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Pension Funds Not Immune to Bear Market

Finances: Government employees' retirement plans have suffered in extended decline, but they have a guaranteed backup: the taxpayers.


Gathered over financial statements and chocolate-covered strawberries at a Dana Point resort, trustees of Orange County's employee retirement system heard the bad news. Like many ordinary Americans' 401(k) plans, the county pension fund is losing money for the third straight year, thanks to debilitating stock market declines.

The fund, which has fallen to about $4.3 billion from $4.8 billion in December 2000, will also be making larger payouts as baby boomers who have worked for the county and other local government agencies for decades retire in record numbers.

Declining earnings from a weak stock market are only part of the problem. The nine members of the board--largely unpaid and several of whom have little professional financial training--must also grapple with increasingly generous and complex retirement packages offered to public employees, which this year will total $23 million.

But unlike private investors, the fund--like all public pension funds--and its retirees have a guaranteed backup plan: taxpayers --this year to the tune of $40 million. In other words, when investments lose value, governments must pay the difference. Orange County officials said they will have to make cuts to cover their share of the payment.

Despite the high stakes, most members are taking the long view and believe they will be able to ride out the financial storm. "I'm not worried," said longtime board member Thomas Fox, a county sheriff's sergeant. "I'm not even going to call it losses ....What we're seeing is corrections in the market. That's a natural process, and no, it doesn't concern me."

Indeed, there was little sense of panic at the annual two-day board retreat at the Laguna Cliffs Marriott Resort in Dana Point, which cost an estimated $8,000, complete with dinners at the Harbor Grill restaurant nearby. The board and its staff also chalked up $230,000 in expenses traveling to Europe, the Wharton School of Business in Philadelphia and elsewhere in 2001 as well as hiring an outside management consultant.

Board executives and trustees say the job has few perks, that the trips and training are grueling, and that sitting on the board is a huge responsibility with little financial reward.

The board is a mix of elected police, fire and other public employee representatives sitting alongside members appointed by the county Board of Supervisors. The appointees include retired investment consultants, an anti-tax lobbyist, an estate and wills attorney, and the Orange County and Tustin treasurers. Appointed members are paid $100 per meeting; elected members earn nothing.

While most hold down full-time jobs, they must also carry the enormous responsibility of handling a $4-billion-plus fund designed to provide income for 8,200 current and 22,000 future retirees.

"I absolutely do not know why I ever consented to do this, because it is so much work, so much unpaid work," said Sharon Neebe, an accountant in the county treasurer's office who was elected to represent county employees. "It is a horrendous amount of responsibility."

Chief Executive Keith Bozarth added: "Frankly I don't understand why anybody would want to be a trustee."

Bozarth, a longtime professional pension fund manager hired by the Orange County fund about a year ago, agreed that despite recent losses, the fund is in good shape.

"This is a good news story," said Bozarth, who points out that while formerly highflying private 401(k)s have collapsed in value, pension funds are chugging along steadily. Even a historic third straight year of declines in stock market earnings doesn't perturb him.

Bozarth said the Orange County retirement system, one of 20 of its kind in the state, has invested more conservatively than many. As a result, he said, it has a far lower rate of losses.

For instance, the California Public Employees Retirement System, the nation's largest public pension fund, suffered a nearly 6% decline in value last year--almost twice what the Orange County fund lost--because of investments in Enron and other stocks that have nose-dived.

Past board members and chief administrators have come under fire for overspending on trips abroad and other perks, but Bozarth says the excesses of the past have been eliminated. But he said "especially in a down year" financially, it is important for board members, who are often laypeople, to keep traveling, networking and educating themselves.

Although Los Angeles County's retirement system operates under the same state code, the County Employers Retirement Law of 1937, as the Orange County fund, the organizations differ in composition and size, said Bill Lynes of the Los Angeles County chief administrative office.

A single nine-member board administers the Orange County fund, while Los Angeles County's is run by two nine-member boards. One administers the program and the other makes investment decisions.

On each of the Los Angeles County boards, four members are elected by employees and retirees, and four are appointed by the county board of supervisors, with the county treasurer serving as the ninth member.

The Los Angeles County pension fund is several times the size of Orange County's. As of June 30, the Los Angeles county system's investments were valued at $25.9 billion, Lynes said. That figure is down from $31.6 billion in June 2000.


Times staff writer Daren Briscoe contributed to this report.

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