Market performance drives up Newport’s pension costs

Weak investment returns will cost the city of Newport Beach around $1.73 million in additional annual pension costs starting next year, officials have calculated.

The California Public Employees’ Retirement System, or CalPERS, revised its earnings forecast last month following a dismal 2011, when it had returns of 1.1% in the calendar year. The board cut its projected annual rate of return from 7.75% to 7.5%, due to pessimism about market prospects.

The immediate effect of the decision — in pension terms, immediate means July 1, 2013 — is to increase the city’s pension liabilities by about 3.8%.

That may sound like a small number, but it’s 3.8% of a very big number: $651,801,226, the city’s total accrued pension liability as of June 30, 2010, according to CalPERS records. That would be roughly another $25 million in debt.

City Manager Dave Kiff said in an email that the city figured it would mean an increase of $1.73 million in annual costs, starting in fiscal year 2013.

“A portion of that is already shared with the employees, and it is hard to predict what portion will be shared by [fiscal year] 2013-14 because that is subject to the negotiations process,” he wrote.

Between June 30, 2009, and June 30, 2010, the assets in Newport Beach’s pension fund grew by 11.5% from contributions and returns, while the city’s liabilities grew by 5.67%, thanks to personnel cuts.

That meant the city actually achieved a $6.3-million reduction in its unfunded pension liability, which is at $256,595,256, according to the market value of its assets reported on June 30, 2010.

In per capita terms, Newport Beach has the highest pension debt in the county. It comes in third place once those debts are offset by spare assets, but the picture brightens when revenues are considered.

The city’s pensions were 60.6% funded at the end of the year, an improvement from 57.4% at the start of the year, but still well below statewide average.

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