KCERA actuaries tell supervisors funded ratio rose to 69.9%; employers still paying roughly 46% of payroll

Kern County’s retirement system reported modest improvement but still-large long-term costs during an actuarial overview presented to the Board of Supervisors on Feb. 25.

The Kern County Employees’ Retirement Association (KCERA) told supervisors the plan held about $6.2 billion in its investment portfolio as of the 6/30/2024 valuation and paid roughly $35 million per month to more than 9,000 retirees worldwide. The actuarial report shows a funded ratio of 69.9% on the valuation basis, up from 68.7% a year earlier, and an unfunded actuarial accrued liability of approximately $2.51 billion.

Those figures matter for the county’s budget because KCERA’s actuary calculated an average employer contribution rate of 45.76% of active payroll for 2024 — meaning employers in the plan (including Kern County) are being billed, on average, nearly 46 cents for every dollar of active payroll to cover benefits and amortize unfunded liabilities. KCERA’s consultants said the increase in payroll and other plan experience produced a decline in the percentage rate compared with the prior year even as the dollar amount of payments remains large.

“ We currently have 6,200,000,000 in the investment plan portfolio,” KCERA chief executive officer Dominic Brown told the board. Segal Consulting actuary Molly Calgano and colleague Todd Towser explained the valuation methods and long-term projections.

Why the funded ratio moved up

Segal described two primary drivers in the year: a strong market return (9.36% market value return for the plan year ending 6/30/2024) and higher-than-expected salary growth during the 2023–24 plan year. Calgano emphasized KCERA uses an asset‑smoothing method to damp volatility when setting contribution rates. “We recognize it over a 5 year period of time,” Todd Towser said, describing the smoothing method that spreads gains and losses to avoid large year‑to‑year spikes in employer bills.

The presentation noted KCERA’s assumed investment return remains 7%. Over the last five years, the plan’s investment return averaged about 8.6%, Segal said.

Member and employer rates

Segal reported the average member contribution rose slightly, from 7.41% to 7.56% of payroll, reflecting demographic shifts and replacement of legacy members by PEPRA (post‑2013) hires who contribute 50% of normal cost. Calgano explained that members pay the normal cost portion while employers pay both their portion of normal cost and the unfunded liability amortization.

“Over 70% of the employer’s contribution rate right now is coming from paying down the unfunded actuarial accrued liabilities,” Calgano said, walking through the amortization mechanics.

Longer‑term outlook: a big amortization layer and a potential cliff

Segal’s historical analysis showed a large “restart” amortization layer created about 20 years ago remains the dominant driver of the plan’s unfunded liability. The consultants projected that, if current funding policies and assumptions hold, the large legacy amortization layer will be largely paid down in the mid‑2030s. Segal said that could produce a sizable decline in employer contribution requirements around 2035–2036, though the office cautioned the projection depends on many future variables including future investment returns and future salary and demographic experience.

Board discussion and next steps

Supervisors asked about the assumptions for salary growth (Segal said the prior long‑term assumption had been higher; the current baseline is nearer 3%), the risks from market volatility and whether paying down the UAAL sooner using reserves would make sense. CAO staff and KCERA emphasized that using county reserves to prepay liabilities carries trade‑offs: a guaranteed return in county treasuries versus investment risk if funds are turned over to KCERA.

The board voted unanimously to receive and file the actuarial presentation. The board’s action was procedural; no benefit formula or funding policy change was adopted at the meeting.

Ending

KCERA and Segal told supervisors the annual valuation is a planning tool that will be refreshed each year; the plan’s ultimate cost depends on actual future investment performance, demographic experience and any changes to plan provisions. KCERA’s staff and Segal said they would return with further details as needed for budgeting and long‑range planning.