Lucking Out on Pension Fund
The Los Angeles County government has had a good fiscal thing going in recent years, and it came from an unlikely source: the L.A. County Employees Retirement Assn. This is the huge $24.6-billion pension fund for some 42,000 retirees and roughly 83,000 current workers (a roll that, by the way, makes the county government the biggest employer in Southern California).
Now, for a number of reasons, the county will have to reduce its reliance on the pension fund.
Money for the pension fund comes from three sources: employee contributions, county contributions and investment earnings. The pension fund needs an annual return of at least 8% on its investments to be fully funded; it has been sailing along at an average annual return of 17.8% over the last three years and at a 13.3% annual average over the last five years.
The investment return has been so great, in fact, that the pension plan is still overfunded, at 101.3%, in spite of $1.2 billion in “calculation errors” outlined in staff writer Josh Meyer’s report Wednesday in The Times. The good news of the overfunding comes from David Janssen, the county’s chief administrative officer. Marsha Richter, the pension fund’s chief executive officer, says that there is also a $955-million pension fund contribution reserve account that’s been generated by those big earnings, enough to pay the county government’s share of contributions through 2001.
Problem is, the county has been doing exactly that, using the surpluses to pay its pension fund share and thus freeing up general fund money for other budget expenditures.
That’s a tactic that Wall Street has never liked and is listed among the reasons why Standard & Poor’s credit outlook for the county is “negative.” It probably will remain so until the county stops relying on such pots of money and closes the gap between actual revenues and expenditures.
Right now, Standard & Poor’s rates county bonds at from A-minus to BBB in investment grade, meaning the county has good-to-adequate means of paying the principal and interest on its debts.
The county budget still has a structural deficit, and it would be folly to roll the dice and plan on equally excellent pension fund investment returns in the future. For once the county government has been lucky in an important fiscal matter. It can breathe a brief sigh ofrelief--a very brief one--before it gets down to the business of putting its budget in order.
