REPORT: COUNTY’S UNFUNDED PENSION GAP TO WIDEN

State’s poor investment returns cited by Chairman Jeffries as driving cause

Riverside County supervisors signed off on a report indicating that county government’s unfunded pension liabilities are growing again, largely due to poor investment returns at the state level, meaning higher near-term costs to the county.

“We’re still making progress, albeit slowly,” county Chief Financial Officer Don Kent told the Board of Supervisors during a Feb. 28 hearing on the 2023 Pension Advisory

Review Committee report. “Pension costs will continue to increase for at least the next decade.”

The report said that the county’s retirement apparatus is now 86.6 percent funded, compared to 76.4 percent a year ago. The key metric that reflects a sound pension system is considered 80 percent funded status.

The county’s unfunded pension gap is $1.88 billion, compared to $3.08 billion estimated in the 2022 report, according to PARC. The figures are based on calculations that end in fiscal year 2020-21, the most recent period for which confirmed data is available from the California Public Employees’ Retirement System.

PARC estimated liabilities going forward, indicating the pension deficit will expand to $3.41 billion in the current fiscal year and to $3.43 billion in the following fiscal year. However, those estimates are tentative and might not factor in random events or unforeseen external market pressures.

The county’s current asset base supporting the pension system is $12.2 billion.

There are two main categories in the local pension system — safety and miscellaneous. The safety category covers sheriff ’s deputies, District Attorney’s Office investigators, probation agents and others, while the miscellaneous rolls cover clerks, custodians, nurses, social workers, technicians and remaining employees not involved in any law enforcement function.

The amounts required to fund workers’ nest eggs in CalPERS will rise and fall over the next decade, according to PARC. But the report indicated that achieving 100 percent funded status in the future — possibly by the early 2040s — is within reach, provided there are no damaging hits to the economy.

The biggest influence on pension costs is CalPERS’ investment performance, which in fiscal year 2020-21 boasted the most impressive results of the last decade, with a 21.3 percent gain in stock market assets, well over the 7 percent assumed rate of return that had been projected, according to the report.

That impressive performance, however, will be undermined by a nosedive in returns in 2021-22 and 2022-23, according to the report.

Losses for 2021- 22 have been confirmed at 7.5 percent.

“We are at the mercy of the California State Legislature and what they want to be politically correct investments, telling the CalPERS board not to invest in certain stocks and bonds,” Board Chairman Kevin Jeffries said. “Each decision that the CalPERS board makes to withdraw from profitable funds has the potential to cause us to have to pay more, because they had not invested in higher paying (assets).”

Poor investment returns going back to the Great Recession will require the county to pay an additional 1 percent to CalPERS in the next year to cover losses in the safety category, and 0.2 percent for miscellaneous, the report stated.