Published in Visalia Times-Delta on June 14, 2011
By Mark Araiza
With all the attention on pensions, it’s no surprise that the Tulare County Grand Jury decided to look at the state of the Tulare County pension system. And that’s the Grand Jury’s job.
But the result of its well-meaning investigation was a terribly flawed report. The Grand Jury looked at a healthy system and deemed it sick. The members worried about a problem and then made recommendations that would make that problem worse.
Let’s start with the funding level of our pension fund. The Grand Jury is worried about that because it was at 91.6 percent, down from a peak of 117 percent in the summer of 2001. Yes, like all retirement funds, it took a hit from the Wall Street collapse. But the truth is that 92 percent funding is extremely healthy.
Consider this: If the fund stopped taking in money entirely, it could still pay 92 percent of the money it owes, most of which isn’t due for decades. And since the Grand Jury was looking at a snapshot from June 30, 2010, it’s probably even healthier now.
A pension fund for a county is like a mortgage for a homeowner. If you had 92 percent of the money needed to pay off your mortgage already in the bank, but you had another 20 years to pay it off, you’d be in pretty good shape. In fact, as long as you have money coming in, you don’t need to have that much saved up.
The Grand Jury correctly notes that the lower the funded ratio, the more the county has to pay in each year. And it’s bad when the county has to pay in more, the Grand Jury notes, because it leaves less money for other county services.
But to fix the problem of the county having to pay in, the Grand Jury recommends that the county should have to pay in even more. It calls for lowering the fund’s investment target from the current 7.5 percent average annual return to 5.4 percent. Lowering the investment target would require the county to pump millions more dollars into the fund. And it’s unnecessary — while Tulare County suffers, Wall Street is doing fine, and the pension fund is benefiting. In the 12 months ending in the third quarter of 2010, the most recent quarter available, the pension fund’s market return was 9.8 percent.
The Grand Jury also calls for the plan to be 100 percent funded by 2022. Why? A pension fund with 80 percent funding is very healthy. Calling for 100 percent funding will, again, cause the county to pump more money into the fund unnecessarily.
If the object here is to free up money for services in Tulare County, the Grand Jury’s recommendations are exactly the wrong prescription.
The Grand Jury has another idea: Make employees pay at least as much as the county. Currently, employees in pension systems pay a fixed cost based on how old they are when they start work, with the average coming to about 7 percent of their salary. The county pays a variable cost based on the health of the system, currently about 12 percent of payroll. The Grand Jury ignores that back in 2003, when the market and the fund were healthier, the county had to pay only 3 percent of payroll, and the workers were still paying in their full contribution.
The truth is that the Tulare County pension system has been, and is being, responsibly managed. It’s healthy, and it will provide a secure retirement for thousands of Tulare County residents at the end of their working lives. And because it pools the resources of thousands of members, it’s able to provide a secure benefit for much less cost than individual plans.
Tulare County has many problems. The health of its pension fund is not one of them.