Patrick Cloney asks Brian Roberts, Michelle Bushnell, Jeana McClendon…

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PDSIR: Pension Debt Service Impact Report

HumCo’s pension debt increased from $220 million in 2015 to $330 million in 2021, which saw HumCo announce its projected pension contributions would increase by $17 million …per year… for at least the next decade. With this financial burden, would you, as County Supervisor, bring forth a yearly PDSIR: a Pension Debt Service Impact Report? A PDSIR would be a yearly report presented at budget time that would list HumCo’s current pension debt, projected payments for the year, and how these debt payments would impact services.

— Patrick Cloney

Responses

Brian Roberts

Patrick that was an excellent question and thanks for asking.  Yeah it looks like a 33% increase in liability over those six years (2015 - 2021).  Humboldt County is now responsible for $17  million to pay for pensions of past employees. 

It looks as though there was great optimism during that time period.  The county hired employees and with each new employee comes a liability of a future pension.   Shocking how this happened when the County also took in $52 million in Measure S taxes over the same time period.

The increased amount owed to CalPERS directly impacts the services our county can provide.The priority of all Board members should be a balanced budget.  

I would support a PDSIR on a yearly basis.  Pension debt is what has been bankrupting several cities in the past.

I would also support upgrading some of our Departments and making them more tech friendly for some basic services the county provides.  The county may be able to be more productive with less employees thus lowering our pension debt in the future.

 

Jeana McClendon

I support nearly any report aimed at enhancing transparency, comprehension, and public trust in the budget process, provided that the associated cost is reasonable. I am dedicated to maintaining investments in PARS and adhering to the county’s historical approach to prefunding, in line with the existing pension funding policy. In the event of excess funds or cash influxes, I would endorse using them to address liabilities when feasible. It is no secret that pension plans constitute a significant unfunded liability in the United States, and addressing such obligations is crucial for overall economic health.

Michelle Bushnell

 

I am unfamiliar with the report you are asking about, however there are many structures in place to address your question. 

Never is there a budget process that is brought forward that has not been turned inside and out by the experts in that field.

Below is the process concerning CalPERS,

  

The budget team review’s review pension contributions annually as part of the budget process. Pension costs are highly dependent on the market. During every budget time, our Board sets our PARS contributions, will review an analysis determining if prepayment of our annual unfunded liability to CalPERS is the best action , and departments create their budgets based on incorporating these costs (retirement costs are determined based on the annual CalPERS actuarial report which is publicly available), therefore your Board reviews service impacts of budget shortages (with information on pension increases in mind) annually.

 

  • CalPERS reevaluates agency unfunded pension liability on an annual basis. As the annual unfunded liability is dependent on market rates, it varies from year to year. As of June 30, 2021, safety plan pensions were 77.3% funded and miscellaneous plan pension were 78.8% funded.
    • Other rural counties such as Shasta, Lake and Nevada have very similar funded status percentages.
  • It is important to note that the unfunded pension liability is not debt and that 100% funding for the liability would mean that future contributions equal to the normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future experience matches the actuarial assumptions. To put this in plain English, the liability reflects the cost of funding pensions for all active members (current employees and retirees) through the end of their life (based on average lifespan) given some assumptions such as market earnings on investments. Much of that liability will not be realized for decades. This number is evaluated annually and the unfunded liability represents the target. 
  • The county has a pension funding policy which details the strategies the county has taken (available in the budget book and on the county website) and will take to lower the unfunded pension liability including:
    • Annual prepayment of the county’s UAL (unfunded accrued liability) payment which typically is rewarded by CalPERS with a discount.  This is evaluated annually for its benefit to the county and approved by the Board.
    • Establishing a section 115 Pension Trust (PARS) on Sept. 15, 2015 to set aside funds to pay toward the unfunded liability. These trusts earn substantially higher rates of return than the county pool. As of June 30, 2023 the trust had over $8 million in it and the county has continued to fund it in FY 2023-24 with the Board adopting contributions to PARS at 2% of annual salaries. The county has a long-term funding strategy and CAO staff plan to reevaluate those strategies later this year to see if updates are needed to keep up with market trends and the county’s current financial status. Your Board decides annually to continue or to modify this contribution. 
  • Pension funding remains a priority for the county, despite uncertain fiscal times in the last two years, the county has maintained the strategies listed above.
  • The Public Employees’ Pension Reform Act (PEPRA) took effect in January 2013. This act places limits on compensation in an effort to smooth out pension obligations and reduce long-term liabilities. The county is just beginning to see the impacts of this reform.