The Colusa County Board of Supervisors plans to dabble in the stock market to help cover the mountain of unfunded post-employment medical benefits they will owe county employees when they retire.
Last week, the Board set forth a plan to take the $10.3 million the county has set aside since 2008 in its low-return county treasury to pay its Other Post Employment Benefits (OPED) obligations, and place it in a Public Agency Retirement Services (PARS) Irrevocable Trust for higher risk investment, in order to ease the burden on taxpayers.
OPED is one of three compensation packages promised Colusa County employees, officials said. The others are CalPERS pensions and CalPERS medical benefits, both of which are also facing large funding gaps.
County Administrative Officer Wendy Tyler said the county started taking money each month from county departments (not employees) a decade ago, where it has been held in trust to pay its OPED liability.
“I think we started out at $50 or $25 a month for each employee, and it has consistently grown,” Tyler said. “This year it’s $450 a month per employee.”
Tyler said that while the OPED trust has grown, it has not kept pace with the total unfunded liability (the shortfall between retirement benefits the county has promised its employees and the revenue available to meet those obligations), currently more than $18 million, which was the result of reductions to the rate of return and changes in investment assumptions.
For the past few years, an ad hoc committee, which included Tyler, Supervisor Gary Evans, and Supervisor Denise Carter, has researched various investment options to boost earnings, and recommended last week to invest the money in an IRS 115-approved PARS Irrevocable Trust, which will be managed by San Francisco-based HighMark Capital Management.
“This allows us to take the funds out of the county treasury and place it in this irrevocable trust, and then our goal would be to have it invested through HighMark,” Tyler said.
Andrew Brown, chief investor with HighMark Capital, told the board at their June 26 meeting that the county chould expect a greater rate of return on its money if it is invested more aggressively.
Brown said money left in the county treasury could only expect to reduce the total unfunded liability over time by about 3.6 percent, while a moderately-conservative investment in a combination of stocks and bonds could reduce the liability between 5 and 5.25 percent.
A moderately conservative investment would mean 20 to 40 percent of the money could be invested in the stock market, with the rest going into bonds, which are less risky, he said.
“The most aggressive position we could put forth with county assets in this plan would be 40 percent (stocks),” Brown said. “Conversely, the most conservative would be at 20 percent.”
Brown estimated that with a moderately-conservative investment, which could fluctuate over the years with ups and downs in the stock market, the county, over time, would likely reduce its long-term liabilities from 18.8 million to about $16 million.
“Stocks go down as well as they go up, so 30 percent of the time you may see lower numbers,” he said. “Seventy percent of the time you will probably see higher numbers.”
Supervisors said the county would still maintain control over the investments, and could opt to scale back stock market investments in the event of another recession.
“With PARS you do have the flexibility to be whatever kind of investor you want to be,” Carter said. Regardless of losses or gains in the stock market, the county’s operation of the program has no effect on any current or former employee’s entitlement to post-employment benefits, nor does it create any new vested right or strengthen an existing vested right, officials said.
According to recent reports, California’s public employee pension promises are unsustainable, and have left cities and counties bracing for a 50 percent increase in costs over the next seven years, possibly restricting their ability to fund basic services like public safety and parks.
Colusa County’s net pension liability for all its plans is currently about $60 million, officials said.
“For 10 years, (the county) has been trying to address this issue,” Tyler said.
The board voted 4-0 last Tuesday to approved a resolution adopting the PARS benefit trust, and authorized Tyler to execute legal and administrative documents to maintain the county’s participation in the program. n