An analysis of public pension systems in Marin County offers an optimistic assessment.
The assessment was released Wednesday as the second in a three-part series by the Center for Labor Research and Education at the University of California, Berkeley.
“Our research shows that retirement costs for public employees in Marin County are declining or nearing their peak, and public employers can anticipate lower rates in the near future,” said Nari Rhee, program director. retirement security at the center.
“CalPERS, CalSTRS and MCERA have made progress in reducing their legacy unfunded liabilities, which represent between half and two-thirds of the cost to taxpayers of Marin’s public employee pensions,” Rhee said.
CalPERS is California’s public employee retirement system; CalSTRS is the state of California’s teachers’ retirement system; MCERA is the Marin County Employees Retirement Association.
According to the report, most public employers in Marin County — 37 public agencies, including cities, towns, and various utility, sanitation, transit, and public safety districts — pay retirement benefits. through CalPERS. The system also provides pensions to “classified” non-educational staff in K-12 school districts.
CalSTRS covers Marin teachers, librarians, principals, professors, and other teaching staff in all K-12 school districts and Marin Middle School.
MCERA provides pensions for Marin County, City of San Rafael, Novato Fire Protection District, and various special districts.
Based on data from the three pension systems, Rhee determined that employee benefits represent one-third to one-half of public employer pension costs in Marin County.
The Public Employees Retirement Reform Act (PEPRA), which came into force in 2013, reduced the costs to the employer of pension benefits for employees hired after 2013 by a third compared to previous hires. PEPRA cut pension benefits, raised the retirement age and required at least 50% cost sharing for employees hired after 2012.
The report says the cost to school districts of pensions for teachers hired since 2013 is about 8% of salary, compared to the standard employer cost of 6.2% for Social Security, which schools don’t pay. not because Californian teachers are excluded from the program.
The report says MCERA, CalPERS, and CalSTRS have also taken other steps to put their systems on a stronger long-term financial footing. Changes include adjusting for longer life expectancies of retirees, reducing long-term investment return assumptions and requiring employers to pay down their pension debt more quickly.
The report notes that at the end of fiscal year 2021, MCERA was fully funded based on the present value of its assets, while CalPERS was 80% funded and CalSTRS was approximately 75% funded.
“Over the past few years, the county has reduced its unfunded retiree liabilities by more than $400 million,” Marin County Administrator Matthew Hymel said. “Going forward, we know market conditions will change, so we will need to remain diligent to maintain our positive funding position.”
One of the reasons for the significant progress made by the three pension systems in reducing their unfunded liabilities is the exceptionally high investment returns they experienced in fiscal year 2021. MCERA, CalSTRS and CalPERS have respectively gained 32%, 27.2% and 21.3%.
This year, however, the major US stock indexes are all down more than 20%.
MCERA uses a five-year smoothing methodology for investment gains and losses, while CalPERS and CalSTRS use a three-year timeframe.
“The way I see it is that they have a healthy buffer against stock market volatility,” Rhee said.
She noted that all three systems have diversified portfolios that have exceeded their long-term investment return targets, which includes two major recessions.
The first installment of Marin’s public pension series, released in October, reported that public employees in Marin County are, on average, significantly underpaid relative to their education, and that public pensions are a powerful incentive. keep skilled workers in the public sector.
The latest installment, which is expected in late July, will focus on the role of public pensions in reducing inequalities in retirement wealth by race, gender and education compared to 401(k)-style plans.
Rhee said the UC center decided to focus its attention on Marin’s public pensions after “some people from the North Bay Labor Council contacted us.” She said part of the cost of the series was covered by a research donation from the council.
Rhee said the board was eager to see independent research done after Policy Analysis for California Education, a nonpartisan research center, released a report critical of defined-benefit pensions for teachers in 2019.
The research was funded by the Laura and John Arnold Foundation of Houston. The foundation is named after a hedge fund manager and his wife, who started it in 2008.
Rhee said there was an unsuccessful attempt at the time to get the Marin County School Board to lobby lawmakers to scrap public pensions for teachers.
Carrie Hahnel, senior policy and research fellow at Policy Analysis for California Education, said the UC report downplays the challenges that remain in funding public pensions, especially given the stock market’s poor performance so far. now this year.
“We still have an unfunded liability of $100 billion,” Hahnel said.
“We find that about 28%, almost a third of teachers, never even acquired the pension system,” she said. “That means they don’t gain any advantage. We also find that around 72% of teachers leave the system before reaching normal retirement age.
Bob Bunnell of Novato, founding member of Citizens for Sustainable Pension Plans, said the percentage of pension costs paid by taxpayers has risen sharply since 2001.
“That’s why I say the MCERA achieved 100% funded status on the backs of taxpayers,” Bunnell said.
In September 2020, the California Supreme Court struck a blow at tax hawks who hoped a Marin County lawsuit would set a new precedent allowing governments to renegotiate pension agreements with employees. Instead of hearing the case, the Supreme Court sent it to an appeal court.
“Until that changes,” Bunnell said, “there will be enormous risk in the public pension system.”