County's pension fund performing well

By: GIG CONAUGHTON - Staff Writer | Saturday, March 19, 2005 12:16 AM PST ∞

SAN DIEGO ---- The county of San Diego's $6.3 billion pension plan is on pace to earn an investment return rate of 15.6 percent so far this fiscal year, a figure far higher than projected returns and better than similar retirement funds across the country, according to a report released this week.

The report said the $6.3 billion fund, which must pay for the retirement benefits of 32,500 current and retired county employees, earned a 10.7 percent return on investments in the financial quarter that ended Dec. 31. The report said the fund has earned 15.6 percent through the first two quarters of the fiscal year, which ends June 30.

The fund's goal for its yearly investment return is 8.25 percent.

Board members and officers of the San Diego County Employees Retirement Association ---- the independent association that manages the county's pension fund ---- roundly said the report was welcome news.

"It was extremely good news," said county Supervisor Dianne Jacob, who sits on the retirement association's board. "What it means is that the county's pension fund is healthy and financially stable."

Pension funds, governments' inability to pay for them and the drain they can be on state and local services to the public, have become increasingly hot topics in San Diego County and across the state.

The city of San Diego has seen its bond ratings downgraded and has been investigated by the U.S. Securities and Exchange Commission, the FBI and the city attorney's office because it has not fully paid its legal contributions to its own fund.

Meanwhile, Gov. Arnold Schwarzenegger, the Howard Jarvis Taxpayers Association and state Assemblyman Keith Richman have floated reform proposals to phase out government pension plans and replace them with 401(k)-style retirement accounts, which are common among private employers.

Board members of San Diego County's retirement association formally opposed those reform plans in a daylong meeting Thursday, and pointed to the latest quarterly financial report as proof that the county's plan is working fine.

The report was created for the association by Rocaton, a Connecticut-based independent financial consulting firm.

The Rocaton report also noted that the county's fund was earning at a faster rate than similar pension funds during the last year, the last five years and the last 10 years.

County Treasurer Dan McAllister, an association board member, said the Rocaton report compared the county's fund to "100 different pension funds across the country."

The report said the county's fund has averaged a 9.8 percent investment return during the last 10 years, better than the 8.7 percent return the other funds it was compared to earned.

"For public funds greater than $1 billion, we were in the first percentile of earnings for one year, in the first percentile for 2 years and in the seventh percentile for 10 years," Brian White, the association's chief executive officer said after Thursday's meeting. "So that's an extremely top performance."

This week's investment-return report is the latest good news for the county's pension fund. The fund earned a whopping 22 percent return for fiscal year 2003-04, which ended last June.

And Standard & Poors gave the county's fund an AA+ rating in August, the second highest grade on its 10-level rating system.

But the fund has had its ups and downs in recent years.

A report issued in early 2004 said that the fund had earned less than its 8.25 percent target investment return for three straight years, in 2001, 2002 and 2003.

That less-than-expected spate of returns, combined with the fact county supervisors boosted pension benefits for its employees by 50 percent in 2002, caused the county's "unfunded liability" for the fund to jump from $905 million to $1.43 billion.

The unfunded liability is the difference between what the fund's investment assets are worth and what the fund is obligated to pay out to its 32,500 beneficiaries. In short, if the county went out of business last March, it would have had to come up with $1.43 billion to pay off the fund.

County supervisors agreed to sell $400 million in bonds last April to shrink the unfunded liability to $1.2 billion.

White said that if the investment fund continues to earn returns at its present rates, the unfunded liability could shrink more when fiscal year-end reports are issued in July.

McAllister, meanwhile, said the association will be happy as long as the fund continues to earn more than the 8.25 percent target rate.

"The performance has been stellar," he said. "And last year we had a banner year. But as long as we consistently beat that 8.25 percent we're on target."

Contact staff writer Gig Conaughton at (760) 739-6696 or gconaughton@nctimes.com.

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