Though the county is just beginning to prepare the next fiscal year budget, the board of supervisors is already expressing concern about a projected 25 percent increase in retirement costs.
As a result of an actuarial study, a review of the county’s current retirement pension plan, the Santa Barbara County Retirement System is estimating changes in retirement costs for the county based on up-to-date assumptions about the future population of county retirees. All of the changes could result in the county having to shell out an estimated $16 to $20 million to continue offering retirement and pension benefits to its employees.
“Obviously, any time we have a surge in liabilities it’s of great concern. But it’s important to recognize that nothing has changed, it’s just that assumptions are being updated and as a result we may see an increase in costs,” said 1st District Supervisor Salud Carbajal. “We need to first grapple with the assumptions being presented and make sure that they are correct and then determine what the actual liability will be.”
The county retirement system uses what it calls assumptions to estimate and predict how much it will cost to provide retirement benefits to its members. Both the employer and employee pay into the retirement account. The recommended changes to the retirement plan are the county’s responsibility and will not affect the employees’ rate.
The fact that more county employees are living longer and remaining employed to become eligible for lifetime benefit payments were two of the minor reasons SBCERS is adjusting its assumptions.
The most significant change to SBCERS’ assumptions is that it now uses years of service instead of age to predict if an employee will retire from the system rather than quit his job and withdraw his portion from the pension account.
“This change alone is responsible for about 80 percent of the cost increase,” said Oscar Peters, a retirement administrator for SBCERS. “We looked to the past, and our prior assumptions said that 68 people should have taken their lump sum and walked away — and only four did.”
Though the county expected an increase in retirement and pension costs, some county staff said they were not prepared for such a cost hike.
“It’s a big jump,” said Jason Stilwell, assistant CEO budget director. “We assumed that since the stock and bond market has been doing well that the rates wouldn’t jump up.”
Because the retirement fund is paid from general funds, the county may be forced to cut some funding to other programs to accommodate the increased cost. At the Nov. 27 board of supervisors meeting, the board discussed ways to fund the cost increase without spending the county’s reserves.
“Surely we could come up with a bundle of money to continue to have some reserves,” said 5th District Supervisor Joseph Centeno. “Granted, it will cut some of our services to our constituents, no question about it, but the fact of the matter is that we can do that and still have some reserves.”
However, Stillwell said, the county will have to find a way to implement the cost increase in the next fiscal year budget and it doesn’t have the option of using reserve funds, since the retirement cost are not a one-time expenditure.
Though the county is anticipating an increase in its cost for retirement, new rates have not yet been determined. The retirement system expects to have its rate for the county by January.
In the meantime, the county’s CEO, Michael F. Brown, is forewarning supervisors and budget officers to start exploring ways they can accommodate and offset the expected increased cost of retirement benefits.
“We must be prepared for a very large hit,” Brown said in
the Nov. 27 board meeting.