The county pension board lowered the assumed rate of return on its $3 billion fund to 7.75 percent from 8 percent Monday, joining a wave of funds that are downgrading their estimates of what the market will produce to cover government workers’ lifetime benefits.
Board members reduced the assumption on the advice of the Segal Co., their San Francisco actuarial firm. Those lower assumed returns mean the unfunded liability for the plan covering county government employees will increase by $100 million, according to Segal’s estimate.
The unfunded liability was last calculated at $775 million. Although the plan has been considered 80 percent funded, it will likely drop below that mark now, officials said.
Chris Johnston, an alternate member of the Board of Retirement, called Monday’s action to reduce the assumed return “a little bit late.”
It marked the first time the board governing the pension system for 15,000 retirees and active employees has lowered the rate since the middle of the last decade.
“We’re going to pay for it in the end,” Johnston said.
From 2010 to 2011, 15 of 40 pension systems in California have lowered their assumed rates of return, according to a recent study.
Bill Wilson, chairman of the retirement board, said he was worried about the future of the fund.
“When we’re looking at the unfunded liabilities, they’re not staying the same. They’re increasing, and they’re increasing substantially,” he said. “We’re already over $800 million. They’re going to be over $900 million. When do we start paying for that?”
The decision Monday will add $10 million annually to county government’s pension payments by 2015. Employees must contribute an additional $400,000 to $500,000 annually, according to the projections.
County Executive Officer Mike Powers said he did not know whether the local government could absorb the expense without cutting jobs or services.
“We’re still evaluating that, and when we see what the total impact is we’ll start dealing with it,” he said.
Powers said the impact might be cushioned because of steps taken recently to cut pension costs. They include negotiating larger pension contributions from employees and reducing cash-outs of vacation pay for managers, he said.
But in what’s being called an unintended fallout, the reassessment will boost some of the county’s biggest pensions. The increase stems from that portion of the employees’ retirement contributions that the county Board of Supervisors agreed to pay instead.
The county retirement contribution for sheriff’s deputies except recent hires will increase to 10.6 percent of compensation from 10.21 percent. For veteran managers it will go to 2.98 percent from 2.73 percent.
David Grau, chairman of the Ventura County Taxpayers Association, said he was disappointed that the pensions were increasing.
“It’s an unintended consequence,” he said.
Actuary Paul Angelo recommended the decrease in the rate of return to the pension board. Five to eight years ago, pension systems were counting on annual returns of 8 percent to 8.25 percent, but they aren’t any more, he said.
“Everything has shifted,” he said. “The number of 8’s is dwindling.”
Critics of public pension boards say their earnings assumptions are too lofty and threaten their sustainability.
Angelo had recommended lowering the rate three years ago to 7.75 percent, but the board stuck with 8 percent. Angelo said he considered 8 percent reasonable then, but would not go that far this year.
Powers had asked the board to consider reducing the rate by less. Still, he was pleased the trustees gave the county a three-year phase in period.
The pension system known as the Ventura County Employees’ Retirement Association paid out $180 million in pensions last year, double the amount in 2002. Over the period, the number of beneficiaries has grown 50 percent as the baby boomers have started entering retirement.