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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Mendocino County's Pension Debt



Immediate Causes of the Unfunded Pension Debt

Inadequate Investment Profits



Immediate Causes of Unfunded Pension Debt


Choices -

Immediate v. Fundamental Causes

Inadequate Investment Profits

Not Enough Money Invested

The "Excess Earnings" Fraud

Retained Profits Even Worse

Actuary Built In Debt

Other Immediate Causes

 

Average Rate of Investment Return About 6.5% over 18 Years
About 1/5 Below Target

Investment profits derived from investment of Normal Contributions are supposed to provide most of the money required to pay pensions. I have three data sources for investment returns for Mendocino County's Pension Fund . These tables show the average rate of return over these years; they are not "dollar-weighted".

Average Rate of Return - All Years in 3 Series
Data Source Years Average Variance from Target Percent Over or (Short) of Target
Return Values Reported in Actuarial Valuations 1997 - 2013 6.81% (1.14%) (14.00%)
My Calculation of ROA from Data in Audited Statements 1998 - 2012 5.05% (2.92%) (36.30%)
Calculations Performed by the State Controller's Office 1996 - 2011 6.96% (1.02%) ) (12.40%)

The target rate of return in these years was 8.00% through 2010, then it was lowered to 7.75% for 2011 through 2014. It was lowered to 7.25% for the fiscal year beginning July 2015.

The three data series cover different years and therefore a direct comparison of the averages is somewhat misleading. This shows the averages and variances for the 14 years I have data from all three sources:

Average Rate of Return - Same Years in 3 Series
Data Source Years Average Variance from Target Percent Over or (Short) of Target
Return Values Reported in Actuarial Valuations 1998 - 2011 6.16% (1.82%) (22.34%)
My Calculation of ROA from Data in Audited Statements 1998 - 2011 5.49% (2.49%) (30.68%)
Calculations Performed by the State Controller's Office 1998 - 2011 6.07% (1.91%) (23.47%)

The most important observation is that the Pension Fund's returns in all three data series were below target. The return values reported in Actuarial Valuations and as calculated by the State Controller's Office are fairly close whereas my calculations based on MendoCERA audited financial statements are rather different from the other two.

Since the Valuation and SCO values were calculated by someone else, I weighted my calculation at half that of the other two to reduce the impact of my calculation and to rely more on these two third parties. I therefore estimate the average rate of return over these years was 6.5% - about 1/5th below target.

Second Worst Long-Term Performance of 21 County Pension Funds

According to State Controller Office (SCO) data only 3 of the 21 County Pension Funds failed to achieve their target over the last 15 years. Mendocino County's was one of them - the second worst performance among the 21 County Funds from 1996 through 2011. These are all the years for which you can download SCO reports from their website at this time (3/26/15) - Click Here.

Mendocino's Pension Fund had the 2nd worst long-term return on investment of California County Pension Funds.
 
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