No Solution in Sight for Pension Problem

An angry group of residents demanded solutions to the problem of soaring pension costs last night, but the panel of experts at the county's pension forum was unable to provide a satisfactory answer for the crowd.

“There is no short-term solution,” said actuary John Bartel, noting that a large amount of the liability that the county will have to pay for future retirees has already been incurred by past and current employees and can't be changed.

Bartel and labor attorney Gregg Adam both pointed out again and again that courts have consistently ruled that it is illegal for pensions to be taken away or decreased for employees retroactively, who were hired under a contract for a certain level of retirement funding. This means any changes that are made to the retirement system will have to be long-term and for future employees.

But, that doesn’t solve the problem now.

A number of charts and graphs showed increasing pension and retiree health costs for the county as the public pension system attempts to grapple with the market drop the past few years and with the longer life spans of retirees. Many public pension systems experienced significant losses on their investments after 2008.

According to County Administrator Matthew Hymel, approximately 11 percent of the county’s budget this year went towards pension costs compared to 9.5 percent three years ago – not including retiree health costs. The county budgeted $34.8 million in the fiscal year 2010-11 for pension costs and $9.4 million for retiree health premiums.

The numbers are only going to continue to rise. The amount the county has to contribute towards employee pensions is expected to nearly double from 15.9 percent of payroll in 2009-10 to 30.16 percent of payroll in 2014-15. 

The number that most of the attendees at Monday night’s forum were worried about was a number that wasn’t even discussed: the amount of unfunded liability the county still has to grapple with. By the county’s own estimates, Marin currently faces $384 million unfunded pension liability and $359 million in unfunded liability for retiree health.

These estimates, though, assume a 7.75 percent return on investments -- most public pension programs average over 8 percent over a 30-year period, said the panel. But, former Marin Assemblyman Joe Nation released a study last year that argued the county has $2 billion in unfunded liability at a 4 percent no-risk investment calculation.

“This is a tsunami,” said Bob Stephens of San Rafael, chiding the panel for not taking the problem seriously enough. “I look at your charts and graphs and get the feeling there’s not much wrong.”

In fact, many on the panel argued, the county had already taken steps to address the problem, but the attendees weren’t buying it.

Along with attorney Adam, actuary Bartel and Hymel, Supervisor Susan Adams and county pension administrator Jeff Wickman sat on the panel and each spoke about the complexities of the system.

“We’ve been working on this a lot,” said Hymel.

The county, he said, had already implemented a number of recommendations that the state legislature is still considering: creating a two-tiered system so that new hires are at a lower pension plan, prohibiting spiking pensions with one year of high earning by averaging three years to determine the pension rate, negotiating to lower the miscellaneous employee pensions with five of the six union groups to 2 percent at 61-and-a-quarter-years-old. 

Additionally, the county has adopted a new health plan, capped benefits and has set aside $26 million so far for unfunded liability for retiree health costs. Retiree health care has always been pay as you go, but the county is moving towards funding healthcare costs the same way it funds pensions within the next few years. In 2005, the unfunded liability for healthcare costs was at $378 million and was predicted to be over $1 billion in the next 30 years, but, said Hymel, by taking the steps they have in the last five years the unfunded liability has actually decreased by $18 million.

The crowd was not impressed.

Former Supervisor Denis Rice argued that the unfunded liability hurts taxpayers, pointed out that a recent court case did say retiree health benefits could be cut, and scolded the county for taking out $112 million in bonds to fund retirement costs in 2003.

Fielding Greaves, of the Marin United Taxpayers Association, called Rice a “hero” for voting against an “enriched pension plan” in 1977 and criticized practices such as allowing retirees to cash out unused sick days.

“If this was your family, then you’d come down out of the clouds and see a way through the quagmire,” said Bob Figari.

The crowd was particularly unimpressed with Adam's assertion that pensions are a way to draw top talent away from the private sector. He made the comparison that an entry-level lawyer in a private practice in the city could make as much as the highest paid employees in the county, to which there was much yelling from the attendees that not everyone was a lawyer and that was a terrible comparison.

The current average county pension is $33,312 – recipients don’t get social security payments. For public safety employees, the average pension is just over $50,000. Sixty-four percent of the county employee retirees receive between $10,000 and $50,000; 15 percent received between $50,000 and $100,000; and four percent (or 70 people) receive over $100,000 annually.