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SCERA Times
SPRING 2018
S O N O M A C O U N T Y E M P L O Y E E S ’ R E T I R E M E N T A S S O C I AT I O N
There’s No Free Lunch
e’ve all heard the expression before, “there’s no Moving along, “B” stands for benefits. These are the
free lunch.” You can’t get something for noth- retirement benefits that SCERA pays you after you
ing. We live this every day at work – employees retire. Finally, “E” stands for expenses – the money
provide their time and labor in exchange for a paycheck. SCERA needs to operate. The money SCERA can spend
Take a look at your pay stub and you will see deduc- for operations is capped by statute, and SCERA operates
tions that help pay for your retirement. well below that cap.
Look a little farther down your paystub, under the The formula has to balance. If one side goes up, so
benefits tab. You will see that your employer is also fund- does the other. You can’t increase the expenses without
ing your retirement. The money you and your employer increasing the income. Therefore, if you raise benefits,
pay into SCERA is called contributions. SCERA invests you also have to raise contributions and invest-
those contributions in a variety of ways to get ment income. Also, if your investment income
investment income. In fact, investment income is too low, you have to increase contributions so
funds the majority of benefits paid by SCERA. the income balances the benefits and expenses.
Actuaries tell retirement systems the There is no free lunch.
amount of contributions needed now to With investment income going up and
pay benefits in the future. Actuaries use a down, the formula can get pretty wobbly.
lot of technical terms and acronyms like What happens when investment income is
actuarial accrued liability (AAL), assumed really low, like in 2008? When investments
rate of return, normal cost, etc. However, don’t perform as expected, there is a short-
SCERA’s actuary has a pretty simple for- fall that pension plans call unfunded actu-
mula that he loves. His formula is useful arial accrued liability (UAAL). This shortfall
for understanding how retirement plan has to be made up by either increasing the
funding works (he actually has a pin with contributions and investment income or
the formula printed on it that he wears reducing benefits and expenses.
when he goes to conferences). The formula As we discussed in our last newsletter, employers
is C + I = B + E. This is the “no free lunch” formula. generally cannot reduce benefits that have already been
In the formula, “C” stands for contributions. This is earned. It is also difficult to reduce future benefits for
the money that you and your employer pay into SCERA current employees because the employees agreed to
while you are working. Employees and employers share work for the promised benefits. It is difficult for the
the basic cost of funding the retirement, called “normal employer to change the promise once the employee
cost.” The employer also makes up any shortfalls – we’ll starts working.
discuss this more below. In most cases, a shortfall will be billed to the
“I” in the formula stands for investment returns. This employer. This is the reason your employer’s contri-
is the money SCERA earns by investing contributions. bution amount on your paystub is higher than yours.
Currently, SCERA assumes that it will earn 7.25% per The employer is allowed to pay off the shortfall over a
year on investments. Of course, there are good years and 20 year period. Much like a house payment, payment
bad years, so 7.25% is an average. Over a 30-year period of the UAAL by the employer is amortized so that the
SCERA’s average investment returns have exceeded the shortfall does not have to be paid immediately. The
7.25% assumed return. employer has better control over its budget and is not
There’s No Free Lunch Continued from page 1
surprised by bills from SCERA.
Retirement system funding is a complex issue. The SCERA Board,
staff, and actuaries work hard to ensure that the benefits you have been
promised are there for you when you need them. We also try very hard to
minimize costs to you and your employer through a diverse investment
program that balances risks and returns. While there is no free lunch, we
SCERA Times are working hard to make sure employees and employers get the best value
for their retirement contributions.
SCERA Board of Retirement
Brian Williams, Chair
Neil Baker, Michael Gossman
Greg Jahn, John Pels
Highest Average Salary
Christel Querijero, David Rabbitt
Erick Roeser, Joe Tambe
Bob Williamson
Y our SCERA retirement benefit is based on three factors: your age at
retirement, years of service credit, and your Highest Average Salary.
Highest Average Salary is the average compensation you earned prior
to retirement. The definition varies based on your plan.
Board of Retirement Meetings • Plan A members, the monthly average of the member’s highest one-
Meetings are generally held at 8:30 a.m.
on the fourth Thursday of the month in
year pensionable compensation, limited by IRS statutes.
the SCERA Board Room. • Plan B members, the monthly average of the member’s highest
three-year pensionable compensation, limited by PEPRA statutes.
Executive Staff Highest Average Salary includes most premium pays, paid vacation time,
Julie Wyne, Chief Executive Officer paid holiday time, and paid sick leave. Overtime pay is NOT included. SCERA
Kelly Jenkins, finds the Highest Average Salary at any time in your career, even if your
Assistant Chief Executive Officer
highest compensation is not in your final year of employment.
Jim Failor, Chief Investment Officer
David Lantzer,
Chief Retirement Counsel Disaster Preparedness ~
The SCERA Times is published for
members of the Sonoma County
Sign up for Direct Deposit today!
Employees’ Retirement Association.
Comments and suggestions
should be directed to:
N atural disasters can happen anywhere and at any time so it is important
to be prepared. None of us ever expect to be affected by these kinds
of natural disasters.
Retirement@sonoma-county.org A disaster can disrupt mail service for days or even weeks. Don’t let a
Or contact SCERA at:
disaster come between you and your money when it’s needed the most
433 Aviation Blvd., Suite 100 as part of your recovery. Receiving your benefits electronically eliminates
Santa Rosa, CA 95403 potential problems since funds are automatically deposited and available
(707) 565-8100 on time even if you, or the local bank, had to relocate.
Signing up for direct deposit can give peace of mind knowing you have
This Newsletter is not intended or designed to be
financial advice, tax advice or legal advice. SCERA
access to your money wherever or whenever you need it.
does not render financial, tax or legal advice. Sign up today by logging into your MySCERA account, drop by our
Please consult with your financial, tax and legal office with a voided check, or contact us to have a direct deposit form
advisors regarding your personal circumstances. mailed out to you.
This Newsletter was prepared by SCERA staff to
help members understand issues surrounding
many aspects of their retirement benefits. Every
SCERA Definition
effort has been made to ensure the accuracy of
the information provided. However, you should
not rely solely on the information contained
ac • tu • ar • y noun: A statistician who
in the newsletter. If there is any discrepancy determines the present effects of future contingent
between information in this newsletter and legal events, especially a person who calculates insurance
requirements under State or Federal law, the law
will govern. and pension rates on the basis of experience tables.
2 | SCERA Times Spring 2018Scheduled upcoming classes that are currently open include the following:
Title Start Date Time
The Path to Retirement July 11, 2018 12:00 pm – 1:00 pm
Planning to Retire July 18, 2018 2:00 pm – 4:00 pm
Planning to Retire August 1, 2018 9:00 am – 11:00 am
Planning to Retire August 7, 2018 2:00 pm – 4:00 pm
Planning to Retire September 6, 2018 2:00 pm – 4:00 pm
Planning to Retire September 12, 2018 2:00 pm – 4:00 pm
A more complete description of the classes is available at http://scretire.org/Retirement-Planning/
Getting-Ready-to-Retire/Classes. You can enroll in the classes by logging on to www.MySCERA.org
IMPORTANT DATES
and clicking on Seminar Registration. Retiree Pay Dates
May 31, 2018
New Year, New Beneficiaries? June 29, 2018
July 31, 2018
D
o you remember who you designated as a beneficiary? Have
you recently reviewed your beneficiaries to ensure your
August 31, 2018
designation reflects your wishes in the event of your death? September 28, 2018
A beneficiary designation helps SCERA determine on your October 31, 2018
death who to pay any possible benefits or a refund of your con- November 30, 2018
tributions and interest. All employees designate a beneficiary or
multiple beneficiaries upon becoming SCERA members. December 31, 2018
Your MySCERA account displays current beneficiaries; it is
important to review this information carefully. Holiday Schedule
Who is a beneficiary? A beneficiary is any person or legal May 28: Memorial Day
entity entitled to receive a benefit or lump sum payment pro-
vided by the Plan. A beneficiary is the person that you name in
July 4: Independence Day
writing to receive SCERA provided benefits upon your death. September 3: Labor Day
Regardless of whom you have nominated on your Beneficiary November 12: Veterans Day
Designation form, a surviving spouse/California state-registered (observed)
domestic partner or minor child(ren) will override any beneficiary
designation you have made and will be your eligible beneficiary. November 22:
When should I update my beneficiary? Any time a major Thanksgiving Day
life event such as marriage, partnership, divorce, birth of a child, November 23:
change of employment status or a death in the family occurs you Day After Thanksgiving
want to check and revise your beneficiary(ies).
Active and Deferred members can change their beneficiaries at
Our office will be closed on
any time.
these holidays, but we’re still
Please be aware that notifying your employer of any changes
does not change your beneficiary(ies) with SCERA. available at www.scretire.org
What if I die before retirement? Survivor benefits are available when you need information on
for actively employed members. Several options may be available our programs and services. Our
to your beneficiary in the event of your death before retirement. personalized, secure website
In all cases, your contributions plus interest can be distributed www.MySCERA.org
to your designated beneficiary. lets you view your account
Protect the person and the people nearest to you, by keeping information and conduct much
your beneficiary designations current. of your SCERA business online
Forms are available through our website at scretire.org to at any time.
update your beneficiary.
Spring 2018 SCERA Times | 3Sonoma County Employees’ Retirement Association
433 Aviation Boulevard Suite 100
Santa Rosa CA 95403-1069
INVESTMENT MARKET UPDATE
s a pension plan SCERA is more focused on long- Crisis. 2017, in particular, was especially strong with
term returns than short-term market value fluctua- all of the major stock markets rising as they benefited
tions. On the other hand, we do care about volatility over from low interest rates, consumer confidence, and a
shorter periods as it can impact the stability of required broad global economic expansion. After a strong 2017 the
contributions. For this reason we include lower returning market reversed itself this past quarter amid concerns
yet more stable assets such as fixed income and real assets regarding rising interest rates and the dampening effect
and we diversify the Plan’s portfolio. The Plan includes it could have on growth. While more recent returns are
both US and non-US stocks as well as a wide variety of very healthy, the 10 year return modestly trails long-term
fixed income and real asset investments. The advantage expectations as it includes the downturn linked to the
of diversification is that the different asset types usually Global Financial Crisis as well as the ensuing recovery.
do not move in lock-step and the resulting total port- The 20 year return also trails our long-term expectations
folio returns enjoy a smoother pattern over time. The as it also includes the bursting of the TMT (Technology,
most recent addition to our line-up of investments is Media, Telecommunication Services) bubble that began
infrastructure. Infrastructure includes tangible assets in 2000. The 25 year return, which is arguably more rel-
such as seaports, airports, toll roads, and utilities. After evant given the Plan’s long horizon, is strong and more
waiting through an entrance queue, we first invested in in line with expectations. These investment returns,
infrastructure this past fall. coupled with sponsor and employee contributions, have
Turning to performance, recent Plan returns have enabled SCERA to meet its monthly pension obligations
been quite strong with 1, 3, and 5 year returns being and to grow the Plan’s funded status to a very healthy
well above long-term expectations and reflecting the 94.2% on a market value basis (per the 2017 year-end
prolonged recovery which followed the Global Financial actuarial valuation, the most recent available).
Sonoma County Employees’ Retirement Association
SCERA Summary of Performance (Gross-of-Fees) as of March 31, 2018
1st Qtr 1 Year 3 Years 5 Years 10 Years 20 Years 25 Years
Plan Return (Gross-of-Fees) 0.5% 11.8% 8.3% 9.5% 7.0% 6.5% 8.0%
Policy Benchmark -0.5% 10.7% 7.2% 8.5% 6.3% 6.0% 7.6%
Difference 1.0% 1.1% 1.1% 1.0% 0.7% 0.5% 0.4%
The impact of fees would be to reduce Plan returns by approximately 0.5% per annum. Assumed Rate of Return 7.25%
4 | SCERA Times Spring 2018You can also read
