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Helping Citizens Understand California County Pension Debt and Finances

John G Dickerson

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Understand Unfunded Pension Debt. Hold Officials Accountable. Redirect Local Government Finances.

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Retirement Board Refuses to Answer

On 4/22/14 a letter signed by 300 Mendocino County residents was delivered to County and Retirement officials. It asked them a series of questions about our County's unfunded pension debt.

Click here to see the letter, the Retirement Board's response - and how County and Retirement officials once again refuse to tell the People the truth about how and why this debt was created.

First California County Pension Reform Conference May 10, 2014

The first California County Pension Reform Conference was held Saturday, May 10, 2014 in San Rafael focusing on the SF Bay - North Coast Region.

The Perverse Incentive

That Created Mendocino County's Massive Unfunded Pension Debt

See For Yourself - Wednesday October 15

Part One - The Perverse Incentive

Over a half-billion dollars will be extracted from Mendocino County Pension Debt on the People's ShouldersCounty’s local economy to eliminate unfunded pension debt that isn’t supposed to exist. It won’t directly produce one minute of County services or fill one pothole. Kids not born yet will pay this debt and get nothing for it.

The most powerful cause of this debt is the PERVERSE INCENTIVE directly built into how County pensions are funded and managed. Nothing is more important to change.

The clearest display of this Perverse Incentive in 3 years will occur in mid-October.

The independent Retirement Board that controls the Pension Fund starts work on their pension funding plan for the next 3 years at their Wednesday, October 15 meeting starting at 8:30AM. The most important of many decisions they must make is how much investment profit they project the Fund will earn - the “assumed rate of investment returns”.

That discussion is where the Perverse Incentive will be in plain view.


I believe very few Retirement Directors over the past 20 years, if any, made decisions guided primarily by their own personal financial interests.

I believe most felt a responsibility to “represent the main interests” of their constituents as they saw them – for employees to keep more of their salary and still get their full promised pensions, for retirees to get more benefits, and for County officials to have more money in next year’s budget.

Incentives matter – they impact and often control behavior even when you aren’t fully aware of them.

Over the last 2 decades the Retirement Board repeatedly delivered these immediate financial benefits to these consituencies. But they did so by drastically - and all too often purposefully - failing to meet their own pension funding plans.

Employees, retirees and County officials received these "extra" goodies without having to pay their share of the cost because the Retirement Board transferred that cost to the County, the People, and future County employees as long-term interest bearing debt.

That – in a nutshell – is the Perverse Incentive.


The County’s Pension Fund is controlled by an independent organization – the Mendocino County Employees Retirement Association (MendoCERA) governed by its Retirement Board. The County doesn’t pay pensions to retirees directly – MendoCERA pays the pensions.

Each year the Retirement Board adopts a “pension funding plan” called an “Actuarial Valuation” that lays out how it intends to get the money to pay pensions in the future. That plan defines two types of payments to the Pension Fund.

  Yearly Normal Contribution Unfunded Pensions
County $ $
Employees $ X
Retirees X X

Normal Contribution: This payment focuses on the current year only. The actuaries first estimate the part of future pensions that employees estimate how much needs to be paid into the Fund this year so that - if the Fund earns its target rate of return – the part of future pensions being earned that year can be paid. Both the County and employees pay a share of the Normal Contribution each year.

Unfunded Pension Amortization Payments: Next the actuaries calculate whether there’s enough money in the Fund to pay all the pensions earned in past years.

If there’s a big unfunded pension deficit the unavoidable conclusion is past pension funding plans failed. And no matter what caused the Pension Fund’s deficit it’s clear past Normal Contributions WERE TOO LOW. Given how things turned out, they should have been higher.

And here’s the kicker. Only the County pays extra to eliminate unfunded pensions. Employees and retirees have no such obligation.


Six of the 9 Retirement DirectorsComposition of Mendocino County's Retirement Boardare either retirees who receive County pensions today or current employees who will receive them when they retire (shown in red). Two of those 6 are elected County officials. The other 3 Directors are public members who don’t pay into the Fund and won’t receive pensions (green).

The evidence shows that numerous actions (or inactions) by the Retirement Board over the past 2 decades that created huge County debt resulted in a combination of:
Employees paid less to the Pension Fund than they should have.
Retirees got more from the Pension Fund than they paid their fair share for.
County officials had more money to spend on salaries and benefits and services next year.
• All paid for by more and more long-term interest-bearing debt imposed on the County and its People.



On June 30, 2013 Mendocino County’s Pension Fund should have had $510 million (rounded #’s) to be able to pay all pensions in the future that were earned in the past. It’s Assets (mostly investments) were worth $385 million. So the County owed the Fund $125 million unfunded pensions – 25% of what the Fund was supposed to have. )

But the County still owed $75 million borrowed a decade ago by selling Pension Obligation Bonds to eliminate unfunded pension debt owed to the Pension Fund back then. The Fund got the money – the County and the People kept the debt. Pension Bonds are part of the County’s unfunded pension debt.

The County also had paid $20 million of Unfunded Pension Amortization Payments in the past few years. If MendoCERA had achieved its funding requirements these payments wouldn’t have been necessary.

The fact is Mendocino County's Retirement Board achieved 55% of its funding requirements– the Retirement Board achieved only slightly more than half the funding requirements of their pension funding plans.

The rest is County debt that isn’t supposed to exist – wouldn’t exist if the Retirement Board had achieved its plans.

And as I said above unfunded pension debt is proof that past yearly Normal Contributions were way too low.

Since 1995 total Normal Contributions to the Pension Fund were about $200 million. The County’s share was $105 millionemployees’ share was $95 million.

But now we know the Normal Contributions should have been roughly twice as much. The County’s Normal Contribution should have been closer to $210 million, and the employees’ share should have been $190 million.

That means roughly $95 million of what employees should have paid as their agreed-upon fair share – but didn’t pay - was transferred to the County and its People as long-term interest bearing debt.

Note: Many other actions also created this debt including paying retiree health benefits out of so-called “Pension Fund Excess Earnings”, granting retroactive pension increases, directly diverting money out of Normal Contributions to pay retiree health benefits – but those stories are for another day. But in every case employees-retirees-County officials (not necessarily all at the same time) benefited financially the next year paid for by more debt imposed on the People.

Next week I'll post Part Two about the Retirement Board's October 15 meeting and the Perverse Incentive - Assumed Investment Profits - What They Should Be and Why the Retirement Board Won't Do It

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