County pension picture: 'still bleak' (December 08, 2004)

County's contribution to retirement program more than doubled in two years, and costs continue upward

By Marion Softky

Almanac Staff Writer

San Mateo County, which has its own retirement system, may not face the level of problems in funding future pensions as other local agencies. Nevertheless, it still faces growing costs to pay for future pensions for more than 5,000 current employees.

"The picture is still bleak," said Supervisor Rich Gordon. He noted that the income from the county's $1.5 billion investment pool, plus contributions from employees, do not generate enough money to cover the costs of pensions.

The cost of salaries and benefits for county workers is up $28 million in the budget year 2004-05, even after accounting for overall reductions in staff by individual departments, said Deputy County Manager Reyna Farrales. "And half of that increase is because of retirement contributions."

The county's contribution to pensions more than doubled in two years after new, more generous contracts started in November 2002, Ms. Farrales said. The county's contribution went from $34 million in 2002-03, to $57 million in 2003-04, and an estimated $73 million in 2004-05.

"Looking ahead, we're looking at $80 million in 2005-06," she said. "That's a 136 percent increase in retirement contributions in three years."

Yet, Ms. Farrales sees no crisis -- unless the state makes drastic changes. The county will continue meeting its deficits through cutting department budgets and drawing down general fund reserves from 15 percent toward 6 percent. "Reductions (in the budget) will not be as big as last year," she said hopefully. "Ideally we shouldn't see any significant impact on services."

Meanwhile, in the last two years, environmental services such as parks, as well as long-term planning, libraries and probation services have suffered major cuts as the county struggled with its financial situation. For example, the budget for operating and maintaining the county's 16 parks was cut 32 percent over the last two years, according to County Manager John Maltbie.

Meanwhile, the county needs to pay benefits to some 3,500 employees who have already retired, said Sid McCausland, CEO of the San Mateo County Retirement Association, which administers the county's retirement program. And there are another 900 who are eligible but are not yet collecting pensions.

County pension obligations will increase after January 1, when deputy sheriffs, probation officers, and jail personnel begin to receive higher benefits, Mr. McCausland said.

The county's key contracts with major unions run for four years and expire in November 2006, according to Tim Sullivan, director of labor relations.

Under the pension program, employees can choose between several plans, each with a different level of contribution by the employee and by the county. Payments include a cost-of-living adjustment, which varies from 2 to 5 percent, depending on the plan.

Safety and probation employees contribute at higher rates than general employees, and the county contributes more to their pension funds as well. Those employees also retire younger and at higher rates of pay.

An employee's contribution to benefits depends on the age he or she starts working for the county. At the age of 35, they pay approximately 7 percent of their salary, Mr. McCausland said. On average, the county contributes approximately 23 percent of the employee's salary toward the pension.

Unlike many agencies, San Mateo County requires its employees to help pay the costs of the new benefits, Mr. McCausland said. By the end of this fiscal year, they will pay an extra 3 percent of their salary, raising the employee contribution from 7 to 10 percent.

"That's pretty significant really," Mr. McCausland said. "We made a serious effort to get people to step up to the plate and help pay for the benefits."

Mr. McCausland feels no sense of panic about rising pension costs. "We have plenty of money for the next 10 to 15 years, and we're planning for the next 30 to 40.

"It's just an ongoing thing."

Supervisor Gordon hopes the retirement plan can improve its return on investments. "We hope the stock market does well," he said.

E-mail a friend a link to this story.