Humboldt County Working to Pay Off $220M Pension LiabilityCategories: California Developments,PARS In the News,Pension Rate Stabilization
Eureka Times-Standard by Will Houston, July 21, 2015
The Humboldt County Board of Supervisors took a first step on Tuesday to repay the $220 million the county owes to the California Public Employees Retirement System, or CalPERS, by working to form a trust fund for that purpose.
“If we do nothing to set aside funding to address this unfunded liability, we will be laying off county employees the next time we face a recession,” county Administrative Officer Phillip Smith-Hanes said to the board. “That is the reality that we face.”
In his presentation to the board, Smith-Hanes tried to make the county’s colossal pension problem as clear as possible saying that it would have “significant public policy considerations” if unaddressed.
The county is responsible for two forms of payment: a “normal cost” set by CalPERS and an unfunded liability, which is when market expectations differ from pension funding contributions with the difference having to be paid back in later years, Smith-Hanes said.
While pension reform legislation reduced the pension contributions for new employees starting in 2013, the enhanced contribution rates for the older employees remained set. CalPERS contribution rates have increased during the years due to these factors along with retired employees having a higher life expectancy than CalPERS predicted.
Fast forward to 2015: The county now owes $220 million in unfunded liabilities and is obligated to contribute $28.5 million toward CalPERS costs during this fiscal year. Currently, the county can only afford to pay off 21 percent of what its obligated to, Smith-Hanes said.
Having discussed this issue earlier this year, the board had expressed interest in paying off the unfunded liability either through pension obligation bonds or creating a trust fund managed by the consulting firm Public Agency Retirement Services.
County Treasurer John Bartholomew recommended on Tuesday that the board use the trust fund due to the bond option requiring an inflexible financial commitment which would be further complicated by the county’s financial stresses.
The trust fund option would allow the county to contribute funds when it has the funding available and allow it to use the trust fund to pay CalPERS if the county’s revenue stream takes a hit, Bartholomew said.
“Just like any debt, the more you can pay down the less it’s going to cost you over time because of the interest that is attached to it,” he said.