Love where you live!
By Russell Buckley
LA MESA -- At Thursday's Strategic Planning Workshop (open to the public every year) a number of important topics were discussed - none more consequential than La Mesa's rising pension costs. A well respected actuary named John Bartel made the presentation, as he has for the past couple of years. His focus was on the consequence of approved changes in the way some of the calculations that determine pension cost are made.
The most significant change is in the way that the assets in the pension fund are accounted for. Until now changes in asset value (e.g. large stock market losses) were artificially spread out over a number of years - to keep payments more stable (and maybe to avoid short-term pain). The new method accounts for changes in assets in a shorter time. There is good and bad in this change
The bad part of the change is that it is projected to make already high pension costs rise quite a lot from fiscal year 15/16 to fiscal year 19/20. They are then projected to level off and remain flat until fiscal year 27/28 before tapering off some. The good part is that the funded status of our pension account will improve faster than it would have without the change, and once we "catch up" costs will be lower.
For those who like numbers, here is the quantitative version of the last paragraphs. Our unfunded pension liability as of June 30, 2012, stated the old way (AVA) was about $38.2 million. Stated the new way (MVA) it was about $67.7 million. Pension cost (excluding Social Security) in 2013/14 was $5,458,912. Applying higher 19/20 rates resulting from the change, to the same payroll, will increase the cost considerably - to $9,221,046. (Editorial note: if La Mesa spent the same amount for pensions that is common in the private sector, that is 10% to 12% of salary, the pension cost using the same payroll would be $2,292,506.)
Despite the good stock market returns for the past few years, and the remarkable return last year, pension costs remain a major budget issue. Maybe serendipity will prevail and the market will have another year or two like the last one, in which case the pension problem may fade away. Or maybe the market will suffer another really bad year and costs will be even higher. Something in-between - like the 7.5% average yearly return that CalPers uses in its calculations is more likely. Taxpayers have a tiger by the tail.
At least one idea to better deal with the pension costs was discussed at today's meeting. Surely other options will be considered as the City manager and Staff meet with the Council to deliberate about the budget and new MOU's for our workforce. Lets hope they have the wisdom to make sound decisions and lets hope for a little serendipity too.
Russell Buckley is a LaMesaToday.com member and follows pension issues closely.