The county’s retirement plan is creeping back towards full funding
Aug 27 – MARIETTA – Cobb County’s Retirement Fund is on track with goals set previously to be fully funded, but it won’t be for the next 22 years.
Roger Tutterow, professor at Kennesaw State University, chairman of the board of trustees of the pension fund, told the Cobb Board of Commissioners this week that the fund’s funding rate – the ratio of current assets and its projected growth to its long-term liabilities – will be through 80 % should reach 2036 and 100% by 2043, which was in line with his projections two years ago.
In the meantime, Cobb County will be responsible for covering annual pension expenses that are not paid out of the Fund’s assets.
Tutterow explained the calculations of the Board of Trustees for the funding rate:
“With the assets we currently have in plan, we are assuming how much return we expect in the future, and that’s half the equation,” he said. “And the other half … is based on our assumptions about retirement and mortality. What do we think the real cost of providing the benefits to retirees will be?”
The steady growth of the fund, according to Tutterow, is due to increased spending by the district on pension obligations and robust asset returns, which should reinforce each other with sufficient time.
The fund has total holdings of nearly $ 1 billion and is backed by contributions from Cobb employees and the county itself, a financial commitment that increases year by year and accounts for a significant portion of annual budget growth.
Workers on the countyâs traditional pension plan contribute 8.25% of their salary to their pension. In return, upon retirement, they receive 2.5% of their salary (so-called âservice factorâ) for each year of service (ie 50% for 20 years of service). This employee contribution will increase to 8.75% of their salary by 2023.
In 2010, the county created a more flexible plan that includes a smaller 3% of employees’ paychecks and a smaller 1% of their pay for each year of service. As older workers leave the government and are replaced, the number of county workers in the newer plan has steadily increased to nearly 2,500 in 2020.
Cobb boasted a funding rate for its retirement plan of around 95% until the late 1990s, when the county increased the generosity of its plan and made those changes retrospectively. This change alone led to a decrease in the funding rate of around 25%. Further plan changes and asset losses during the Great Recession resulted in the 2008 plan funding rate bottoming out at just over 50%.
The current funding rate is now around 54%. While the board is “not thrilled” to still sit below 60%, Tutterow is optimistic that the district will slowly but surely close the gap.
2020 was indeed a stellar year for the fund as it gained nearly three percentage points in value on the back of exuberant stock market returns in the second half of the year. Tutterow said that given this strong performance, there was little more value to be extracted from the assets themselves.
“I don’t think we can ask much more from our investment team when it comes to achieving asset performance,” said Tutterow, noting that the fund is in the first percentile of peers in terms of returns.
When asked by Commissioner Jerica Richardson whether he had any policy recommendations to support the Fund’s finances, Tutterow abstained from pronouncing a judgment.
“I’m trying to stay in my box,” replied Tutterow. “I think it is certainly fair to keep asking, ‘What is the burden on the county making progress towards full funding?’ I may have personal opinions, but I don’t want to speak on behalf of the retirement plan. “