Sacramento County retirement system investments erase stock market losses

Published: Wednesday, Feb. 19, 2014 - 9:05 pm

Investment gains of recent years have made up for the losses the Sacramento County retirement system suffered during the stock market collapse in the last decade, the system reported Wednesday.

The returns should provide some relief for the county, which has consistently seen its pension costs grow by tens of millions of dollars annually, up to an estimated $372 million this year.

The Sacramento County Employees’ Retirement System had an investment return of 16.5 percent last year, more than double its long-term assumed rate of 7.5 percent, according to the report presented to the system’s board. The system uses investment returns and contributions from employees and the county to pay retirement benefits.

The system’s assets are worth more than $7.5 billion – $1.3 billion more than the before the market collapse.

“We’ve had a tremendous amount of positive change,” said Scott Chan, the system’s chief investment officer.

The full effect of the gains in 2013 won’t be immediately realized because of the method the system uses to account for market losses or increases, a process called smoothing. Under that process, fluctuations in investment returns are spread out over seven years.

Still, the county will benefit from improved returns.

The system’s “strong investment performance since the 2007-2009 market collapse – 12.3% annually – has substantially reduced the impact of the market collapse on employer pension costs over the last five years,” said Richard Stensrud, the system’s chief executive officer.

The county will not get a sense of how much the market gains will affect its pension contributions until the system’s actuary completes a report later this year. The report will recommend a rate for the county to pay.

Britt Ferguson, the county’s chief financial officer, said the system will need to continue its pattern of investment profits for the county’s annual payments to stabilize and eventually decline.

Stensrud said he doesn’t expect an increase in retirement costs because of retirees living longer, a dynamic that prompted the state’s pension fund this week to approve changes that will lead to higher rates. That’s because the county’s retirement fund performs a study on lifespans every three years, he said.

County contributions have been increasing since the market collapse, but that is not solely the result of investment performance. Pension costs are also the result of benefit increases approved by county supervisors about a decade ago.

The county is trying to reduce its retirement costs by getting employees to pay more, said Stensrud, who has been asked by county staff to provide information as part of labor negotiations over pension contributions.

Many of the county’s unions are working without a contract, including United Public Employees Local 1. The county’s largest union, with about 3,800 employees, has not been able to reach an agreement with management largely because of management’s pension demands, said Ted Somera, the union’s executive director.

He said the county is demanding higher employee contributions.

Under Gov. Jerry Brown’s pension reform bill approved two years ago, the county can unilaterally require employees to pay higher contributions starting in 2018, Somera said. He said the county is holding that requirement over the union’s head as a bargaining tactic.

In a written statement, the county’s labor negotiator, Robert Bonner, said the county has worked for increased pension payments, in exchange for cost-of-living increases over the term of the agreements, in the spirit of Brown’s Public Employee Pension Reform Act.

Call The Bee’s Brad Branan, (916) 321-1065. Follow him on Twitter @BradB_at_SacBee.

Read more articles by Brad Branan

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