Ventura County Grand Jury • 2008-2009

Ventura County Pension: “An Uncontrollable Cost”

Published: June 10, 2009 26 pages
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Findings and Recommendations 24 findings

F01
Total County payments to the pension fund have increased from $32,715,209 in FY 1998-1999 to a budgeted amount of $139,742,615 in FY 2008-2009, a 327% increase over 10 years. The County annual pension costs, including Pension Obligation Bonds (POB) payments1, from FY 1998-1999 were: 1 The County issued $250 Million of POBs in 1995. The proceeds from the POBs were placed into the VCERA fund. Principal and interest payments added an average of $18.2 Million per year to the County retirement costs. The POBs were fully paid and retired in FY 2007-2008. Ventura County Pension Fiscal Year Pension Costs 1998-99 $32,715,209 1999-00 $34,768,877 2000-01 $36,074,330 2001-02 $39,414,246 2002-03 $40,050,756 2003-04 $53,938,205 2004-05 $96,613,112 2005-06 $120,618,500 2006-07 $139,097,134 2007-08 $146,866,534 2008-09 Budget $139,742,615
No recommendations for this finding
F02
The average County retiree’s monthly pension increased from 1999 to 2008 as follows: [Ref-04] 1999 2008 Increase General Employees $1,195 $2,013 69% Safety Employees $3,434 $5,478 60%
No recommendations for this finding
F03
The County employee retirement benefits formula has remained substantially constant for more than 30 years.
No recommendations for this finding
F04
Payments from the pension fund (including benefit payments, member refunds, administrative expenses, and legal settlements) were $149,917,062 in FY 2007-2008 and $138,275,948 in FY 2006-2007. [Ref-04]
No recommendations for this finding
F05
The County Chief Financial Officer (County CFO) estimated, at a BOS briefing October 7, 2008, that there will be a $20 Million to $30 Million increase in County pension contributions in FY 2010-2011 due to the negative investment results of VCERA in calendar year 2008.
No recommendations for this finding
F06
The County CFO, in April 2009, forecasted “. . . increases of approximately 20% to 25% per year over the next several years in County retirement costs.”
No recommendations for this finding
F07
VCERA presented the ANNUAL ACTUARIAL VALUATION OF THE VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION report to the BOS on April 28, 2009. The report, based on June 30, 2008 data, included charts which projected the fiscal impact to the County’s annual pension costs. (Att-01)
No recommendations for this finding
F08
Based on the above VCERA presentation to the BOS, by 2013, the County increase in pension costs would be more than $100 Million above the FY 2008-2009 budget of $139.7 Million.
No recommendations for this finding
F09
The VCERA presentation to the BOS assumed an 8% return for FY 2008- 2009; however, the fund experienced substantial losses through the first nine months of the fiscal year. Ventura County Pension 3
No recommendations for this finding
F10
The VCERA presentation also assumed that the County payroll costs will remain constant over the next five years.
No recommendations for this finding
F11
Factors affecting the County annual pension costs include: • investment results • number of active and retired employees in the plan • compensation of active employees • county payment of employee retirement contributions • projected compensation increases for active employees • retirement benefits formula • actuarial assumptions, such as retiree life expectancy and the financial earnings rate • use of “Excess Earnings”
No recommendations for this finding
F12
In years with good investment results, earnings above approximately 10% are treated as “Excess Earnings.” The 10% is composed of the assumed 8% investment earnings, plus a 1% reserve, plus the annual administrative costs of the Fund. VCERA has the option to use the excess earnings to offset members’ contributions, or to transfer excess earnings to the County advance reserve, or to leave excess earnings in the undistributed reserve (where they would be treated as a valuation asset), or to use the excess earnings to provide supplemental benefits to existing retirees. Examples of excess earnings being used to provide supplemental benefits to existing retirees, rather than to offset investment losses include: • effective October 1, 1997, special payments known as “STAR COLA” were granted to employees who had retired prior to April 1981 and had lost over 20% of the purchasing power from their retirement benefits due to inflation • effective March 17, 2003, special payments of $27.50 per month were granted to retirees with at least five years of service credit with VCERA
Related Recommendations (2)
R04
The Ventura County Employees’ Retirement Association should retain “Excess Earnings” in the Fund whenever the Fund is less than 90% funded. (C-04, C-05)
R05
The Board of Supervisors and the Ventura County Employees’ Retirement Association should propose state legislation to change the “Excess Earnings” provision in the ’37 Act, to require that returns from above-target investment performance years must be used to offset investment returns from below-target performance years before considering additional benefits or offsetting contributions. (C-04, C-05) Responses Responses Required From: Board of Supervisors, County of Ventura: (R-01, R-02, R-03, R-05) Ventura County Employees’ Retirement Association: (R-04, R-05) Responses Requested From: County Executive Officer, County of Ventura: (R-01, R-02, R-03, R-05) Commendations The Grand Jury was impressed by the professionalism of the management and operations within the Ventura County Employees’ Retirement Association and within the County Executive Office. References Ref-01. Grand Jury 2006-2007 “Ventura County Employees’ Retirement Plan” http://grandjury.countyofventura.org/reports/06 Ref-02. County Employees Retirement Law of 1937 http://www.sdcera.org/PDF/1937_Act_09.pdf Ref-03. “Retirement 101,” Ventura County, County Executive Office http://ventura.granicus.com/MediaPlayer.php?publish_id=28 Ref-04. VCERA “Comprehensive Annual Financial Report, June 30, 2008” http://portal.countyofventura.org/pls/portal/docs/PAGE/VCERA/PUBLI CATIONS/2008%20CAFR%20-%20FINAL.PDF Ventura County Pension 7 Ref-05. “San Francisco pensions: conservative trendsetter,” by Ed Mendel, February 27, 2009. http://calpensions.com/2009/02/27/san-francisco-pensions- conservative-trendsetter/ Ref-06. U.S. Bureau of Labor Statistics, “Program Perspectives,” March 2009 Ref-07. U.S. Bureau of Labor Statistics by William J Wiatrowski, February 25, 2009 http://stats.bls.gov/opubReferences/cwc/print/cm20090218ar01pl.htm Attachments Att-01. “ANNUAL ACTUARIAL VALUATION OF THE VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION”, to County BOS from Tim Thonis, Retirement Administrator, April 28, 2009. Att-02. FULL TEXT OF MEASURE J, ORANGE COUNTY Att-03. ARGUMENTS IN FAVOR OF MEASURE J 8 Ventura County Pension Attachment -01 “ANNUAL ACTUARIAL VALUATION OF THE VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION” Tim Thonis, Retirement Administrator, April 28, 2009. Ventura County Pension 9 (This page intentionally blank) 10 Ventura County Pension Ventura County Pension 11 12 Ventura County Pension Ventura County Pension 13 14 Ventura County Pension Ventura County Pension 15 16 Ventura County Pension Attachment -02 FULL TEXT OF MEASURE J, ORANGE COUNTY Ventura County Pension 17 (This page intentionally blank) 18 Ventura County Pension VVeennttuurraa CCoouunnttyy 22000088 –– 22000099 GGrraanndd JJuurryy FFiinnaall RReeppoorrtt ______________________________________________________________________________________________________________________________________________________ VVeennttuurraa CCoouunnttyy PPeennssiioonn 1199 (This page intentionally blank) 20 Ventura County Pension Attachment - 03 ARGUMENTS IN FAVOR OF MEASURE J ___________________________________________________________________________ Ventura County Pension 21 (This page intentionally blank) 22 Ventura County Pension ___________________________________________________________________________ Ventura County Pension 23 (This page intentionally blank) 24 Ventura County Pension
F13
On December 18, 2007, the County Executive Officer (CEO) submitted a letter concerning excess earnings to VCERA stating, “It is the County’s position that the concept of excess earnings is a legal and accounting anomaly that is not consistent with sound funding practices. The retirement system is a long-term entity that should keep investment earnings from good years to offset for investment losses in bad years. Spending “excess” funds in the good years to increase benefits requires additional County contributions to make up for the loss of funds from the trust. The effect is to increase the cost to the taxpayer above and beyond the promised benefits of the defined public pension plan.”
Related Recommendations (2)
R04
The Ventura County Employees’ Retirement Association should retain “Excess Earnings” in the Fund whenever the Fund is less than 90% funded. (C-04, C-05)
R05
The Board of Supervisors and the Ventura County Employees’ Retirement Association should propose state legislation to change the “Excess Earnings” provision in the ’37 Act, to require that returns from above-target investment performance years must be used to offset investment returns from below-target performance years before considering additional benefits or offsetting contributions. (C-04, C-05) Responses Responses Required From: Board of Supervisors, County of Ventura: (R-01, R-02, R-03, R-05) Ventura County Employees’ Retirement Association: (R-04, R-05) Responses Requested From: County Executive Officer, County of Ventura: (R-01, R-02, R-03, R-05) Commendations The Grand Jury was impressed by the professionalism of the management and operations within the Ventura County Employees’ Retirement Association and within the County Executive Office. References Ref-01. Grand Jury 2006-2007 “Ventura County Employees’ Retirement Plan” http://grandjury.countyofventura.org/reports/06 Ref-02. County Employees Retirement Law of 1937 http://www.sdcera.org/PDF/1937_Act_09.pdf Ref-03. “Retirement 101,” Ventura County, County Executive Office http://ventura.granicus.com/MediaPlayer.php?publish_id=28 Ref-04. VCERA “Comprehensive Annual Financial Report, June 30, 2008” http://portal.countyofventura.org/pls/portal/docs/PAGE/VCERA/PUBLI CATIONS/2008%20CAFR%20-%20FINAL.PDF Ventura County Pension 7 Ref-05. “San Francisco pensions: conservative trendsetter,” by Ed Mendel, February 27, 2009. http://calpensions.com/2009/02/27/san-francisco-pensions- conservative-trendsetter/ Ref-06. U.S. Bureau of Labor Statistics, “Program Perspectives,” March 2009 Ref-07. U.S. Bureau of Labor Statistics by William J Wiatrowski, February 25, 2009 http://stats.bls.gov/opubReferences/cwc/print/cm20090218ar01pl.htm Attachments Att-01. “ANNUAL ACTUARIAL VALUATION OF THE VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION”, to County BOS from Tim Thonis, Retirement Administrator, April 28, 2009. Att-02. FULL TEXT OF MEASURE J, ORANGE COUNTY Att-03. ARGUMENTS IN FAVOR OF MEASURE J 8 Ventura County Pension Attachment -01 “ANNUAL ACTUARIAL VALUATION OF THE VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION” Tim Thonis, Retirement Administrator, April 28, 2009. Ventura County Pension 9 (This page intentionally blank) 10 Ventura County Pension Ventura County Pension 11 12 Ventura County Pension Ventura County Pension 13 14 Ventura County Pension Ventura County Pension 15 16 Ventura County Pension Attachment -02 FULL TEXT OF MEASURE J, ORANGE COUNTY Ventura County Pension 17 (This page intentionally blank) 18 Ventura County Pension VVeennttuurraa CCoouunnttyy 22000088 –– 22000099 GGrraanndd JJuurryy FFiinnaall RReeppoorrtt ______________________________________________________________________________________________________________________________________________________ VVeennttuurraa CCoouunnttyy PPeennssiioonn 1199 (This page intentionally blank) 20 Ventura County Pension Attachment - 03 ARGUMENTS IN FAVOR OF MEASURE J ___________________________________________________________________________ Ventura County Pension 21 (This page intentionally blank) 22 Ventura County Pension ___________________________________________________________________________ Ventura County Pension 23 (This page intentionally blank) 24 Ventura County Pension
F14
On September 15, 2008, the CEO submitted a letter concerning excess earnings to VCERA stating, “. . . the County does not support increasing the amount excluded from Assets Available for Benefits in order to 4 Ventura County Pension provide non-vested supplemental benefits. As a reminder, every dollar that is excluded from the actuarial value of assets must be made up for by increased employer contribution.”
No recommendations for this finding
F15
At the January 2009 VCERA Board meeting, the Board discussed, in detail, the investment loss of about $1 Billion in fund assets (about 31% decline of the total value) in calendar year 2008. However, at that same meeting, the issue of “Excess Earnings” reserve from previous years was raised. The Board chose to extend a retiree Cost of Living Adjustment (COLA) funded by “Excess Earnings” from 2007, justified as a “commitment made in earlier years.”
No recommendations for this finding
F16
On December 31, 2007, VCERA’s net assets held in trust for pension benefits were $3.11 Billion. On December 31, 2008, the net assets held in trust for pension benefits were $2.14 Billion. These results are comparable to those experienced by other public pension funds.
No recommendations for this finding
F17
San Francisco has required voter approval of pension benefit increases which has been in its charter since 1889. Voters have rejected three attempts in recent decades to let the board of supervisors set pension benefits, each time by a wider margin. [Ref-05]
Related Recommendations (1)
R03
The Board of Supervisors should investigate and, if legal, place a proposition (similar to Orange County “Proposition J”) on the next County-wide election ballot to require voter approval for increases in retirement benefits as a long term control of pension costs. (C-06)
F18
In November 2006, the City of San Diego stripped the power to raise pension benefits from elected officials and from the collective bargaining process. That power now resides with the electorate. [Ref-05]
Related Recommendations (1)
R03
The Board of Supervisors should investigate and, if legal, place a proposition (similar to Orange County “Proposition J”) on the next County-wide election ballot to require voter approval for increases in retirement benefits as a long term control of pension costs. (C-06)
F19
In the 2008 general election, Orange County passed “Proposition J” with 75% of the vote, requiring voter approval for increases in county employee retirement benefits. (Att-02)
Related Recommendations (1)
R03
The Board of Supervisors should investigate and, if legal, place a proposition (similar to Orange County “Proposition J”) on the next County-wide election ballot to require voter approval for increases in retirement benefits as a long term control of pension costs. (C-06)
F20
Orange County “Proposition J” provides that all increases in retirement benefits must be approved by the electorate. Further, prior to any ballot initiative to increase retiree benefits, an actuarial study on the proposed cost of the new benefits will be provided to the electorate. (Att-02)
No recommendations for this finding
F21
The Orange County ballot statement in favor of “Proposition J” is included in Attachment 03. There were no ballot statements against “Proposition J”. (Att-03)
No recommendations for this finding
F22
“Defined-benefit plan. A plan that provides employees with guaranteed retirement benefits that are based on a benefit formula. A participant’s retirement age, length of service and pre-retirement earnings may affect the benefit received.” [Ref-06]
Related Recommendations (1)
R01
The Board of Supervisors should commission an independent study on the merits of replacing the current defined benefit pension plan, for new hires, with a combination of reduced defined benefits and adjusted defined contributions similar to private industry. (C-07) 6 Ventura County Pension
F23
“Defined-contribution plan. A plan that specifies the level of employer contributions and places those contributions into individual employee accounts. Retirement benefits are based on the level of funds in the account at the time of retirement.” [Ref-06]
Related Recommendations (1)
R01
The Board of Supervisors should commission an independent study on the merits of replacing the current defined benefit pension plan, for new hires, with a combination of reduced defined benefits and adjusted defined contributions similar to private industry. (C-07) 6 Ventura County Pension
F24
U.S. Bureau of Labor Statistics stated in 2009, “BLS data on State and local government employees show that 84 percent of workers in 2008 had a defined benefit plan available to them; in contrast, 22 percent of private industry workers had such a plan available to them in the same Ventura County Pension 5 year.” “Just as the structure of retirement plans differs between public and private sector workers, so too has the pace of change in retirement plans differed between the two sectors. From 1986 to 2008, participation in defined benefit plans among full-time workers in private industry declined from 76 percent to 24 percent. Over a similar period (1987-2008), State and local government employee participation in defined benefit plans declined modestly—from 93 percent of full-time workers in 1987 to 88 percent of full-time workers in 2008.” [Ref-07] Conclusions C-01. Increasing pension costs are stressing the County’s budget. County pension costs have risen over 327% in the last 11 years ($32.7 Million in FY 1998-1999 to $139.7 Million in FY 2008-2009). (F-01) C-02. The County’s future pension costs are projected to increase significantly for the foreseeable future. (F-05 through F-09) C-03. Pension payments to retirees remain secure, backed by the Fund’s assets and the annual contributions. (F-01, F-04, F-16) C-04. The factors that cause the County pension costs to increase include: • VCERA investment results • employee salary increases • increases in pension formula (not currently used by the County) • County payment of employee retirement contributions • actuarial assumptions • excess earnings not used to offset losses The County bears all the costs of these factors, but does not control all of them. (F-03, F-11, F-12, F-15) C-05. The ’37 Act gives VCERA sole discretion on the use of “Excess Earnings” regardless of the Plan funding status. (F-12 through F-15) C-06. In an effort to contain retiree benefits costs, San Francisco, Orange County, and the City of San Diego require the electorate to approve retiree benefit increases. (F-17 through F-21) C-07. Private industry has substantially transitioned to defined contribution plans in order to manage pension costs. Public employee pensions are still substantially defined benefit plans. (F-22 through F-24) Recommendations
No recommendations for this finding

Conclusions 6

Commendations 2

No Responses Found 3

Government entities assigned to respond to this report. No response documents have been linked in our database.

County of Ventura Agency
Ventura County County
Ventura County Board of Supervisors Elected County Office