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San Joaquin County Employment Retirement Association asks for $17 million

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Posted: Monday, January 3, 2005 10:00 pm

When the San Joaquin County Employment Retirement Association asked the county for $17 million to help the retirement fund, the request wasn't much of a surprise. After all, the county every year has to put in a certain amount of money.

But what was surprising was the amount, said Manuel Lopez, county administrator.

Although the $17 million will be spread over a two-year period and is being shared with the hospital, airport and waste management enterprise funds bringing the county's share to about $4 million each year, Lopez said the amount was still a shock.

"The increase was huge," he said. "Much larger than what we had expected."

On average, the county is used to giving 2 percent to 3 percent annually, Lopez said. But the $17 million represents a 42 percent increase, he said.

What necessitated the increase in the county's contribution were several things, Lopez said, including the recent change in how some employees' retirement benefits are calculated.

That change was for safety members of the retirement board, said Supervisor Victor Mow, and a member of the retirement board. In 2003, safety members such as fire fighters and law enforcement officer's benefits were calculated at 2 percent Mow said. But that was changed to 3 percent in 2004, he said.

Plus, they were retiring earlier, at age 50, Mow said.

Robert Palmer, director of the county's retirement association said the changes for safety members were done deliberately.

"Because of the nature of their work, the enticement was to kind of have them hang it up at an early age," he said. "Their work wears the body down."

Add that change to the fact that the county is hiring employees in their 30s and 40s and then having them retire sooner and living longer, Mow said the drain was obvious.

"We need to look at if we're hiring people at 40, knowing that in their 50s they're retiring," he said. "We need to hire younger folks and hope they stay."

But the human toll wasn't the only thing that added to the needed increase in county funds, Palmer said.

There's also the volatility of the stock market, he said.

But the market's ups and downs are spread out over a five-year period, Palmer said. This way if there's a bad year or two, it can always be offset by a good year or two, he said.

"It's called smoothing," Palmer said.

While the fund shoots for a return of 8 percent on its investments, Palmer said in 2003 the market was good with a 26.3 percent increase on returns. In 2002, the fund lost 5 percent and last year it gained 12 percent. Rather then take those ups and downs each year, smoothing spreads it out, he said.

Mow said the plan is still better than Social Security.

"We're making money and giving it back to the employees," he said.

County and government employees are enrolled in a retirement plan called defined benefit plan, Lopez said. Under that defined plan, which is mandated by state law, an employee contributes about 3 percent from their paycheck. The county contributes 18.48 percent, he said.

"It's literally a 6 to 1 contribution," Lopez said. And that's what makes the retirement package attractive to employees, he said.

In the private sector, employees have a 401k plan, which is an undefined contribution plan and allows employees to make their own investments, Palmer said.

San Joaquin County's retirement association was founded in 1946, Palmer said. Since then there have been 3,440 retired employees that have paid and benefited from the system. In fact, the oldest living retiree is 100 years old, and lives in Calaveras County, he said.

Under the system, a retiring employee would be paid based on how many years they've been employed with the county and what their pay rate was before retiring, Lopez said.

For example, an employee who's retiring at age 55 and worked with the county more than 30 years could get 75 percent of their monthly salary, he said.

But the drain is on the county's general purpose budget, Lopez said. That's because while in 2004 the county's share was about 14.97 percent of the payroll, this year it's expected to shoot up to 18.46 percent.

The burden on county, city and state government budgets has Assemblyman Keith Richman, R-Granada Hills, looking at a way to stop the drain.

"There's a pension crisis in California," Richman said. "Governments have billions of dollars in funded pension liabilities."

Richman said he wants to do away with the way retirement plans are funded and instead of the current plan there would be a 401k-type plan.

"This would not only restore cost savings, but also allow for more budget predictability," he said.

Richman said any government employee hired after July 1, 2007 would fall into the new retirement plan if his bill passes. While he's optimistic that the law will be changed, he said unions will fight the initiative.

"But the cities and counties in this state are in risk of bankruptcy because of pension obligation," he said.

Contact reporter Les Mahler at lmahler@sjnsnews.com.

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