Much has been written about the financial health of public sector pension funds these days. The usual theme is that such funds are grossly underfunded, the sky will fall and we will all face an unbearable amount of potholes in our roads, municipal bankruptcy, or both. Or, worse yet, taxes will go up to pay for it all.
Amidst this atmosphere of financial doom comes some good news from the actuary for the Orange County employees Retirement System (OCERS). This is the retirement system for county employees, as well as employees of the Orange County Fire Authority, Orange County Transportation Authority, the Sanitation District and a few other government employers.
The actuary for OCERS, Segal Consulting, reported to the OCERS Board of Directors on May 19 in a preliminary Actuarial Valuation Report that the unfunded liability of OCERS had fallen as of December 31, 2013. This means that the system that was funded at 62.52% at the end of 2012 was funded at the end of 2013 at 67.65%, an increase of over 5%. This good news is coupled with a policy of the OCERS Board that the retirement plan will be 100% funded in 20 years by contributions from both employers and employees and investment income.
Additional good news is that as of December 31, 2012 the OCERS fund had $ 9.566 billion in assets, and a year later – December 31, 2013 – the fund assets have gone up to $ 10.679 billion. Even better news is that according to the OCERS management the fund assets had surged to $ 11.6 billion by the end of this past April.
So, it seems the OCERS retirement fund is growing and the unfunded liability is shrinking. The system is being well managed and things are under control. Sorry, prophets of doom!
Yeah, it helps when the S&P 500 has its single best year in nearly two decades. If you could rely on that sort of performance then yeah, everything’s great. Good luck with that.
Good point nipsey. OCERS reported investment income gain of about 12% last year, far below the rise in the S&P 500 or the DOW.
The implication of your point is that all OCERS investments should be in Blue Chip-DOW 500 stocks. That is not the case with OCERS. A diversified investment portfolio exists that includes various kinds of investments, including stock. The intent, according to OCERS, is to reduce risk, with the result being that whent stocks skyrocket the OCERS fund does not rise as much, but when the stock market plummets, as it did in 2008, it does not plummet as much either.
I believe the term in play here is “risk tolerance”. The system assumes a rate of investment return of 7.25% year in and year out, on average, in projecting its financial condition and the amount employers an employees must contribute each year. Some argue that is too high of an assumption, but the track record shows that over a 30 year period it has been achieved. The big question – will it be achieved going forward?
I did not mean to imply anything about the nature of their investments, except that their performance over the last year or two is exceptional and will not be replicated over the long haul.
I believe in this case, Nipsey, you got your history wrong. As Piketty points out in “Capital in the 21st Century”, the rich are rich precisely because they can afford to invest in the market, which usually have better long-term returns than what the working and middle class depend on, like salaries and savings. The long-term returns on PERS and similar investments bear this out.
Huh? That has nothing whatsoever to do with what I am saying except that, I don’t know, we agree that pensions (and individuals?) should invest in stuff?
I am saying something elementary: the exceptional performance of the last couple of years is… Exceptional. Extrapolating from this to declare that everything’s fine(!) is foolishness, because reversion to mean and a whole bunch of other stuff.