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[Corrected Jan. 6] Underfunded employee pension programs have been a growing worry nationally for years, and the worries aren’t limited to retirees who get the pension checks. Communities like Rancho Murieta have cause to worry too.

The problem became real in Rancho Murieta in 2017, when the Operating Engineers’ Local 3’s pension liability scuttled the sale of the Country Club. But how many Murietans know the Community Services District and the Rancho Murieta Association are working with employee organizations that have the same problem?

Given this situation, these costs are likely to inflate those organizations’ expenses – and their monthly customer bills – for years.

When the Country Club tried to close its sale last year, it was told the Operating Engineers, which represents 22 of its employees, wanted $3 million as the club’s share of the pension’s $3 billion funding shortfall. By comparison, the CSD is carrying a liability of about $2.8 million. RMA acknowledges it has a pension liability too, but it says it doesn’t know the amount.

“It’s something we’re looking into, how to address that long-term,” Mark Martin, the CSD’s general manager, said at last month’s board meeting.

The CSD has 35 employees represented by the California Public Employees Retirement System (CalPERS). That fund, with 1.9 million members, lists a pension liability of more than $138 billion.

Because CalPERS sets its expected return on investments, “we’re really at their will, to what they set their investment strategy to and their rates,” Martin said.

He said he’s talking with “individuals in the financial community,” including his former chief financial officer at the city of Stockton, where Martin worked until recently. “So we’re starting to investigate how to approach that liability.”

“It seems like all these liabilities were a well-hidden fact in most public agencies,” said Director Jerry Pasek, a past board president.

Given CalPERS’ decision to lower its discount rate, which drives employer contributions, “We would anticipate a significant increase in the net pension liability,” said auditor Larry Bain, who was at the meeting to deliver the CSD’s annual audit. He added, “We would anticipate the rates, in the future, to go up.”

The CSD paid CalPERS $280,000 for its employees in 2016-17, Bain said.

The CSD’s pension liability for the 2016-17 fiscal year increased substantially, he said – from $2.2 million to almost $2.8 million, a trend he predicted will continue. Starting this year, Bain said, CSD will need to add another liability to its books – for retiree health care costs.

The RMA, which also has employees represented by the Operating Engineers, was asked about its situation with unfunded pension liability.

The RMA responded with a statement, which said in part: “RMA currently has about 15 union employees. Staff’s understanding is that there is an unfunded liability that would be triggered if RMA withdrew from the union contract. To date, there hasn’t been any discussion of doing that, and RMA has not gone to the expense of getting an estimate of the unfunded liability.”


Glenda Chavez's picture
Joined: 09/03/2007
Posts: 35
Post rating: 54

Retiree health care costs

The City of Sacramento recently came up with a solution regarding retiree healthcare costs... once a retiree becomes MediCare eligible, the City’s liability ends.

Jerry Pasek's picture
Joined: 12/13/2007
Posts: 123
Post rating: 175

Pension liability

Since the legislature is totally controlled by the unions it should not come as a surprise that pensions granted  are "unfunded" to the extent to cover the future as that becomes someone elses future problem. The legislature has a habbit of spending one time money on recurring expenses such as incresed pensions as that gets them votes. Pension increases were originally sold as not costing anything because of  projected investment gains, and current laws do not allow for a decrease in payments when the investment gains fail to materialize. Defined pensions outside the public sector are becoming extint in favor of employee funding via 401K accounts.  Public pensions are  inadequately funded since they also include annual CPI type adjustments, another item extinct in the real world. The public employees in some instances, also have plenty of legal oppurnity to "spike  them" which adds to the funding problem. One solution is to limit the max pension available which would hit the spikers.

Public agencies are at the mercy of the Gov pension agencies (PERS etc.) and the local cities/agencies have no say in the magnitude  or cost  of the pensions. Until the laws change (unlikely) some cities may have to spend their entire budgets on employee pension costs as folks will refuse to fund them via taxation or user fees. CSD today pays a periodic 5 figure amount to cover the current PERS liabillity. CSD pays whatever PERS says to pay and they have no choice in the matter. Keep in mind that PERS is also effectively run by the unions via their elected Board.

I am surprised that RMA is not aware of the extent of their unfunded liability. Years ago RMCC was asked to contribute  some extra fees per hour worked to fund the pension liability and the large fee came about when they asked to have RMCC removed from the liability. (which was computed based on 2015, not 2017). New  laws require public agencies to document the liability on their books so I would be surprised if RMA is exempt from this accounting standard.

Jerry Pasek

Bob Lucas's picture
Joined: 01/05/2010
Posts: 14
Post rating: 34

RMA Pension Liabiity

RMA is not a public agency like RMCSD is so it does not need to adopt accounting principles as mandated by law for public agencies.  RMA's books are fully audited by a CPA, and are maintained according to generally accepted account principles.  The board reviews the books monthly, and the members are sent a summary every year as required by the Davis-Stirling Act.  Nothing is hidden.

RMA is also fully up to date on its pension obligations to the Operating Engineers.  RMA has no intent of leaving the union, so its "buy-out" obligation of the unfunded liability is not needed, and there is no need for RMA to pay the Operating Engineer's Pension Trust Fund to find out what that obligation is since RMA is not planning on dissolving its union relationship and just agreed to a a new MOU at the end of last year.  During my 6 years on the Board, the RMA-union relationship was without any problems. RMCC incurred the obligation because of their proposed sale and intent to de-unionize its employees.  

Also, RMA's union employees are completely different than RMCSD's union employees as far as governance and pension liability are concerned.  RMCSD employees belong to CalPERS, which is a public employee pension fund (not a union as the article indicates), whereas RMA's belong to the private Operating Engineer's Pension Trust Fund.  Any attempt to equate the two is like comparing apples to oranges.

Many public agencies, not necessarily RMCSD, created their own problems with their pension funds by granting generous increases to its employees in their pensions (e.g. going for a 2% at 50 formula to a 3% at 50 formula) in the 1990s, agreeing to pay employee and employer share, and then banking on CalPERS rate of return in the late 90's, early 2000s to continue forever.  Sure, CalPERS shares the blame for allowing this to happen, but the public agencies are complicit too as they were all too happen to go along with the program.

 

RM.com's picture
Joined: 06/19/2007
Posts: 26853
Post rating: 1317

Story correction

The reference to CalPERS as a union has been corrected.

Jerry Pasek's picture
Joined: 12/13/2007
Posts: 123
Post rating: 175

Underfunded Pensions

Underfunded Pensions

I am surprised that the accounting standards that RMA complies with is not required to indicate a pension underfunding liability which has now been required of all “public agencies”.  Hiding such liability has been going on for decades and finally has been mandated. Rest assured there is an unfunded liability for all those under an OE-3 agreement (including RMA) where there is a pension component. (CSD isn’t). It would be wise to at least ask how that is being remedied even if there is no intent of dropping out.  Ask the auditor why it isn’t covered in his review as hiding it is not a preferred solution for those who rely on the information regarding financial health.

Jerry Pasek

Bunky Svendsen's picture
Joined: 08/07/2007
Posts: 103
Post rating: 129

What is the liabilty?

You can blame it on the unions until you are blue in the face. I just want to know what the liabilty is for the residents of Rancho Murieta are, looking forward.

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