Early reactions to Tuesday’s joint meeting between the Supes and the Retirement Board left several attendees thinking that although the Board's financial expert Ted Stephens knows his stuff, he has a fundamentally conservative view that government and pensions themselves are bad and somehow inherently too generous. With his admittedly correct observations that the County’s pension fund is way out of whack with much more long-term pension obligation than the County is ever likely to adequately fund, he offers no practical proposals to correct the imbalance.
The primary cause of the long-term imbalance is County’s ever increasing pay rates which translate into larger pensions. This combined with higher-paid bureaucrats manipulating their final pay-years to “spike” their pensions, along with a state law that makes it nearly impossible to turn down a disability pension claim, means that pension debt obligations have outstripped the projected pension system revenue. Add to this the volatile stock market which only occasionally produces predicted rates of return on investments and you have what Stephens accurately describes as a big problem. It would be nice if the state would put serious (or even better retroactive) limits on pension spiking and on disability pensions (which nobody pays into). But short of such state level fixes there just are not many options available to the County or the retirement board short of declaring bankruptcy. The trouble with Stephens’ argument is that it would unfairly deny well-earned and well-deserved low-end reasonable pensions to retired line employees who not only paid a good chunk of their wages into the pension system, but are not the ones responsible for the high earner spiking, disability pension abuse, and crazy stock market fluctuations.
Tuesday's Joint Meeting of the Board of Supes and Board of Retirement was well attended but anyone expecting anything new to emerge from the three plus hours of actuarial bafflegab had to be sorely disappointed by the outcome. Retirement system gadfly John Dickerson and his doom and gloom acolytes were there in force to tell the Supes that the only way to fix the system was to declare bankruptcy. County retirees were there in about equal numbers, alarmed by comments by Dickerson and Ted Stephens, Dickerson's only adherent on the Retirement Board, warning about the impending collapse of the retirement system.
The meeting was dominated by a presentation by Paul Angelo, representing Segal Consulting, the actuarial for the retirement system. The job of the actuary is to assure everyone that the retirement fund, heavily invested in the Wall Street Ponzi, is doing just fine. Stephens wondered how everything could be so rosy based on the plain fact that the unfunded liability of the pension fund has shot up at the same time the Dow Jones has soared to record heights. If the unfunded liability is going up during good times, what will happen when the market crashes, Stephens wanted to know? Mr. Angelo launched into full on verbal actuarial rope-a-dope without ever really answering the question. Stephens also wanted to know if adopting a realistic rate of return for the retirement system, and paying more up front, would save the county money instead of having to make up the unfunded liability, with interest, further on down the road. Angelo was careful to disagree with every characterization of the system made by Stephens, but in the end agreed that paying more up front would save money in the long run.
Supervisor John Mccowen, a frequent foil for Dickerson, spoke up to assure the assembled retirees that while there are problems with the retirement system, they would continue to be paid every pension dollar owed to them. Conservative lawyer Jared Carter, a former minor functionary in the Nixon administration, interrupted McCowen from the audience only to have McCowen call him "out of order." McCowen then pointed out that "the gentleman who spoke from the audience recommended in 2009 that the County declare bankruptcy. He is recommending now that the County declare bankruptcy. The County is not bankrupt and this Board of Supervisors will not declare bankruptcy."
Holly Madrigal, perennial candidate for Third District Supervisor and a member of Dickerson's so-called "Reform Now" coalition, expressed her concern about the unfunded liability and (using everyone's favorite over-used cliché), worried that the Supers and Retirement Board were just kicking the proverbial can down the road. She then chastised the Supes for eliminating retiree health insurance, a benefit that was paid by diverting tens of millions from the retirement fund. Jolly Holly failed to explain how the Supes are supposed to pay for bringing back retiree health insurance when they struggle to pay the pension obligation.
Having concluded the endless and pointless discussion about the current actuarial report, the Supes moved on to the only action item on the agenda, the repeal of a previous resolution that authorized funding retiree health insurance from "excess earnings" — a practice that began in 1974 when everyone thought the Wall Street Ponzi would continue on a perpetual upward trajectory. Diverting money from the retirement fund to pay retiree health insurance seemed like a painless way for the Supes to offer a benefit without having to pay for it out of the County general fund. But the bursting of the dot.com bubble near the turn of the century and the post 911 downturn exposed the fallacy of so-called excess earnings and by 2004, County Treasurer and retirement system administrator Tim Knudsen (who still sits on the Retirement Board in an effort to keep the skeletons securely in the closet) began illegally diverting nearly $10 million from the retirement fund to continue paying for retiree health insurance. It wasn't until the global financial collapse of 2008/9 that the excess earnings charade was fully exposed and the practice was ended. And only 40 years after the fraudulent practice began, and several years after it collapsed, the Supes, in an action more symbolic than real, closed the excess earnings loophole.
The meeting concluded with closing remarks from the Supes and Retirement Board on potential action to reduce pension costs to the County. Board of Supervisors Chair Dan Gjerde began by pointing out that County employees with 30 or more years of service are not required to pay into the retirement system although they still accrue benefits. Gjerde said there were 34 County employees with 30 years and it was costing the retirement system $400,000 a year to exempt them from contributing to the retirement system. McCowen brought up Gjerde's earlier proposal, defeated by the Retirement Board, to revise the COLA benchmark to make it more realistic to Mendocino County instead of basing it on the Bay Area rate. Retirement Board member John Sakowicz said he would like to see the retirement fund invest some of the retirement money locally, to help benefit the local economy and possibly get a better return than that offered by the Wall Street Ponzi. Several of the Supes agreed with Sakowicz's suggestion. Supervisor Dan Hamburg said he agreed with many of the comments on all sides, agreeing with many of the points expressed by Stephens and saying investment in the Wall Street Ponzi did not inspire confidence in the system. Supervisor Tom Woodhouse said the meeting was great, the debate was great, and he wants to do it again this year. Supervisor Carre Brown said she appreciated all the public comment, it is a debate, and it is democracy in action.
With the Supes having run out of platitudes, it was left to Stephens to say he was not surprised that the outcome of the meeting was to agree to do nothing of any substance to address the problem and to instead — are you ready for this? — just keep kicking the can down the road. McCowen took it upon himself to challenge Stephens to produce a "concrete list" of the steps that he thinks should be taken to "fix" the problem. Stephens asked if McCowen wanted the list now. McCowen, citing the lateness of the hour, said it would be fine to submit it to both boards for future consideration. With that, the meeting was adjourned. Needless to say, all the same issues will be revisited endlessly and forever until the final collapse of end-stage capitalism.
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Mendo Pension Money Badly Invested
Editor,
At the joint meeting of the Supervisors and the Retirement Board I said I mistrusted the "casino mentality" of Wall Street. I said I thought both the U.S. and the EU were approaching "end-stage capitalism" and that I didn't think that MCERA should put all of its money into stocks and bonds, which I think are bad investments at this point in time, but that we should, instead, diversify into making local investments, i.e., lending Ross Liberty the $1.6 million to buy the old Masonite property. I further suggested investing in local entrepreneurs who want to start a wool mill or a slaughterhouse or a medical marijuana (cannabinoids) processing plant -- all would be good local investments according to the EDFC. I said MCERA should invest in local people starting local businesses that will create new jobs and generate new taxes.. I said that should the county charter government referendum pass, that MCERA should capitalize a county-owned bank. I believe strongly in private banking. It's imprudent for MCERA should invest 100% of its $445 million in assets in Wall Street's paper securities, but that we should diversify by allocating 5-10% to local investments -- the bricks and mortar of new industry, timber, farmland, water, and infrastructure. It's the right thing to do. When I finished speaking, Supervisors Hamburg and McCowen said they agreed. This could be a breakthrough moment for Mendocino County.
John Sakowicz, member, Mendocino County Employee Retirement Board
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A kind of recollection of the origins of the pension fund fiasco: Former 4th District supervisor John Pinches once said that when he left office after his first term the County was in good financial condition and that it was three "conservatives" who drove it into the ground. From Jan '97 to Dec '04 the BOS majority consisted of Michael Delbar (Potter Valley), Tom Lucier (Willits) and Patty Campbell (Fort Bragg), the three so-called conservatives. But there is enough blame to go around. There was a lot of "doing things the way we've always done them." And even when problems began to surface, no one wanted to deal with them.
IN 1974 the BOS approved the so-called excess earnings that allowed for the diversion of money from the retirement fund to pay for retiree health insurance. That worked fine when health care costs were reasonably low and the stock market was on an upward trajectory.
But the stock market began stumbling when the dot.com bubble burst, continued with 911 and tanked in 2008. The excess earnings charade probably cost the retirement fund a minimum of $50 million. This damaging series of events was topped off with Treasurer Tim Knudsen and Auditor Dennis Huey illegally diverting a final $9.6 million to pay for retiree healthcare.
By 1998, when it became clear, even before the wheels came off the economy, that funding retiree healthcare out of the retirement fund's "excess earnings" was not sustainable. So in '98 the Supes decided no new employee would be eligible for retiree health insurance. But they did nothing to fix the problem, which was a lack of any sustainable means of paying for retiree health insurance for anyone.
Then the disastrous findings of the errant Slavin Study in 2000 pushed most employee wages up, so that people were able to retire at a higher level than they had been paying in for. The BOS also agreed to grant "safety" retirement to 55 probation employees who thereby became eligible for a much more lucrative retirement than what they had paid in for. And here we are, broker than broke.
Sounds like twiddle dumb and twiddle dumber at work making decisions.