Marin Pension Board takes a conservative strategy to massive returns


Despite a 32% return on investments over the past fiscal year, the Marin County Public Pension Fund is playing it safe.

The board of directors of the Marin County Employees’ Retirement Association decided not to include the extraordinary gain in the allocation of annual employer contributions immediately, but rather over a four-year period.

The association includes Marin County and eight other public entities. Net investment return for the year ended June 30 was $829.8 million.

At the end of the prior fiscal year, the association had an unfunded debt of $499.5 million. Now it is in the black.

The gains were fueled by the rising stock market, low interest rates and trillions of dollars in government spending on COVID-19 relief.

“This year, the assets of the plan as a whole exceed the liabilities,” Graham Schmidt, a consulting actuary at Cheiron, told the board during a briefing on Wednesday.

Schmidt said the plan now has $143 million more than it needs to pay the pensions owed to the association’s roughly 7,000 members — assuming an assumed average annual return of 6.75%.

Of course, there is no guarantee that future returns will meet this goal. In 2009, the association’s investments lost more than $146 million.

Wednesday’s briefing should help the club’s board decide whether to take the extraordinary investment return into account immediately when determining annual contributions to meet its pension obligations, or to roll over the savings over the next four years.

Both the association’s administrator, Jeff Wickman, and the association’s advisory actuaries at Cheiron recommended the latter, more conservative approach.

“When you introduced your current funding policy in 2014,” Wickman said, “you did so with the primary goal of contributing to the stability and predictability of contribution rates.”

Bill Hallmark, also an actuary at Cheiron, said investment returns were so good in the 1990s that some pension plans reduced contributions to zero.

“Therefore, there was no room for the pension in the sponsoring government’s budget,” Hallmark said. “When it had to be restored, it was much more difficult to restore.”

The board of the association followed the advice of its advisers.

“I think we should just stay the course,” said board member Maya Gladstern. “We have a very long-term perspective.”

Marin County Treasurer Roy Given, an ex-Officio member of the board, said: “I agree to stay the course. I think it’s good policy whether we have exceptional gains or exceptional losses. I like the fact that we’re consistent with how we’re dealing with it.”

Had the board of directors decided to realize last year’s return on investment immediately, the savings next year would have been dramatic.

Marin County Budget Manager Bret Uppendahl estimates that a fresh start would have saved the county about $30 million in fiscal 2022-23. Even under the more conservative phased approach, Uppendahl expects the county to save about $6.9 million in fiscal 2022-23.

Board member Steve Block, a member of Belvedere City Council, said the association is still overly optimistic in its expectations for future investment returns.

“Since our October meeting, there’s a growing consensus among economic forecasters and analysts that the inflation we’re seeing is no longer temporary,” Block said, “and the last report we got on an annual basis was that was one inflation rate of 7%. I just wonder how we can believe that our real return can be what was forecast in June.”

When the association’s board voted last year to lower the fund’s assumed annual return from 7% to 6.75%, Block favored a reduction to 6%. At the time, the association also lowered its assumed annual inflation rate from 2.75% to 2.5%.

However, Cheiron’s actuaries said the association’s inflation and annualized return assumptions remain valid.

Hallmark said, “The market expects inflation to come down over the next five years.”

Other employers alongside the district include San Rafael, the Novato Fire Protection District, the Marin County Superior Court, the Marin City Community Services District, the Southern Marin Fire Protection District, the Marin Local Agency Formation Commission, the Marin/ Sonoma Mosquito and Vector Control District and Tamalpai Community Services District.

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