Sagging pension liabilities and a lengthy timetable to turn them around led are leading to calls for reforming Kern County’s largest pension plan becoming amid a full-scale review by the county’s grand jury.
An
early report, released Wednesday by the Kern County Grand Jury, paints a grim
picture of the current financial status of the pension plan for Kern County
employees, along with employees of the Kern County Superior Court, Kern County
Water Agency, and other local and special districts in the Golden Empire.
The
elephant in the room: a $1.8 billion net pension liability, which accounts for
nearly 66 percent of Kern County’s liabilities.
For
jurors, despite the State of California being flush with cash on the heels of
the coronavirus pandemic, little relief appears to be on the horizon via
government intervention.
“It
should be noted that the State of California is under no obligation to provide
assistance to the county, therefore, none should be anticipated,” the report
read.
The
root cause of Kern County’s pension liability issues, jurors find, was a 2002
decision by the Board of Supervisors to retroactively increase the pension
multiplier for public safety employees (such as sheriff’s deputies,
firefighters, local correctional officers, and others) from 2 percent to 3
percent.
The
problem? Supervisors didn’t develop “a viable plan to pay for the increased
cost.”
Grand
Jurors compared Kern County’s pension to two other county pension systems:
Ventura and Fresno counties.
Ventura,
which is the most financial stable, was 89.57 percent funded. Fresno was 82.69
percent funded.
Kern
sits at 64.36 percent.
Making
up the growing pension gap, however, is proving costlier by the year.
Six
years ago, a California Policy Center report found that Kern County’s pension
liability was 1.75 times the county’s annual revenue.
Reaching
fully-funded status by within 20 years – as of the time of the report – would
require payments equal to 17 percent of annual revenue each year.
Kern
County’s pension chief, Dominic Brown, told The Bakersfield Californian that
the pension was on-track to reach fully-funded status near that 2034 window.
“As
long as the plan sponsors continue to make their plan contributions, this will
all sort itself out in time,” he told the pub. “We were over 100 percent funded
in 2001. We will get back there again, it’s just going to take time.”
Poor return-on-investment
Though
pension contributions are one of three routes to fully-funded status, the Grand
Jury found that pension managers and investment advisors failed to reach
critical investment goals with its $5.1 billion in assets.
In
2016, the pension’s board set an annual investment return target of 7.25
percent.
Brown
told the paper that, over a 10-year span, the fund exceeded the goal, bringing
in 7.7 percent return.
Yet,
despite an exceedingly hot market for publicly-traded assets, among others, the
pension’s full-time investment officer and consulting advisors mustered only
5.5 percent return over the past five years.
Kern
County’s lackluster investment returns are magnified during the pandemic year.
While Ventura and Fresno County pension plans returned 7.1 and 5.38 percent on
investment in 2020, Kern County’s investors brought in only 3.2 percent on
investment.
Key recommendations
Grand
jurors pressed Kern County to launch a committee to explore reforming the
pension plan by fiscal year 2024 in the hopes of expediting the unfunded
liability issue faster than 2035.
It
also recommended Kern County vastly pare back its retirement multiplier for
employees to 1.62 percent and cut back on cost-of-living adjustments (which
have often exceeded national averages) to the national average to ensure
long-term cost savings for taxpayers.
Kern
County officials declined to comment on the report, citing the formal nature of
response to Grand Jury reports.
Kern
County officials declined to comment on the report, citing the formal nature of
response to Grand Jury reports.
San
Joaquin Valley Sun
By Alex Tavlian
May 27, 2021
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