PENSIONS IN PERIL: Allowances, regular raises also boost payouts
BY JAMES BURGER, Californian staff writer jburger@bakersfield.com
A number of obscure county policies drive up pension costs and make it difficult for pension funds to cover the cost of basic benefits.
EXTRA PAY CREDITS
County employees' monthly pensions are based on an average of their highest consecutive 12 months of pay -- usually their final year of employment. Other pay can boost pensions further, such as:
* Uniform allowances
* Standby pay for being on-call when off-duty
* Bilingual pay
* Car allowance -- usually for top managers and elected officials
* Pay for maintaining physical fitness
* Holiday pay
* Pay for carrying a pager
* Longevity pay
* Deferred compensation and "Kern Flex" pay
Unlike some retirement systems in the state, Kern County employees who have stored up a significant amount of vacation and sick time cannot get retirement credit if they exchange that for cash in their final year of employment.
SUPPLEMENTAL RAISES
While Kern County's unions have agreed to reduce or eliminate pay raises in exchange for better benefits, total payroll has grown consistently. That's largely because unions negotiate one of the three ways in which workers get raises.
The other two ways are:
Step raises: Handed out by county supervisors and managers routinely when an employee receives a satisfactory employment review.
Flex raises: Given when an employee's supervisor promotes him or her up a regimented ladder. They can also be routine.
Pension actuaries assume the county's payroll will grow by 4 percent a year. Anything above that can drag down the pension system's recovery. Lower salary growth can help reduce system deficits.
COST OF LIVING ADJUSTMENTS
On April 1 of each year that the consumer price index for the Los Angeles-Riverside-San Bernardino survey area grows, county retirees receive a pension boost equal to the CPI increase -- up to 2.5 percent.
However most county retirees receive the increase -- even when the consumer price index declines -- through a banking system that allows them to store up any CPI increase larger than 2.5 percent in economically energetic years and credit that to themselves in lean years.
CONTINGENCY RESERVE
When Kern County Employees' Retirement Association investments do very well, it doesn't always push a substantial amount of extra money into the reserve accounts for future pension benefits for current county workers.
When the actuarial value of any year's returns surpasses 7.75 percent (the rate of investment earnings assumed by actuarials), a complicated system of funds siphon off most of those "excess earnings" before a dime makes it into the main funds.
One of those siphon funds is the Supplemental Retirement Benefit Reserve, which pays for extra benefits designed to preserve already-retired workers' buying power over time.
Another is the contingency reserve, which can be drained in bad years to reduce the county's contribution to retirement funds.
Example: In 2007, Kern County saw $123.3 million in earnings above the assumed rate of return on investment, which was then 8 percent. (It was later reduced to 7.75 percent).
The contingency reserve claimed $33 million of that money. The Supplemental Retirement Benefit Reserve captured just more than $32 million.
An additional $25.9 million funded cost-of-living increases for already retired employees. Of the remaining $32.2 million, $7.9 million went to fund more COLA benefits, $12.3 million went to reserves for retired members and $200,000 went to more contingency fund payments.
That left only $11.8 million of the $123.3 million for member and employer reserves to fund benefits for future retirees.
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