Since the beginning of the economic recovery, Sonoma County residents have been in something of a fog about the status of the county’s pension problems. A popular narrative, one offered by some county and labor officials, is that the issue of unfunded liabilities has largely been resolved thanks to the reforms mandated by the California Public Employees’ Pension Reform Act of 2013, a rebounding stock market and the hiring of new employees who receive a new third tier of benefits.
But a newly released report by an independent citizen oversight board has cut through that haze and offered the most clear and sobering analysis of the county’s retirement situation to date. The committee has concluded, in short, that the pension problem is far from resolved, it’s probably going to get worse before it gets better, and it is continuing to eat into funds needed for such things as road repair and public safety.
“The county has made virtually no progress to address one of the central goals of the reform effort — to share the risks with employees for pension gains and losses and changes in actuarial assumptions,” the committee concluded. “Currently, any losses are borne almost exclusively by the county and the taxpayers in the form of increased annual contribution costs and reduced services.”
Upon its creation a year ago, the Independent Citizens Advisory Committee on Pension Matters was asked, among other things, to examine the county’s progress on cost-containment goals supervisors put in place in 2011. One of them was reducing annual pension costs from 20 percent of total compensation to 10 percent by 2024.
Some progress has been made, most of it driven by the PEPRA reforms, state legislation that required the county to establish a lower benefit tier for new employees as well as eliminate a number of other compensation practices that were allowing employees to boost — or spike — their pensionable compensations levels.
“Despite these efforts, however, the pension problem is not yet close to being solved,” the report states. As an example, the county projected in 2014 that the reforms would save the county some $178 million between 2015 and 2024. But pension costs are now projected to be $544 million over and above what the county was hoping for for that period.
“The total annual cost of employee pensions is approximately 36 percent of payroll, and career employees can take home more in pension and Social Security benefits when retired than they took home when working,” the report concludes.
In other words, at best, the county won’t reach its 10 percent goal until 2030, and that’s only if projections hold, meaning there are no significant corrections in the market between now and then.
“We believe that cost-containment goals will not be realized until $831 million in pension related liabilities … are largely paid off,” the report says.
The committee also added this menacing note: “Although projections indicate that cost-containment goals will be reached in the future, we have limited confidence about the certainty of this, because previous projections have proven unreliable.”
In the coming days, we plan to take a closer look at the committee’s analysis and recommendations, including its call for “a higher sense of urgency in pension reform efforts to reduce costs, free resources, and reduce risk.” We couldn’t agree more.