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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 Two



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

 

The Diversion of Excess Earnings Further Reduced Already Inadequate Investment Returns

As described in Inadequate Investment Profits the County Pension Fund earned significantly less than its target rate over the past 18 years (as long back as I have any data). But that's BEFORE so-called Excess Earnings were diverted to pay retiree health benefits.

Target & Actual Returns 1997 – 2013 ($millions)
  Dollars Rate % Target
Target $325 7.97% 100%
Actual 285 6.99% 88%
Short ($40) (0.98%) (12%)

Impact of Diversion of Excess Earnings
  Dollars Rate % Target
Actual $285 6.99% 88%
Less Health Benefits (37) (0.91%) (11%)
Less Lost Profits (30) (0.74%) (9%)
Retained Earnings $218 5.35% 67%

The total target dollar return from 1997 through 2013 was about $325 million. Actual investment returns were $285 million, $40 million or 12% below target.

About $37 million of retiree health benefits were paid out of so-called Excess Earnings which reduced the retained investment returns about another 11%. But even though on average the Pension Fund earned less than its target – it still was more than breaking even. Therefore this $37 million was not left in the Pension Fund to earn investment profits. I applied each year’s rate of return reported in MendoCERA’s Actuarial Valuations to each year’s payment of retiree health benefits. Had that $37 million been left in the Pension Fund to earn investment profits the Pension Fund would have earned another $30 million.

The payment of health benefits and lost investment profits that directly resulted lowered retained investment earnings from 88% of target to 67% of target. This produced about 25% of our County’s unfunded pension debt.

 
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