Marin County Grand Jury
• 2016-2017
The Budget Squeeze How Will Marin Fund Its Public Employee Pensions? Report Date: May 25, 2017
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings and Recommendations 10 findings
F1
All of the agencies investigated in this report had pension liabilities in excess of pension assets as of FY 2016.
Related Recommendations (1)
R1
The Marin Board of Supervisors should empanel a commission to investigate methods to reduce pension debt and to find ways to keep the public informed. The panel should be comprised of Marin citizens with no financial interest in any public employee pension plan and should be allowed to engage legal and actuarial consultants to develop and propose alternatives to the current system.
F2
A prolonged period of declining global investment returns has led pension plan assets to underperform their targeted expected returns.
Related Recommendations (1)
R2
CalSTRS and MCERA should provide actuarial calculations based on the risk-free rate as CalPERS does in its termination calculations.
F3
MCERA, CalPERS and CalSTRS have lowered their discount rates, which will result in significantly higher required contributions by Marin County agencies in the next few years.
Related Recommendations (1)
R3
Agencies should publish long-term budgets (i.e., covering at least five years), update them at least every other year and report what percent of total revenue they anticipate spending on pension contributions.
F4
If pension plan administrators discounted net pension liabilities according to accounting rules used for the private sector, increases in required contributions would be vastly larger than those required by the recent lowering of discount rates.
Related Recommendations (1)
R4
Each agency should provide 10 years of audited financial statements and summary pension data for the same period (or links to them) on the financial page of its public website.
F5
Most Marin County school districts have a negative net position due in part to the addition of net pension liabilities to their balance sheets.
Related Recommendations (1)
R5
For the purposes of transparency, MCERA, CalSTRS and CalPERS should publish an actuarial analysis of the effect of Cost of Living Allowances (COLA) on unfunded pension liabilities on an annual basis.
F6
The required contributions of Marin school districts to CalSTRS and CalPERS will nearly double within the next five to six years due to legislatively (CalSTRS) and administratively (CalPERS) mandated contribution increases.
Related Recommendations (1)
R6
Elected state officials should support legislation to permit public agencies to offer defined contribution plans for new employees.
F7
Pension contribution increases will strain Marin County agency budgets, requiring either cutbacks in services, new sources of revenue or both.
Related Recommendations (1)
R7
Elected state officials should support legislation to implement a statewide financial economic health oversight committee of all public entities similar to that implemented in NY.
F8
The private sector has largely moved away from defined benefit plans primarily due to the risk of underfunding, offering instead defined contribution plans to its employees.
Related Recommendations (1)
R8
Public agencies and public employee unions should begin to explore how introduction of defined contribution programs can reduce unfunded liabilities for public pensions.
F9
Taxpayers bear most of the risk of Marin County employee pension plan assets underperforming their expected targets.
No recommendations for this finding
F10
Retirees’ pension benefits would be reduced if an agency was unable to meet its contribution obligations.
No recommendations for this finding
Conclusions 3
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CL1Avoid further increasing the pension liabilities of Marin’s public agencies by shifting from DB to DC-only and/or hybrid retirement plans.
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CL2Increase the rigor and extend the planning horizon of fiscal management by Marin’s public agencies.
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CL3Improve the depth and quality of information provided to the public. In the course of its investigation, the Grand Jury found two models that may help achieve these objectives, one from right next door and one from across the country. In September 2015, Sonoma County empanelled the Independent Citizens Advisory Committee on Pension Matters consisting of seven members, “none of whom are members or beneficiaries of the County pension system.”42 The panel conducted an investigation and published in June 2016 a comprehensive and highly readable report with recommendations for containing pension costs, public reporting and improving fiscal management.43 In 2012, New York State Office of the State Controller introduced a Fiscal Monitoring System, which is intended to be an early-warning system for financial stress among the state’s municipalities and school districts. It takes financial data from reports filed by the agencies and economic and demographic data to produce scores to identify fiscal stress. The OSC also offers advisory services to assist those agencies in developing plans to alleviate their financial stress.44 We believe that these two models could be helpful as Marin’s public agencies come to terms with the fiscal realities of the years ahead. One final point: As bad as this report may make things look, they will almost certainly look worse in the next few years because of the lowering of discount rates by pension administrators. We believe that these actions by CalPERS, CalSTRS and MCERA are well founded and prudent, but they will result in increases to the NPLs of every agency, necessitating higher payments in 41 Marin Association of Public Employees v. Marin County Employees Retirement Association 42 “Independent Citizens’s Advisory Committee on Pension Matters.” County of Sonoma. 43 “Report of Independent Citizens Advisory Committee on Pension Matters.” County of Sonoma. June 2016. 44 “Three Years of the Fiscal Stress Monitoring System,” New York State Office of the State Controller, September 2015 June 5, 2017 Marin County Civil Grand Jury Page 24 of 61 The Budget Squeeze: How Will Marin Fund Its Public Employee Pensions? the near term to amortize the higher NPLs. The result will be that budgets, already under pressure, will be squeezed further.