After months of intense debates over how to best handle $5.7 billion in unfunded retirement obligations, leaders of Orange County’s local pension system have struck a deal to avoid a major surge in public agency payments that officials warned could bankrupt small cities.
After spending hours battling over repayment schedules, board members at the Orange County Employees Retirement System or OCERS eventually voted 8-1 on Monday to shift all of its unfunded liabilities into a 20-year payment plan that keeps agencies’ contributions stable. Chairman Tom Flanigan dissented.
Some, such as Lincoln Club president and supervisors appointee Wayne Lindholm, argued for 15-year repayment windows. Others argued for even shorter repayment periods.
Lindholm argued that the pension system needed to be aggressively paying down its unfunded obligations in order to avoid imploding.
The board needs to get ahead of this issue “before this helicopter hits the wall,” he said.
Eventually, the board coalesced around the 20-year mark.
“There’s a way to work this down if everybody was working together,” said OCERS board member David Ball, who was recently appointed by county supervisors to the post despite public protests from labor leaders who attacked Ball as too extreme. “I think we’ve gone through a very unusual bad time,” Ball said.
Monday’s compromise came after an intense debate raged for months between conservative and labor appointees to the board. The conservative wing on the board sought to lower the plan’s investment assumptions and shorten its payoff period, moves that could have skyrocketed most cities’ payments.
Officials in the small city of Stanton, which contracts with the Sheriff’s Department for police services, warned that such a move could blow apart their budget, potentially forcing a municipal bankruptcy. Other South County contract cities also raised concerns, as did a Westminster councilwoman.
Sheriff union officials, along with the Superior Court, even threatened to leave OCERS altogether for the state’s CalPERS system.
Over the last decade, a combination of benefit increases, market losses and changes in assumptions all contributed to the skyrocketing of unfunded liabilities from less than a billion dollars in 2004 to the current mark, which is nearing $6 billion.
Many Republican leaders, such as county Supervisor John Moorlach, have argued for an aggressive approach to paying down that liability, in some cases pushing to shorten some amortization schedules from a 30-year payoff down to 15 years.
Others, including city officials like Stanton’s Republican Mayor Dave Shawver and many labor groups, support speedier amortizations, such as 25 years. However, they labeled a 15-year goal as too aggressive.
That debate exploded this summer when Treasurer-Tax Collector Shari Freidenrich, who is also an OCERS board member by statute, casting the deciding vote on the issue, summing up the aggressive amortization plan as “too dramatic of a step.”
Freidenrich backtracked the next month, asking her colleagues for a revote after facing pressure from Republican conservatives.
By the time Monday’s meeting came around, Freidenrich largely sided with the conservative appointees of county supervisors.
OCERS board member Chris Prevatt, who represents general employees on the board, wasn’t happy about it.
“You disgust me,” Prevatt told Freidenrich. “I have absolutely no respect for you.”
Freidenrich didn’t respond, and other board members urged decorum.
The discussion largely centered on balancing a reasonable payment plan for member agencies with ensuring that the cost of benefits for current workers isn’t handed off to the next generation.
Some argued for shortening the payment period to 11 years, the average amount of service left among workers enrolled in the retirement system.
“It’s only in the public sector that we think of passing debt, not assets, off to our children,” said Yorba Linda Mayor Pro Tem Craig Young.
Board actuarial consultant Paul Angelo meanwhile said amortization periods that are too short would be unfair to taxpayers when the economy experiences a dip.
The county’s main public workers’ union went so far as to suggest that the supervisors’ board appointees had an ulterior motive in trying to boost agencies’ required payments into the system.
Jennifer Muir, assistant general manager of the Orange County Employees Association, said it’s hard to think of any motivations “other than to artificially make the system too expensive and unsustainable.”
Board members also noted the significance of their decision-making.
“We are talking about money that has tremendous impacts on lots of people,” said OCERS board member Robert Griffith, who represents retirees. “We need to be real careful and real prudent about making drastic changes [to] that.”
Under the new policy, member agencies, including cities policed by the Sheriff’s Department, would collectively pay for 10 years about the same amount for their unfunded liabilities as they would have under the previous policy, according to a consultant’s presentation.
Then for the following 10 years, they would keep paying the same rate — about 25 percent of payroll — and have the liability paid off at year 20.
Under the previous policy, those payments would have decreased starting in year 10 but continued until about year 30.
OCERS manages retirement benefits for about 14,000 retirees and beneficiaries, plus about 25,000 workers who have yet to retire.
It handles benefits for workers in the county government, Orange County Fire Authority, Orange County Superior Court, Orange County Transportation Authority and city of San Juan Capistrano, among others.
The new rates are set to come into effect in July 2015.