Pension Tension Relieved? an Investigation Into the County's*

In February of 2017 the County adopted a pension funding policy of contributing an additional 2% of payroll into the Section 115 Irrevocable Trust. As a result the County has put in place a mechanism to responsibly manage its unfunded pension liabilities. Agree. The county agrees the Trust is a prudent mechanism to assist in the management of unfunded pension liabilities. The county emphasizes that the Trust's purpose is primarily a defensive strategy for liquidity management and budget stabilization during market volatility. The pension funding strategy centers on maintaining volatility reserves that provide a balance between protecting against investment losses and preserving financial flexibility. The strategy includes gradual reserve growth and cautious management of liquidity When well-funded, the trust could also act as a proactive strategic tool to reduce negative amortization and reduce county interest cost. However, return enhancement, as the Grand Jury report might suggest, is not a primary objective of the trust strategy. The county would also make another clarification to the report that the 2% of salaries that is deposited into PARS was not offset by a 2% increase in employee wages as the county is funding this contribution, not employees.

The Pension Funding Policy states that actuarial valuations be posted annually to the County website. Actuariol valuations alone do not provide citizens with adequate information to understand the Unfunded Accrued Liabilities situation, neither in the short term nor in the long term. (R1-R8) Partially agree. The county agrees that actuarial valuations, while essential, do not by themselves provide a complete picture of the pension funding landscape. Valuations are point-in-time estimates based on current assumptions and do not capture: Known but not yet reflected experience (e.g., recent market gains or losses that will only appear in • future reports). The probable frequency and severity of future investment losses given CalPERS' expected volatility. • The impact of CalPERS' 20-year amortization policy, which can translate market volatility into significant new repayment obligations regardless of current funded status. The county's liquidity needs and risk tolerance, which drive the rationale for maintaining a §115 • volatility reserve and current investment strategy. At the same time, the county believes it is important to address these limitations through policy-level commitments to transparency rather than piecemeal disclosure in individual reports. A revised Pension Funding Policy can provide the public with clearer objectives, reporting standards and context around risk management, liquidity and long-term funding priorities. Accordingly, the county partially agrees with the finding: actuarial valuations alone are insufficient, but the solution lies not in adding ad hoc disclosures, but in establishing a policy-based reporting framework that explains how the §115 trust fits withing the broader funding strategy.