The market downturn has ravaged investment portfolios worldwide, including the two employee pension funds for the city and county of San Diego.
Managers said the funds suffered hundreds of millions of dollars in losses because of the sell-off in stocks that began in September and accelerated in October.
The value of the San Diego City Employees’ Retirement System fund declined $700 million from the end of 2007 through the end of September, or 14 percent.
The fund has been at the center of financial crisis since early 2004, when the city disclosed it had omitted information in financial disclosure documents, resulting in federal and state investigations and criminal and civil actions.
City Attorney Michael Aguirre, defeated in his bid for re-election Nov. 4, said the exact size of the SDCERS fund’s losses need to be fully disclosed.
“In order to implement an honest plan to deal with the troubled pension fund, we must first know the extent of the problem,” he said.
The value of the San Diego County Employees Retirement Association fund dropped to $7.3 billion from $8.44 billion, or more than $1 billion , a loss of 13 percent.
By comparison, CalPERS, the nation’s largest public pension fund serving state and other public employees, took even greater dollar losses, about $48 billion from the end of June through Oct. 10, or about 20 percent. If the losses persist through 2010, fund managers said they may have to increase contribution rates by 2 percent to 4 percent.
Present Values Don’t Matter
The managers of the two regional pension funds said losses will be greater once October’s declines are calculated, but looking at current asset values doesn’t mean much.
“Market values don’t matter,” said David Wescoe, CEO for the city’s employee retirement system, which has 20,000 active and retired participants. “The only number that matters is the snapshot that the actuary takes on June 30 at the end of the fiscal year.”
Both the city and county pension funds use formulas that spread out gains and losses during five-year periods to determine what the governments must contribute. That means the first time the 2008-09 fiscal year loss comes into play is July 1, 2010.
Based on the results of the fiscal year that ended June 30, the city injected $161.7 million into the fund.
Wescoe said the SDCERS fund had gains two years ago of 16 percent, and that it’s too early to be worried about the recent losses.
“We’ve only completed the first act of a four-act play,” he said. “The bottom line is it’s premature to talk about (the fund’s) assets.
“This is not the first downturn that the fund has suffered, and it won’t be the last,” Wescoe said. “We’ve come through the other ones, and we’ll come through this one.”
Meanwhile, the county employee pension fund was faring well up until the last three months. The fund began the year at $8.44 billion, then slid only a tad to $8.4 billion by June 30. But by the end of September, it shrank to
Brian White, chief executive for the retirement association, estimated that the fund would sustain a loss “in the mid-20 percent” range from July 1 through the end of October.
Losses Across The Board
“Everything has been hit across the board. It’s been a very difficult year,” said White, whose association provides benefits to 35,000 active and retired employees.
SDCERA invests a fifth of its fund, or $1.5 billion, in a variety of hedge funds that are largely unregulated and considered too risky by other pension fund managers, including the city of San Diego.
White said investment managers and their governing board aren’t considering altering the current strategy because of heavy losses.
“We’ve experienced a decline that’s similar to the declines of all investments. Everybody’s (portfolio) has taken a devaluation,” he said.
Asked when the market will rebound, White said: “I cannot say how long the retrenchment may take. The only thing I do know for sure is that just as they always have, the markets will recover and when they do we’ll be able to take advantage of that recovery.”
Individual investors who consider cashing out equities into less volatile bond and money market funds should consider when they plan to retire, said Neil Hokanson, president of Hokanson Associates, a Solana Beach wealth management firm.
“If you have a longtime horizon and you’re in your 40s, this is a great market to buy stocks,” Hokanson said. “For those with a shorter time horizon, less than five or even 10 years away from retirement, then your asset allocation should be a lot more conservative.”