Highlights

Most public employees in Sonoma County and California as a whole are covered by defined-benefit pensions, which provide guaranteed monthly retirement income based on salary and years of service. In Sonoma County, K-12 teachers and other educators are covered by the California State Teachers’ Retirement System (CalSTRS), county government and Sonoma Valley Fire District employees are covered by the Sonoma County Employee Retirement Association (SCERA), and most other state and local government employees are covered by the California Public Employee Retirement System (CalPERS). This brief examines pension benefits for public servants in Sonoma County in terms of their role in employee compensation, the evolving financial status of pension systems, the impact of pension reform on costs, and how different pensions within the county stack up against each other in terms of protection from inflation during retirement. Data sources analyzed include pension system actuarial data and Census data on employment and earnings. Key findings are as follows:

1. Public employees in Sonoma County are paid significantly less on average than private sector employees given their education, and pensions help offset this pay penalty.

• Public employment in Sonoma County is dominated by local government employment, a majority (55%) of which is in education and health services. Public K-12 schools alone account for 34%. Other significant sectors are general government (14%), justice and public safety (10%), and transportation and utilities (8%).
• Public employees in Sonoma County are significantly more likely to have at least a bachelor’s degree (53%) than private sector employees (31%). They are almost three times as as likely to have a master’s, professional, or doctoral degree compared to private sector employees (24% vs. 9%).
• The average wage income of full-time, year-round public employees in Sonoma County is 15.6% lower than that of similarly educated private sector employees. Employer spending on fringe benefits—which includes payments for legacy pension liabilities—closes most, but not all, of this pay gap.
• Public pensions help offset the public sector pay penalty in a fiscally efficient manner, by providing adequate retirement income at about half the cost that a 401(k) would require for the same benefit.

2. SCERA and other public pensions in Sonoma County are on a stronger financial footing than a decade ago, with higher funding ratios, more conservative economic and demographic assumptions, gradually declining pension costs from 2012 statewide pension reform, and sound funding policy.

• As of FY 2021, SCERA was 102% funded on a market value basis and 93% funded based on an asset-smoothing method. CalPERS plans in Sonoma County were on average 83% funded on a market basis. CalSTRS was 73% funded based on an asset smoothing method and making progress on its 40-year funding plan.
• While investment returns declined in 2022, employer contribution rates are being buffered by surplus FY 2021 returns that were deferred for contribution rate setting purposes. CalPERS posted -6.1% annual investment returns for FYE June 30, 2022, but 21.3% in FY 2021. CalSTRS returned -1.3% in FYE June 30, 2022, following 27.2% in FY 2021. SCERA is likely to see similar negative returns in FYE Decemer 31, 2022, but the impact will be blunted by its 17% investment returns in FY 2021.
• SCERA, CalPERS, and CalSTRS have adopted more conservative economic and actuarial assumptions—including lower long-term investment returns and continuous improvement in life expectancy—that put them on a stronger footing in the long run.
• Employer costs for pensions in Sonoma County are stabilizing or decreasing due to benefit reductions under the Public Employee Pension Reform Act of 2012 (PEPRA) and progress in paying down unfunded liabilities.
  • The cost of benefit accrual by current employees (called “normal cost”) is gradually declining due to PEPRA, which reduced pension benefits, capped pensionable salaries, raised the retirement age, and required at least 50% normal cost sharing for employees hired after 2012.
  • Compared to legacy benefits, employer normal cost for PEPRA employees covered by SCERA is 42% lower for County of Sonoma and 54% lower for Sonoma Valley Fire District firefighters.
  • The employer normal cost for PEPRA benefits is low in absolute terms for non-safety workers, 7.68% of covered payroll as of the FY 2021 SCERA actuarial
  • SCERA’s average total employer contribution rate—combining normal cost and unfunded liability service—peaked at 22.56% with the FY 2012 valuation and declined to 18.69% as of the FY 2021 valuation. In comparison, average CalPERS employer rate in Sonoma County is 38.1%, and the CalSTRS rate (including both employer and state cost) is 26.9% based on FY 2021 valuations.

3. SCERA stands out in the Bay Area as the only pension system to lack automatic inflation protection (COLA), which presents a serious challenge for the 11,000 members who rely on the system for retirement income.

• While statewide pension reform has standardized base pension benefits, SCERA is the only public pension system in the nine-county Bay Area to not provide a guaranteed cost-of-living-adjustment, or COLA.
  • CalSTRS provides retired educators with a 2% simple (rather than compounding) COLA. In addition, the state voluntarily funds a supplemental benefit to maintain a floor of 85% of original purchasing power.
  • All other public employee pensions in the region—including CalPERS, MCERA in Marin County, SFERS in San Francisco, CCCERA in Contra Costa County, and ACERA in Alameda County—provide a 2% compound COLA.
• Current SCERA rules make COLA payments unlikely and rare. The last year any SCERA retirees received an increase was 2008, when older retirees saw their benefits adjusted to 80% of original purchasing power.
• SCERA retirees who retired in 2000 have lost 42% of the purchasing power of their monthly pension check. Between the beginning of the COVID-19 pandemic in March 2020 and November 2022, inflation eroded all SCERA retiree pensions by 13%.
• Half of County of Sonoma retirees will live to see the value of their monthly pension decline to a 33% lower pension benefit than they would have received if they had worked for any other county government in the Bay Area with the same base pension formula.

Read the full report.