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Taking Stock Of The County’s Pension


Say the words “pension debt” and “San Diego” and most people will think of the city. But San Diego County is facing massive pension losses as well.

— It’s time to talk pensions again! But wait, we’re not heading downtown to San Diego city hall this time. We’re going to go up the street a bit to the County’s headquarters. You know, the Depression era, tan building across from the Star of India.

The county employs a lot of people, and also gives them pensions when they retire. The county’s pension has kept a relatively low profile compared to the antics of the city. But that doesn’t mean it’s all smooth sailing.

In 2008 the stock market tanked and County Supervisor Dianne Jacob says like pension systems everywhere, San Diego County was hit hard. The fund lost $2 billion; it had a negative 25 percent return. Jacob says the county is still recovering.

“The problem with the county pension fund is the losses on Wall Street,” Jacob said. “That’s the primary problem with the county pension fund right now.”

Those problems could last awhile. Why? Well, when you want to see how a pension is doing you look at something called the valuation. It’s basically a snapshot taken on the same day every year. The latest look at the county pension shows it’s about 84 percent funded. That’s not bad. Pension people will tell you it’s like having 84 percent of your house paid off. But for a long time the pension was fully funded. And actuaries, people who calculate financial risks, predict that in the coming years the funding level of the pension is expected to fall to under 70 percent. So it’s kind of like owing more on your house than you did last year. Still, Supervisor Jacob said it’s all about the stock market. If it goes up, those funding predictions could change.

“If the investment returns increase as they have, year to date our county pension fund has gained about $1 billion back,” she said.

To try to fix the situation the county is giving newer employees less generous benefits. It’s reached an agreement with labor unions to reduce retiree healthcare costs. And Jacob points out, unlike the city of San Diego, the county has always paid the required annual pension payment. This year that’s about $295 million.

OK, so they’ve done their part, right? Well, hold on, not everyone’s convinced. Bill Sheffler is an actuary.

“It’s like being the best looking kid in an ugly class,” he said. “If everyone else looks bad then you don’t have to do too much to look good.”

Sheffler was on San Diego’s Pension Reform Committee after the city had underfunded its pension. He said even though the county isn’t technically underfunding its pension, it’s still not putting enough money into the system. Right now the county has acknowledged a pension debt of about $1.5 billion. And Sheffler is in the camp that believes the stock market alone won’t take care of that debt.

“I don’t think it’s going to happen either,” he said. “I think we’ve had a period of over-normal returns. And historically I don’t think we’re going to see a return to those kinds of returns.”

But didn’t we hear the fund had lost a quarter of its value? Yes, in 2008 it did. But that was a bit of an exception. In previous years the fund has seen investment returns around 14 and 15 percent; once returns even reached 22 percent. But Sheffler believes those high-rolling days are gone. And actually the fund’s average return over the last eight years is just about 6 percent, though county pension officials maintain the average return over the past 20 years is 8.6 percent.

Now, because gains and losses can vary so much from year-to-year, pension funds practice something called smoothing. Basically anything the fund earns or loses isn’t taken into account right away. Instead it’s put aside and realized a little at a time. At the county, the money is acknowledged over five years. Sheffler said that’s too long.

“The shorter the period, the more likely it is you’re going to have to recognize market value losses and address them in a positive fashion,” he said.

Right now the fund has $1.7 billion in losses waiting to be recognized. And remember there’s also an acknowledged debt of $1.5 billion. So those two numbers plus about $870 million in pension bonds the county also has, add up to about $4 billion in debt the county will have to deal with in years to come.

But pension fund CEO Brian White says that’s exactly it, pension funds are meant to last for decades.

“This fund was established in 1939,” he said. “It’s been through world wars, it’s been through great depressions, it has been through a number of recessions. It’s had its ups and downs.”

White said the fund will survive this latest dip. But what that will cost county taxpayers remains to be seen.

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