FOR IMMEDIATE RELEASE | January 26, 2023
Contact: Julie Light, firstname.lastname@example.org
New research finds Sonoma County public employee pensions help offset pay penalty, but many lack inflation protection
BERKELEY, CA—A research brief released by the UC Berkeley Labor Center today finds that public employee pensions in Sonoma County help to balance the gap with private sector salaries and are financially sound, though they have a way to go in protecting many retirees from inflation.
Public employees in the county—who are concentrated in K-12 schools, healthcare, government, and public safety—earn 15.6 percent less on average than private sector employees with the same level of education. The majority of public sector workers in Sonoma County have four-year college degrees, compared to 31 percent of private sector workers.
“Public employees in Sonoma County are, on average, significantly underpaid in relation to their education—and public pensions help offset this wage penalty,” said Nari Rhee, PhD, director of the Retirement Security Program at the UC Berkeley Labor Center and author of the brief. “Pensions and other benefits help close most of this gap and play a big role in retaining essential workers.”
Jack Buckhorn, executive director of the North Bay Labor Council, agrees. “This report shows that public sector employees take a steep pay cut in order to have a pension,” he said.
While statewide pension reform has standardized base pension benefits and improved the health of pension funds, the County of Sonoma and Sonoma Valley Fire District employees are virtually the only local government employees in the nine-county San Francisco Bay Area to lack even modest inflation protection for their pensions. While statewide pensions like CalSTRS, CalPERS, and county pension systems outside of Sonoma provide a 2 percent annual inflation increase, Sonoma County’s pension system, SCERA, has no provision for an automatic COLA.
Rhee noted, “Retired Sonoma county government employees in their early 80s have lost at least 42 percent of the original value of their pensions to inflation. About half of future retirees can expect to see an even bigger reduction during their retirement.”
“Despite being well-funded, Sonoma County’s pension system fails to offer realistic protection against inflation,” said the Labor Council’s Buckhorn. “This needs to change, for current and future retirees, if the County of Sonoma wants to address its recruitment and retention crisis and improve the quality of public services.”
Luckily, the long-term health of public employee pension systems has improved in the county and statewide. Analysis of the data from these systems shows that they have been strengthened by accounting changes and improved funding policies.
In addition, Rhee said, “Statewide pension benefit reform enacted in 2012 is exerting downward pressure on employer costs. Ongoing benefit accrual for most public employees hired after 2013—who now make up half the workforce—typically costs Sonoma County agencies less than 8 percent of payroll, compared to about 14 percent for employees covered by legacy benefits.”
“While 2022 was a difficult year for financial markets, it’s important to remember that pension funds are long-term investors. Public employee pension systems have diversified portfolios that have outperformed their investment return targets over the long run,” said Rhee. “The impact of FY2022 losses on employer contribution rates will be cushioned by deferred surplus returns from FY2021.”
The research brief is designed to provide local policymakers and the public a broad overview of pensions for public employees in Sonoma County, including their role in overall employee compensation, the impact of inflation on retirees, and trends related to the cost and financial health of pension systems.
Founded in 1964, the UC Berkeley Labor Center works to address the most critical challenges affecting working families in California and across the nation. The Center provides timely, policy-relevant research on labor and employment issues, and carries out training and education programs for labor leaders and students.
The UC Berkeley Center for Labor Research and Education (Labor Center) is a public service project of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley.