Stanislaus County Pension Fund Takes a Beating in Stock Market

By Tim Moran, The Modesto Bee, Calif.

Jul. 23–Stanislaus County’s employee retirement fund lost $142 million in the budget year that ended June 30 — including $94 million in June, according to County Supervisor Jim DeMartini, who sits on the Stanislaus County Employee Retirement Association’s policy board.

For the year, the county retirement fund lost 9.83 percent of its $1.44 billion portfolio.

“We had a miserable year this year,” DeMartini told the Board of Supervisors on Tuesday morning. “I don’t think anybody made any money anywhere this year.”

StanCERA retirement administrator Tom Watson confirmed the numbers and added that part of the fund decline was $36 million in benefit payments.

The retirement fund had $1.3 billion at the end of June. The fund is invested in a variety of assets, including domestic and international stocks, bonds and real estate. The majority of the money, 62.5 percent, is invested in publicly traded stock. The portfolio started the year with almost 69 percent of its money in domestic and international stock.

The 9.83 percent loss is a reflection of how the stock market has fared in the past year, said Dan Murphy, a financial planner for Principal Financial Group in Modesto.

“I think we all know where the market is in general,” Murphy said. “Relative to the market indexes, that’s not out of whack,” he said of the county retirement losses.

Clark McKinley, information officer for CalPERS, the huge state retirement fund, agreed. “Ten percent is pretty much in line with what’s happened in the equity markets,” he said.

CalPERS, with assets of $239.2 billion, lost 2.4 percent for the year. McKinley said the smaller loss reflects the more diversified portfolio CalPERS maintains. In addition to publicly traded stocks, bonds and real estate, the state pension fund invests in private equity, commodities and hedge funds, he said, so the returns don’t track as closely to the stock market.

As for StanCERA’s $94 million loss in June, McKinley said, “June was a bad month, a really bad month. The market has taken some bad hits.”

“Every sector of our investments lost money,” DeMartini said.

That’s not quite true; the retirement fund made 2.69 percent on its bond investments for the year.

The StanCERA portfolio mix is the subject of monthly policy board meetings, Watson said, and a quarterly in-depth look that allows members to compare the fund managers with peers in the industry.

Over time, the fund has earned an 8 percent return, Watson said. Last year, the fund earned 16 percent, boosting the portfolio by $200 million.

The fund was in good shape at the beginning of the past budget year, at 97 percent funding for anticipated retirement payouts, DeMartini said. “It’s certainly less than that now,” he said.

Anything above 90 percent is very good, according to McKinley. CalPERS is at 93 percent, he said.

The funding ratio is calculated by actuaries who analyze the work force demographics and figure out how much the pension plan will have to pay retirees in the future and how much the fund will grow in interest and contributions.

The StanCERA retirement fund hit a low of 72.6 percent funding in 1992 and rebounded to 96.2 percent in 1995 when the county issued $108 million in pension obligation bonds to boost the ratio.

The ratio was above 100 percent from 1997 to 2002 and fell into the mid- to high 90 percent range the past five years.

The danger in overfunded pensions, Mc- Kinley said, is that unions and other employee groups try to get higher benefits, which can come back to bite the pension fund later, when portfolio returns are down.

Individuals who are saving for retirement in IRAs and 401(k) accounts face similar challenges with the volatile stock market, Murphy said, but with an important difference: They can tailor the investments to their stage in life.

While a big pension fund has to consider the best interests of younger employees and those near retirement, the individual can change the portfolio to fit his or her age and circumstances, Murphy said.

For younger people, the stock market loss is only on paper, he said. “The market will recover. It doesn’t matter until you sell it,” he said. “Now is not the time to panic for those who are accumulating.”

Dollar cost averaging, buying stock throughout a market cycle, allows investors to buy stock at a bargain when the market is down, Murphy said. “Now is a great time to be buying,” he said.

Those closer to retirement should be moving their portfolios into less volatile investments, Murphy said.

The StanCERA is taking a long-term outlook, Watson said. “We don’t want to be out of (the market) when it turns around,” he said.

Bee staff writer Tim Moran can be reached at tmoran@modbee.com or 578-2349.

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