Tuesday, June 8, 2010

Mendocino County Grand Jury: County retirement system not realistic

Ukiah Daily Journal Staff
Updated: 06/07/2010 06:08:26 PM PDT

The Mendocino County Grand Jury's latest update criticizes the county's retirement system and calls for citizens to intervene.

The update, titled "Unfunded Liability - Our Children's Inheritance," published June 3, says the Employee Retirement Association Board of Directors uses faulty assumptions about the market value of its investments, understates its debt, doesn't have an adequate plan to repay the debt and may have violated state law by diverting pension funds to pay for retiree health care.

The county's investment advisors forecasted an 8 percent return on investments through 2026 "when economic experts have said that the 30-year rolling average for a stock-bond portfolio is 4.4 percent," the Grand Jury states in its report.

The report says the retirement association's debt figures don't match those of analysts in the community, with outside critics claiming the county's unfunded liability is double the $66.9 million figure the retirement board reported in 2009.

The Grand Jury says the county's problem came from competing for staff in "a tight labor market" during the late 1990s to early 2000s, spurring an increase in wages and benefits.

The county added 413 new positions between 1997 and 2002, a 49 percent increase, and 10 times faster than county population grew, according to the Grand Jury.

"The retirement fund was not allocated funds appropriately to cover future obligations," the report states.

The county issued $30.7 million in pension obligation bonds in 1996, then issued another $92 million in bonds in 2002, with conditions that allowed half of the original bond amount to be extinguished for reporting purposes.

The report says the retirement board diverted $9.6 million from the county pension fund to pay retiree health care costs between 2004 and 2006. The Grand Jury calls that decision "a questionable action," and argues it "may be in conflict" with state law.

The county's unfunded health care liability is about $130 million, according to the Grand Jury report. It additionally criticizes the Board of Supervisors for not addressing the lack of retiree health care funds when it stopped offering health care benefits in 1998.

The diverted money was from excess earnings, according to the report, but "critics have noted that when UAAL (unfunded actuarial accrued liability) is considered, excess earnings have never occurred," even though the county claims it calculates excess earnings annually.

"Expecting current and future employees to pay for past employees' pensions is pushing current liability on future generations," the report states, arguing that funding pension needs at 90 percent isn't enough.

The Grand Jury recommends that the retirement board adjust its investment assumptions and "question actuarial recommendations;" have an independent audit of past and current actuarial assumptions; establish a citizens' financial oversight committee "to monitor the county obligations assumed by the transactions of the (retirement) board;" monitor the effect of the retirement fund on the county budget "rather than comparing the performance with other counties;" make public the actuarial value of the county's assets and the value of the pension fund assets; review excess earnings and adopt a policy that "articulates the definition of excess earnings and plans for future allocation."

In addition, the Grand Jury recommends the retirement board adopt a 401-K-type plan, have no defined benefit plans for new employees, reduce plans for all employees and/or delay pension payment until the employee reaches age 65; and cut jobs, consolidate functions and review salaries.


No comments: