Written by
DAVID CASTELLON
Tulare County and its employees may have to increase their contributions to the county's retirement plan by millions of dollars over the next few years, the county's Grand Jury has concluded.
The Grand Jury is recommending that the retirement plan reduce expenses by raising employees' minimum retirement ages, altering the plan for new employees and ending employees' ability to use "salary spiking" to increase the amounts of their monthly retirement checks.
One of the ways spiking occurs stems from the flex benefit the county offers full-time employees, a minimum of $241.77 added to each of their two-week paychecks — or more, depending on the workers' positions — to offset their medical insurance costs.
County employees have the option of receiving the money untaxed, which most do, or as taxable income.
To calculate retirement pay, the Tulare County Employees' Retirement Association takes the 36 consecutive months during which the employees received their highest levels of pay. By taking the flex benefit as taxable income, that money is counted as additional pay and can raise the monthly pension payments that retirees receive for the rest of their lives, according to one of two Grand Jury reports issued to TCERA on May 15.
And there are other ways employees can spike their salaries to im-prove their retirement pay, including cashing out unused vacation or sick leave prior to retiring and accepting car allowances for using their personal cars rather than using county cars for work, according to the report.
"This allowance is then included in the final average monthly salary and can result in enhanced pension benefits," it states.
The Grand Jury recommends reducing the retirement plan's costs by developing policies to prevent spiking.
Members of the Grand Jury launched their investigation of TCERA not because of complaints or accusations of wrongdoing but rather because of growing interest in pension plans and taxpayer contributions to them.
Among the Grand Jury's findings:
ª TCERA's pension program had a market value of more than $833.3 million on June 30, 2010, the end of the 2009-10 fiscal year.
ª The plan had enough assets to cover only 91.6 percent of its anticipated future costs. That ratio has declined over the years, from 116.9 percent in 2001.
TCERA is obligated to pay retired employees' pensions, using money paid into the plan by the county, its employees and returns on pension fund investments.
The county's contribution to the plan was 11.4 percent of its payroll in the fiscal year ending in 2008, or about $23 million. The Grand Jury reports that ratio is expected to increase to 19.3 percent, about $68 million, by 2018.
Despite the increase, the plan's funded ratio is expected to drop to 75.9 percent by that time, the report states.
"It is impossible for the Grand Jury to see how the plan recovers from this position, even if the ratio falls no further than 75.9 percent by 2018," the report states.
Those numbers are based on the pension plan's investment averaging returns of 7.9 percent over the next several years.
But the Grand Jury cites a November presentation to the TCERA board of directors by the plan's financial adviser, who reported that the returns through 2018 likely would average only 5.4 percent.
That's part of the reason the Grand Jury predicts the county's pension contribution will rise so much.
Another reason is the added expenses the pension plan incurred starting in 2005, after the county reduced the minimum retirement age for most employees — except those in public safety jobs — to collect full pensions and related benefits from 61 1/4 to 57.
"We must realize that without major changes, the county's pension costs soon will spiral out of control. The current path is unsustainable," the report states.
Additional recommendations by the Grand Jury include:
ª Develop a plan to get the plan's funding ratio at 100 percent by June 30, 2022.
ª Assume the plan's investment returns from 2012-22 will average 5.4 percent. "This will accurately reflect the county pension plan contributions that will be needed if those contributions are the only remedy for the shortfall."
ª Consider raising minimum retirement ages to begin collecting full pensions — age 50 minimum for public safety workers.
ª Reset pension benefits for new hires, which could include providing defined contribution plans, like the 401(k) retirement plans commonly offered by private businesses.
That way, if investments go bad and retirement funding suffers, the risk falls upon the employees, not the county, nor does the county have to pay additional dollars to cover retirement plan costs, the report said.
ª Negotiate through employee union representatives that in any given year, individual employee contributions to the pension plan be at least equal to the county's contribution.
It's estimated that by the end of this fiscal year, Tulare County will have paid more than $24.2 million into the pension plan, about 10.6 percent of the county's eligible payroll.
Employees' contributions are expected to total $16.9 million, an average of 7.6 percent of their salaries.
David Kehler, TCERA's retirement administrator, declined to comment on the Grand Jury reports, but did say his agency is preparing written responses.
The response deadline is Aug. 10.
County Supervisor Phil Cox, who also is a member of TCERA's board, said during Tuesday's county Board of Supervisors meeting that he disagreed with the Grand Jury indicating that the county's pension assets are in bad shape.
He said the Grand Jury used old financial information that reflected the worst economic time of the decade.
As of April 30 of this year, the value of the pension plan's assets was more than $1.1 billion."Tulare County has a healthy plan," he told the audience at the board meeting, adding that he was confident TCERA would respond to the claims to the satisfaction of the public.
The Grand Jury report acknowledges that Tulare County's pension plan is doing better than those of many other counties.
It notes that Fresno County's grand jury reported that county contributions to its pension plan are expected to exceed 52 percent by 2013.
http://www.visaliatimesdelta.com/article/20110526/NEWS01/105260319/Grand-Jury-urges-pension-plan-changes-county-workers?odyssey=tab|topnews|text|Frontpage
No comments:
Post a Comment