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Old Mendocino County Courthouse Around 1915

California County Pension Debt


Pension Basics

This is Very Important to Understand

Pension Fund Success - or Failure

County Pension Basics

Choices -

The Benefit



Success or Failure


We define Pension Fund success or failure from the People's point of view in terms of how well the Fund achieves the basic funding goal:

  • Success: The Pension Fund is capable of paying all pensions requiring only the Normal Contribution and Investment Profits and .
  • Failure: Significant unfunded pension debt develops that forces the government to pay significant unfunded pension payments which forces a combination of major cuts in services and infrastructure, increased taxes, and/or threatens promised retirement benefits.

Actuarial Valuations are Estimates

Pension math is hugely complex and uncertain. There are so many estimates that must be made - life spans, final compensation, when young employees will retire, how many employees will be disabled, how much will the Pension Fund earn ...

It's literally impossible for all the estimates in Actuarial Valuations to come exactly true. And this is particularly true because the Actuaries prepare Pension Funding Plans based on the assumption the Pension Fund will earn precisely its expected rate of investment returns every year - which is completely impossible.

Some years will be better than planned, others will be worse.

The Success or Failure of a Pension Fund can't be determined by one or a handful of yearly results. It's the long-term results that matter.

What Successful Pension Funds Look Like

A successful Pension Fund would be "over-funded" in some years and "underfunded" in others. But over the long run the Pension Fund SHOULD BE FULLY FUNDED - ON AVERAGE - never requiring additional unfunded pension debt payments.

Successful Pension Funds need to be around 125% funded at the tops of bull stock markets and around 80% funded at the bottoms.

Major Point!

The ONLY way to prevent unfunded pension debt from developing is for Pension Funds to AVERAGE at least 100% FUNDING over the long-term requiring only Normal Contributions and Investment Profits.

What Successful Pension Funds Look Like

What Failing Pension Funds Look Like

What Failing Pension Funds Look Like

A failing Pension Fund creates more and more unfunded pension debt over time. It fails to achieve its own funding plans on average over the years. No matter what the cause, an underfunded Pension Plan is imposing debt on the County and its People.

There is no other possible conclusion. Everyone - officials, employees, retirees, and concerned citizens should be alarmed if significant Unfunded Pensions develop.

For decades thousands of government, retirement and public union officials all across the US said it was "OK" for a government Pension Fund to average 80% funding. That is a BLATANT FALSEHOOD. It's a complete absurdity from the People's point of view. No one should ever let an official get away with saying that. (See The Myth of 80% Funding.)

If government and retirement officials responsible for the financial management of the government and retirement benefits can't precisely identify

  1. what factors significantly varied from the Valuation Plan,
  2. how those variances created Unfunded Pensions, and
  3. what they are going to do to "fix" the fundamental causes of the Unfunded Pensions - communicate the results of their analysis to all interested parties including the People - and DO IT

... then they aren't doing their duty and should be replaced.

Major Point!

If significant unfunded pensions develop in a Pension Fund something Is Very Wrong! Period! Concerned citizens should not allow government or retirement officials - or anyone else - tell them otherwise.

Unfunded Pension Debt Imposed by California County Pension Funds

So - how have the 21 County Pension Funds performed? This shows the TOTAL UNFUNDED PENSION DEBT (the Pension Fund's Net Pension Liability + balance of Pension Bonds owed by the counties) imposed by these 21 County Pension Funds.

What Successful Pension Funds Look Like


Unfunded Pension Debt
Imposed by Twenty-One California
County Pension Funds

Success - or Failure?
How Much Unfunded Pension Debt Imposed by County Pension Funds on 21 California Counties

See note 1 below.

What Failing Pension Funds Look Like

This graph starts at the end of the longest bull stock market in American history through the '90's. In 2000 these 21 County Pensions collectively reported a positive funding position of nearly $12.7 Billion. But their 21 counties owed a remaining balance of $5.5 Billion for previous Pension Obligation Bond borrowing. Therefore these Funds had achieved a little more than $7 Billion based only on past Normal Contributions and investment profits (see Note 1).

The Total Unfunded Pension Debt grew to $47 Billion at the bottom of the Great Recession in 2009. This was a shift of about $53 BILLION.

They've recovered a bit as the stock market nearly tripled by mid-2014. But even with this very strong growth in the stock market these Pension Funds still had imposed $32.5 Billion of unfunded pension debt. (See Note 2)

Three counties (LA, San Diego, Orange) account for more than half of these dollars. On a total dollar basis these 3 swamp the rest.

The graph below shows the AVERAGE unfunded pension debt (including the remaining balance of Pension Bonds owed by the counties) imposed by these County Pension Funds as a percent of each County Pension Fund's TOTAL pension debt.

Major Point!

As a whole California's 21 County Pension Funds look like failing Pension Funds over the past 15 years. Are they?

Take a look at the section TWENTY-ONE COUNTY PENSION FUNDS - make up your own mind.

Average Funding Plan Achieved - 21 California County Pension Funds


NOTE 1: These graphs use the market value of the total Net Pension Liability of the County Pension Funds PLUS the outstanding Pension Obligation Bond debt owed by the counties each year. This is unfunded pension debt from the People's point of view. The Pension Fund's Net Pension Liability was calculated based on the Pension Fund's assumed rate of return and the Market Value of their investments.

NOTE 2: The stock market as measured by the S&P500 continued to grow until May 2015. Since then it has declined 12%. The technical definition of a "Bear Market" is a downturn of 20% or more lasting at least 2 months. The downturn we are today in (2/6/16) is not yet called a Bear Market. It's lasted long enough - 8 months. But it hasn't yet gone down enough. Whether it's a "correction" (in which lots of slightly "over-priced" stocks revert down to their "rational" price then start increasing again) or the beginning of a Bear Market - we don't yet know. But it's almost certain we will see increasing reported Net Pension Liabilities by these County Pension Funds as their 2015 and 2016 Valuations become available.

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