San Mateo County defends its generous pension plan

By Rachel Swan, San Francisco Examiner -

Clarity about the funding for San Mateo County's pension system should emerge in the coming weeks when officials respond to a report that pegs a shortfall of up to $2 billion — a figure that is disputed.

The county and the San Mateo County Employees' Retirement Association have until July 15 to respond to a civil grand jury report that raised questions about the employee-pension system.

The report cited a severe gap between its projected expenditures and its current coffers called an "unfunded liability." According to the grand jury report, the system was operating with $1 billion less than it needed to cover its projected pension budget in the 2012-13 fiscal year. It also said that the county could have a shortfall of up to $2 billion, depending on the return on its investments.

Officials have vehemently defended the current system. It apportions $33,876 annually, or $2,823 a month, to retired employees — about the cost to rent a two-bedroom apartment, county spokesman Marshall Wilson said.

Half the money for the pensions comes from biweekly contributions from employees' paychecks, but taxpayers cover the rest. Citizens also indirectly supplied the $92.5 million the county budgeted to help the retirement program handle its liability.

The grand jury report faults the Board of Supervisors for basing its funding strategy on "hope" — both that it wouldn't have to increase the county's and taxpayer's contributions to amortize the liability, and that its investments would earn a 7.5 percent rate of return, rather than the more conservative 5.5 percent rate that the grand jury projected.

David Bailey, CEO of the pension system, vouched for the current investment strategy, saying it's based on a mixed portfolio of stocks, bonds, real estate and commodities, which should generate far more than the grand jury predicts. He believes the 5.5 percent figure derives from "an average projection for a bond rate."

Wilson noted that the county has worked for at least five years to come up with a better pension system.

"San Mateo County has eliminated 700 positions — more than 10 percent of the workforce — in the past five years," he wrote in an email, adding that the county has also sought aggressive ways to reduce employee pay and benefit costs.

The county controller and manager both suggested that part of an annual $60 million revenue increase from the Measure A sales tax could help stanch the county's pension liability, but Wilson says that might be an odd fit.

"When Measure A passed, it was basically for services, not pensions," he said, adding that last week the Board of Supervisors was discussing proposals to set that money aside for libraries.