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Pension liability concerns officials

Money that's been promised to public employees after they retire may be more than cities could pay out then.

January 14, 2011|By Mike Reicher, mike.reicher@latimes.com

NEWPORT BEACH — Officials here like to boast about the city's recent AAA bond rating, and how its finances are on a sound footing. But when it comes to its employees' pensions, Newport, just like governments across the country, is in bad shape.

City officials disclosed this week that its unfunded pension liability jumped 44% in one year to $134 million, according to their latest financial statement with the California Public Employees' Retirement System, or CalPERS.

"This is a confirmation that we have a really big issue we need to deal with," Mayor Mike Henn said.

CalPERS investments took a massive hit during the late 2008 financial crisis, and in recent years the city's pension benefits had been growing. That divergence is clear in the report, which analyzes the year ending June 2009.

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Costa Mesa isn't in much better shape. It faces a $110-million unfunded liability and only has about half of the full-time employees of Newport, said Costa Mesa City Manager Allan Roeder.

An unfunded pension liability is the shortfall between what the city owes current and future retirees and what officials expect to have available to pay promised benefits. While it's not unusual for that number to climb as people live longer, the city lost 25% in its pension assets during the financial crisis, so it was hit especially hard.

It was a "huge loss in equity," said Newport's Deputy City Treasurer Dan Matusiewicz.

The CalPERS investment fund actually gained 13% in 2010, but the city won't reap those benefits for years down the line.

In the meantime, Henn said that officials plan to renegotiate with the public employee unions.

"Over time, the pendulum has moved too far in the direction of increased benefits and costs, and we need to find a way to center that today," he said.

The contracts for public safety employees — lifeguards, firefighters, police officers and their managers — will expire in December. Newport Beach officials hope to get them to pay for more of their pension costs.

In recent years, the city would cover the "employee share," effectively covering their full pension contribution. But recently unions have conceded some. Police, lifeguard and fire unions agreed to pay 3.5% of their 9% employee share. The other employees agreed to pay a full 8% of their share. Once all of those concessions are phased in, the city will be saving about $2.2 annually, City Treasurer Tracy McCraner said.

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