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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Mendocino County's Pension Debt



Immediate Causes of the Debt

The Fraud of Pension Fund "Excess Earnings" Part One



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

 

In September 1998 the County adopted a Retiree Healthcare Policy. Among other provisions Pension Fund "Excess Earnings" would be the preferred source of funds to pay retiree healthcare.

For decades elected County officials said they paid nearly $40 million of retiree healthcare benefits from Pension Fund "Excess Earnings".

I'm happy to see seniors with good healthcare - that's not my issue. My problem - and it's a BIG PROBLEM - is how our County paid for it. And - how badly our County's elected officials - and Retirement Officials - and most likely Union Officials - utterly misrepresented to the People, employees and retirees what was happening - and the huge damage they did to us all.

The County Employees Retirement Law (CERL) defines Pension Fund "Excess Earnings" and what can be done with it. The actual definition is a little more complex, but this simplification correctly captures almost all the mathematics of the definition:

"Excess Earnings" are any investment profits above the target rate of return in any individual year regardless of the Fund's financial position.

CERL authorizes the use of Excess Earnings to pay benefits in addition to pensions including retiree healthcare benefits of various types, accrued sick leave, and increases in pension payments above that defined in collective bargaining agreements.

The Idiocy of "Excess Earnings"




As discussed in Pension Fund Success or Failure if the County's Pension Fund had been "successful" from the point of view of the People it would have sometimes earned more than its target rate, sometimes less. But - over the long run - it should have averaged its target rate of return
What Successful Pension Funds Look Like


But if every time earnings are more than target they are taken out of the Pension Fund to pay retiree healthcare, how can the Pension Fund average its target rate over the long run?

The obvious answer is - IT CAN'T.

The Pension Fund is DOOMED to be underfunded - and create more and more debt imposed on the People.

Diversion of Excess Earnings Destroys Pension Funding

For two decades County and Retirement officials said retiree healthcare was paid with "Excess Earnings" even though:

  • The Pension Fund earned significantly less than target over those years.
  • The County borrowed $110 million by selling Pension Bonds.
  • Unfunded pension debt increased in almost all those years if we include Pension Bond debt.
  • The Pension Fund was always underfunded.

This created about a quarter of our County's unfunded pension debt.

It's absolutely astonishing that such a stupid practice went on for two decades before being challenged.

I reiterate - I'm glad to see seniors with good healthcare. But Mendocino County and the Retirement Association built this benefit on sand. As a result - it was doomed from the start.

This was a TERRIBLE thing to do to employees who simply believed this benefit would continue to be provided and counted on it for their retirement planning.

Click here to see a 16 minute video of retirees telling the Board of Supervisors how they feel about termination of County funding of retiree health benefits.

 
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