Slight Shortfall in City Pension Liability Reported

San Juan Capistrano's retirement liability is 68.9 percent funded, slightly under the industry standard of 70 percent for public agencies.

Though it has unfunded liabilities, its pension coverage for its general employees is not underfunded, said Steve Delaney, CEO of the Orange County Employees Retirement System.

"You don’t need to take drastic or immediate action," he told the City Council on Tuesday night.

The city joined the employee retirement system in 1975, becoming one 15 local agencies who pool their money, making annual payments to prefund benefits to be paid in the future. The payments are made on salaries that cost more over time with inflation and as employee compensation grows with promotions and merit increases.

The contributions also grow over time from investment earnings, which account for 60 percent of retirement system's funding. In 2008, the investment portfolio took its biggest dive since at least 1988, but Delaney said positive returns in 2009 and 2010 will help the plan recover.

"We did have a big hole in 2008, a loss of 20 percent ... [but] ours is a very conservative portfolio.... The board is very careful with its investments," he said, speaking of the group's 10 trustees who administer the retirement system.

Specifically, of 10 rate groups, San Juan Capistrano belongs to the second, along with the county of Orange, where employees earn 2.7 percent of their salaries toward a pension and where workers can retire at 55.

According to retirement system's estimates, unfunded liabilities for Rate Group No. 2  total $2.21 billion, equivalent to 31.1 percent.

"You’re pooled together for a reason, to protect you, so to find specific assets and liabilities is a complicated calculation," Delaney told the City Council.

The group's calculation shows San Juan Capistrano with just .22 percent of the assets held by Rate Group No. 2, and just slightly more in unfunded actuarial accrued liabilities—the amount the city is most likely going to spend based on mortality rates and employee turnover.

Of the 24,315 workers covered in Rate Group No. 2, 223 are from San Juan Capistrano. Eighty-three are retired, 53 have vested in the retirement group but are not currently employed by the city, and 87 are active employees.

, City Manager Karen Brust is negotiating with the bargaining associations at City Hall, asking them to change how employee pensions at retirement are calculated.

Currently, the formula is 2.7 percent at age 55, multiplied by the years of service to provide a percentage of final compensation earned at retirement. Workers with 30 years of service credit could be eligible for up to 60 percent of their final compensation if retiring at age 55.

If Brust is successful, staffers would be looking at a new formula of 2.7 percent at 57 for new employees. "Under this formula, the employee will be responsible for all of his employee contributions," according to the human resources department.

According to the latest data tracked by the state's controller's office, San Juan taxpayers paid as much as $10,076 and as little as $346 per employee for the employees' share of pension contributions in 2009.

Currently, all full-time employees of San Juan Capistrano become members of the retirement system. Taxpayers pitch in 3.6 percent of the employee’s share of the retirement contribution for the first two years of employment.

After two years of employment, the city picks up 100 percent of the tab.