to a richer retirement benefits in 2003, nor does it include the city’s costs to pay what would otherwise be the 9 percent employee share for public safety workers.
Allowing that gap to grow between the plans’ assets and their liabilities only pushes the costs into the future, he said.
“It does create generational shift and it means future generations are likely to have to pay more. In my opinion, that’s just not a good thing,” he said.
The unfunded liability as of 2009, the latest data available from CalPERS, was $101 million for the three separate plans the city has for its regular workers, police officers and firefighters. Bartels did not say so, but his charts indicate the current funding gap swelling to over $160 million.
Councilmember Scott Bartley, chairman of the task force, said he was encouraged by the presentation because it showed him there are things the city can do, such as implementing a two-tier system or requiring public safety employees to begin paying a portion of the contributions the city now pays on their behalf, to begin to manage the problem locally.
“We have a lot of control over what we need to do,” Bartley said.