The city of Fresno’s employee retirement system is the only major public pension program in California – and one of only a few in the United States – that has a surplus instead of unfunded pension liabilities, according to a report issued Thursday by a Nevada-based think tank.
The analysis by Transparent California indicates that Fresno’s pension system “has avoided the pension crisis currently sweeping the state” with more modest and less bloated benefit payouts, said Robert Fellner, the organization’s research director. Transparent California is part of the Nevada Policy Research Institute, a nonprofit free-market and limited-government advocacy group.
“The benefits are still very comfortable, richer than most private-sector workers get, but they are considerably less inflated than any other pension system in California,” Fellner said Thursday. “They have a surplus, and that’s so different than anybody else.”
Fresno’s retirement program includes two separate plans: the Fresno Fire and Police Retirement System, which covers the city’s public safety employees, and the Fresno Employees Retirement System. Between employee and employer contributions to the retirement fund and income from investments, the two funds had a surplus adding up to $289 million, according to Fellner’s analysis.
“An unfunded liability is really how much in debt a pension fund is,” said Fellner, whose organization sifts through pension program information that it receives through public record requests to cities and counties across the state. This was the first year when data for Fresno was available to run the numbers, “and when it was throwing me a negative number (on liabilities), my genuine reaction is that I thought there was an error. … It didn’t even occur to me that it was possible.”
By comparison, Fresno County has an unfunded pension liability of more than $980 million. Neighboring counties also carried deficits on their employee retirement plans, ranging from about $84 million in Kings County to about $136 million in Madera County, according to Transparent California.
“The clear difference (between Fresno’s city pension plans and others in California) is that the benefit formula is substantially lower,” Fellner said. Fresno’s pension benefits are calculated based on formulas that consider an employee’s highest three consecutive years of pay coupled with their age and their years of employment with the city.
While some who retired after long careers as leaders or managers with the city’s non-police/fire departments received upward of $130,000 last year in retirement benefits, the average annual pension last year for retirees with at least 30 years of service was about $39,600.
Fresno County’s system, by contrast, had an average annual pension of more than $61,500 for its 30-year-plus, non-safety service retirees last year.
“Unlike the inflated pensions found in Fresno County and most California governments, pensions at the city of Fresno are comparatively modest, illustrating that soaring pension costs are directly related to the generosity of the benefits promised,” Fellner said. “It’s nice to see a system just doing something right.”
What Fellner found as a revelation isn’t new to Robert Theller, who earlier this year took charge of Fresno’s pension programs as the city’s retirement administrator. Theller cited a report last year by Wilshire Consulting “that showed the city of Fresno was one of only seven fully funded plans in North America.”
Theller attributed Fresno’s success in dodging pension deficits to a conservative approach in both investments and benefits.
“The city, the unions, management and the retirement boards have worked for many, many years at coming to fair compromises,” Theller said Thursday. “The pension benefits aren’t over the top, and they’re not underwhelming either. … It puts it much more in the realm of ‘comfortable.’ ”
Like contract negotiations, retirement talks between the city and its unions can be spiked with rancor, Theller added. “Yeah, they can yell sometimes among family, but they all seem to get the point that benefits cost money, that the money needs to come from someplace, and the system needs to stay conservative and stay comfortable. … It’s a good balancing act.”
The Transparent California analysis noted that the average 30 years-plus pension paid out to Fresno’s city retirees exceeded the average annual private-sector wage of about $36,700 in Fresno County. “If you’re making more in retirement than most workers (across the county) get, it’s hard to say it’s inadequate,” Fellner said.
But Theller, the retirement administrator, noted that city employees don’t get credit in the U.S. Social Security system for their time working in local government. “You have to factor in that city employees aren’t getting Social Security, so they’re not getting this pension on top of Social Security,” he said. “It’s to replace Social Security.”
Like many other public pension plans, Fresno’s program did not escape the wrath of the recession when there was a widespread decline in stock market values. “Everything dropped, and the market value took a hit,” Theller said.
But while some investors – and pension plans – panicked and sold off investments when the market was at its bottom, “the city rode the market down, evaluated what we were holding, and rode the market back up. Things have recovered nicely,” he said, resuscitating the value of the program’s investment assets.