SLO County pension plan bleeding; is it unbowed?
March 25, 2008
SECOND IN A SERIES
By DANIEL BLACKBURN
County supervisors soon will learn that its hemorrhaging employee pension plan may find partial redemption by buying into in a struggling investment marketplace.
But the plan’s top executive said Tuesday he worries that a declining economy will adversely affect the fund for at least two more years.
Supervisors were informed last November that the Pension Trust Fund is nearly $200 million short of the amount needed to meet future pension payouts. They voted 5-0 to pay for an audit of the fund to determine if management played any part in the growing unfunded liability. They also wanted to know if generous increases they have handed out lately are helping restrict the fund’s general health.
As of today, the county’s pension fund is 78 percent funded. That level would be worrisome if no repair plans were in place.
San Luis Obispo County’s pension woes are reflected throughout the nation. Locally, however, these problems may have been exacerbated by a range of new benefits awarded by county supervisors over the past few years. Additionally, county public employee salaries have grown 5.5 percent annually in a decade.
Several key assumption alterations made by the county pension plan’s Board of Trustees which have impacted the plan’s eventual return on investment, and its cost to taxpayers, were appropriate changes, the audit conducted by the Seattle-based firm of Milliman Inc., will report.
“We have stopped the bleeding at this point,” Tony Petruzzi, executive secretary of the San Luis Obispo County Pension Trust Fund, told UncoveredSLO.com. “Our problem is probably fixable in a couple of years,” although the county’s fund will experience “a continuing decline” during that period.
“There won’t be a ‘gotcha’ in the report,” Petruzzi said. “I know we are having an impact on the county’s budgeting process this year because of the adjustments we are having to make.”
This county’s pension problems are not uncommon. California’s state-run pension plan, CalPERS, is at least $2.6 billion in the red, and critics say the actual figure could be twice that amount. A proposed amendment to the state Constitution to attempt to “modernize” the state’s pension plan failed last month to attract enough signatures to qualify for a ballot position after being heavily opposed by employee unions.
Public pension plans have been cited for a variety of fiscal calamities that have befallen cities, counties and other public entities over the past decade or so. As opportunities for raising revenues through taxes and user fees shrink, budget demands for public pensions and benefits continue to rise. Orange and Contra Costa counties are wrestling with bankruptcy issues; the city of Vallejo recently narrowly averted bankruptcy and now is working with public and safety employee unions to make their pension plan affordable.
Petruzzi said the growth in San Luis Obispo County’s unfunded liability was created by a change in its asset allocations.
“We were more conservatively positioned than many,” said Petruzzi. “We’ve just changed… we’ve become a little more aggressive. We realize we have to get out there and get some return generated. And with the market being where it is now, this is not a bad point of entry. Buy when there is blood in the streets.”
By trying to take advantage of lower investment buy-ins and accelerating returns, Petruzzi said he believes the plan’s return to full funding is imminent.
“The pain will last a couple of years, after that we’ll probably be in a much better position. You should see this pension fund and many others recover substantially,” he said, noting that county employees and leaders “have really stepped up and made adjustments in contributions that were necessary.”
Petruzzi said he hoped decisions being made today will prove correct tomorrow.
“We need to make assumptions that make sense in the world in which we are operating,” he said. “The last couple of years have not been pretty.”
The plan executive said his board has commissioned its own actuarial assumption audit, results of which will be presented at its April 4 meeting.
(Editor’s note: Please see related story on this site, “One big cost that never goes down: public retirement benefits” (Feb. 6, UncoveredSLO.com.)