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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Pension Basics



Organization of Pension Benefits



County Pension Basics


Choices -

The Benefit

Organization

Funding

Success or Failure

 

Pension Funds Separate from Employer Governments

By law state and local governments can't retain their Pension Funds - the Funds must be conveyed to an independent Retirement Trust Fund. There are several reasons for this, some of which are:

  • It's supposed to take the funds out of the hands of the employing government that might be tempted to use the funds for other purposes. (We'll see that wasn't the case in Mendocino County.)
  • The management of a Pension Fund is (or should be) quite different from managing a government.
  • It's important to specifically assign fiduciary responsibility for the pension funds held in a trust fund.
Flow of Money in Government Pensions

Role of the Employer Government

The governing bodies of employer governments establish what retirement benefits are in collective bargaining agreements with public unions and other employee groups. These agreements also set salary levels and other benefits that impact the amount of pensions to be paid. The governments are obligated to make contributions to the Pension Fund and often agree to pay part of the employees' contribution as well. Usually the sponsoring governments appoint somewhat fewer than half the members of their Retirement Boards.

Role of the Pension (Retirement) Board of Directors

The Retirement Board hires a "General Manager". The Boards establish how much the governments and employees must pay into the Pension Fund each year - although governments often agree to pay part of their employees' contribution. They approve the general investment plan for the Pension Fund. The Pension Fund actually pays the pensions to retirees. It's usually said the Retirement Board doesn't establish what retiree benefits will be - that's supposed to be the role of the governing body of the employer government. But as we'll see the "Perverse Incentive" in how most US local and state pensions are funded and how Retirement Boards are structured allows those Boards to significantly increase the value of retirement benefits on their own.

Major Point!

Governments don't pay pensions - they pay the independent Pension Fund. The Pension Funds pay the pensions to retirees.

California State and Local Government Pension Funds

According to the most recent California State Controller Office's Public Retirement Systems Annual Report (today is 2/5/16 - the most recent report is for 2011!) there were 131 public retirement systems in California. This shows the number of systems in each level of government and their "actuarial" funding positions as of the end of their 2011 fiscal years.

  Number   Pension Fund Assets (1) Total Pension Liability (2) Unfunded Pensions (3)   % of Ttl Pension Liab. % of Unfunded Liab   Funding Ratio
State 8 439.21 556.22 ( 117.02 ) 73% 74% 79%
County 21 102.19 128.31 ( 26.11 ) 17% 17% 80%
City 36 59.37 72.91 ( 13.54 ) 10% 9% 81%
Other 66 3.63 5.20 ( 1.57 ) 1% 1% 70%
Total 131 604.40 762.65 ( 158.24 ) 100% 100% 70%

For more detail about how California counties provide pension benefits see >>>>> COUNTY PENSION FUNDS <<<<<.

Major Point!

The big statewide Pension Funds created about 75% of the total unfunded pension debt and the local government Pension Funds created about 25% - of which about 2/3 was created in County Funds and 1/3 in City Funds.

Therefore - County Pension Funds created about 1/6 of the total State and Local government unfunded pension debt in California.
Share of Unfunded Pension Debt
California State & Local Government
2011 - State Controller's Office
Share of Unfunded Pensions - California State & Local Pension Funds - 2011

Three Types of Pension Funds

The Governmental Accounting Standards Board ("GASB" - pronounced "GAS-Bee") establishes "Generally Accepted Accounting Principles" ("GAAP" pronounced "Gap") for state and local governments in the US. GASB defines three types of state and local government pension funds. This is an excerpt from page ii of their major new government pension financial reporting rules published June 2012 that are being imposed this year on all state and local governments (See Note 1 below):

Distinctions are made regarding the particular (pension accounting and reporting) requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one of the following categories for purposes of this Statement:

  • Single employers are those whose employees are provided with defined benefit pensions through single-employer pension plans—pension plans in which pensions are provided to the employees of only one employer ...
  • Agent employers are those whose employees are provided with defined benefit pensions through agent multiple-employer pension plans—pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees.
  • Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multiple-employer pension plans—pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan.

 

NOTE 1: Accounting and Financial Reporting for Pensions, Statement No. 68 of the Governmental Accounting Standards Board, June 2012, Governmental Accounting Standards Board of the Financial Accounting Foundation, Norwalk, CT. Available at GASB website (click to go there). These major new GASB rules are explained in the next section End of Government Pension Financial Reporting "Fraud".

 
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