New Study Exposes Underfunding in County Retirement Systems

New Study Exposes Underfunding in County Retirement Systems


Sacramento, California, May 7, 2014


The California Policy Center has just published a study that compiles the total unfunded retirement liabilities for the twenty California Counties that have their own independent pension systems. These independent pension systems are frequently touted as financially sound, but when unfunded healthcare liabilities and outstanding balances on pension obligation bonds are included, the true picture is far more ominous.

“Even using the official rates of return of 7.5%, when you combine all retirement commitments these counties have made, the counties combined funding ratio is only 60%,” said Ken Churchill, one of the writers of the study. “If you go with a more conservative 5.5% rate of return, the funded ratio drops to 49%. This means there is only 50 to 60 cents available to pay for every dollar in benefits already earned. At some point the debt service becomes so great, the only option becomes bankruptcy.”

Some counties are better off than others. Tiny Tulare county’s official funded ratio for all of their retirement obligations, including health care, stands at a manageable 87%. But Los Angeles county, by far the biggest county in California with an independently managed pension fund, has only set aside assets sufficient to cover 51% of their total retirement obligations – and that is using the official numbers and rates of return.

Other particularly troubled counties include Merced at 47%, Kern at 55%,Sonoma at 59%, Orange and Contra Costa at 60%, Marin at 61%, San Joaquin at 62%.

“When you consider that 5.5% is in fact the cumulative investment rate of return earned by CalPERS during the 13 years from 2001 to 2013, and that the 20 CERL pension systems have had similar earnings rate during this period, even 80% funding ratios aren’t cause for complacency, because they are based on 7.5% average return projections, which haven’t been achieved over the past 12 years,” said Bill Monnet, another co-author of the study.

As is made very clear in this study, retirement obligations negotiated between politicians and government workers are even worse off financially than has been typically reported, not only because these plans use optimistic projections on how much the assets they’ve set aside to fund these benefits can earn, but because along with pensions, taxpayers are carrying liability for pension obligation bonds and retirement healthcare. In most cases, virtually nothing has been set aside to cover healthcare obligations.

To read the entire study, and to see how your county may be doing, click on “Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties.”

If you have questions or would like to schedule an interview with the authors, please contact

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The California Policy Center publishes studies (ref. CPC Studies) designed to provide quantitative, top-down financial information and analysis of California’s state and local government finances, including reports on total state and local government revenue and expenses, as well as total state and local government debt. Related areas of focus include reports on the solvency of public sector pension plans and public employee total compensation. Other areas of focus include campaign finance and the impact of influential participants including corporate interests and public sector unions. The California Policy Center aspires to provide information that will elevate and enlighten the public dialogue on these vital issues, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions.

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