The county retirement system could be fully funded within seven years, according to a rosy scenario given to the pension board yesterday.
The optimistic assumption, however, would hold true only if the pension fund stops paying for retirees' medical benefits and supplemental cost-of-living raises, said Brian White, chief executive officer of the San Diego County Employees Retirement Association. It also assumes continued healthy returns on the fund's investments.
Yesterday, White presented the retirement system's valuation report for the fiscal year that ended June 30, which shows the pension system gaining strength, primarily because of the strong performance of the plan's investments.
The system had a funded ratio of about 83 percent when the fiscal year ended June 30, up from 80 percent the previous year.
The figures do not take into account the loss of at least $105 million that the retirement system had invested in the Amaranth hedge fund, which crashed in September. But even had those losses been included in the fiscal year that ended June 30, the funded ratio would not have fallen below 83 percent, White said.
White showed the board a graph that projected the funded level jumping to 89 percent next year, 93 percent in 2008 and 100 percent in 2013.
The scenario assumes that the pension fund will continue to earn more than 8.25 percent a year on its investments and that all nonguaranteed benefits to retirees will be eliminated.
Currently the $7.7 billion retirement system pays medical benefits and a supplemental cost-of-living increase to retirees. Supplemental cost-of-living payments are in addition to regular cost-of-living benefits retirees already receive.
Those benefits are funded through “excess earnings” on the system's investments. Although they are not guaranteed, they have been paid to retirees for more than 30 years.
Medical benefits and supplemental cost-of-living payments cost the pension system about $44 million last year. There is enough set aside to continue those payments for five years. White said his projections will hold true only if the county pension system puts no additional money into the nonguaranteed benefits once those funds are exhausted.
Discussions have been under way for more than a year about how to reduce or eliminate those expenses, with board members split on whether the extra benefits should continue to be funded.
Board member Doug Rose asked for projections of the system's funded ratio that assumes the benefits continue to be paid.
Leslie Branscomb:
(619) 498-6630; leslie.branscomb@uniontrib.com
