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Grand jury knocks San Mateo County Employees Retirement Association's pension plan
April 16, 2013, 05:00 AM By Michelle Durand Daily Journal Staff
The county’s pension plan may have more than a $2 billion unfunded liability, twice what the organization reports, and elected leaders have failed to monitor or significantly reduce retirement costs, according to the civil grand jury. In a document released yesterday, the civil grand jury found that the San Mateo County Employees Retirement Association lost more than $11 million on its investments for fiscal year 2012 and on average has failed to achieve its assumed rate of return over the past one-, five- and 10-year periods. SamCERA’s anticipates a 7.5 percent annual return but its investment performance ranks in the bottom 20 percent, according to the civil grand jury. SamCERA CEO David Bailey said its estimate of the unfunded liability is specific to its fund investments while the civil grand jury’s higher estimate is not. Bailey said the jury also estimates as if SamCERA’s entire fund is invested in bonds rather than a more diversified portfolio. Bailey also disagrees with the rate of return noted in the report, saying as of March 31, 2013, the fund had earned 7.7 percent over the prior 10 years. The jury report “SamCERA’s funded liability: The elephant in the room” recommends the county prioritize paying down the debt over new or expanded programs and that the pension plan improve its financial disclosures. The county has been trying to highlight the pension challenge and “does not disagree with the grand jury’s conclusion” that the unfunded liability is a serious concern, said spokesman Marshall Wilson. However, he said, the individual pensions have to be put in perspective. The average retiree from San Mateo County receives an annual pension of $33,876, or $2,823 a month, Wilson said. The county budgeted a $92.5 million contribution to SamCERA as partial payment on the liability which is more than allocated for each of the Sheriff’s Office, capital projects, road construction and maintenance, library system or parks, the report stated. The use of Measure A sales tax revenue to cut down on the liability has been suggested but nothing has yet been approved and the issue won’t be discussed by the Board of Supervisors until June. Even if SamCERA’s reported $1 billion unfunded liability is accurate, the figure still breaks down to $1,500 for every man, woman and child in San Mateo County, the report concludes. The county’s taxpayers pay the price rather than pension recipients through slashed services, higher taxes or both, the report stated. Over the past four years, the county has already slashed employees, frozen pay and restricted hiring along with trying to contain retirement costs through new benefit formulas and establishing a higher age of receipt. Most county employees have not had a pay raise since 2008 and the Board of Supervisors is taking concrete steps and hearing regular updates from SamCERA, Wilson said But the jurors say that rather than meaningfully addressing SamCERA’s problem, the Board of Supervisors opted for a strategy of “hope” — hope that they don’t need to increase its contribution, hope the 7.5 percent rate of return is met, hope the new pension changes will drop the liability and hope they don’t need to make changes unpopular with employees. The civil grand jury reports are not legally binding but recipients are required to respond in writing within 90 days. In July 2012, the jury addressed the county’s escalating retirement costs which touched on the unfunded liability and rate of return assumptions. The current grand jury decided to dig deeper into this aspect because of the “dramatic” impact both can have on the county’s financial well-being. To read the full report visit (650) 344-5200 ext. 102.

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