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The Lebanon County employee pension fund is in fine financial health.
That was the message delivered by financial consultant Craig Graby, Korn Ferry, and senior consultant Kris Seets of Gabriel Roeder Smith & Co. during a workshop of the Lebanon County Commissioners on July 9 concerning the state of the employee’s retirement fund.
This discussion was held prior to two separate presentations by officials from local organizations who were seeking Act 137 funding for their respective housing-related projects.
Read More: Agencies bring two housing funding requests to Lebanon County officials
Through Dec. 31, 2024, the county’s employee pension retirement fund’s funded ratio was 86.5 percent, which indicates it is in a healthy condition.
Near the end of the presentation, Graby noted as part of next steps that the county’s funded status has been above 80 percent for the last 10 years, a trend he said would continue as long as the county keeps funding the Actuarially Determined Contribution (ADC).
Graby said at the beginning of his presentation that the 2025 funding valuation includes the review of employee demographics and investments in 2024, provides information on the funded status by comparing the assets to liabilities (expected value of benefits), and determines the ADC for 2025.
Lebanon County Commissioners, seated at the head of the table as shown in this LebTown file photo, received a status report on July 9 concerning the health of the county employee’s pension fund. (Will Trostel)
Graby said the ADC consists of two components, the normal cost for the current year of service accrued and an amortization payment, which is the contribution to pay down unfunded liability. He equated the amortization payment as being like a mortgage that is paid down by a homeowner.
“We have certain assumptions about when people will leave, what pay increases will be, when people will die, when people will ultimately retire. And we project out every expected future benefit payment based on all those probabilities,” he said. “And then we discount the value of each of those benefit payments that are expected to be made in the future or a refund of contributions, whatever it may be.”
Graby told commissioners that an asset smoothing method is utilized to lessen the effect of investment market volatility on the funding status and employer contribution rates.
“We don’t recognize the entire gain and loss in any given year. The market value is pretty unstable which, you know, you’ll see it’s up and down,” he said. “And if you’re making contributions that are based on a 20 percent return one year and a 14 percent loss the next year, there’s going to be a lot of volatility there.”
The smoothing method target for Lebanon County is for a 7.25 percent return, according to Graby.
“We take 20 percent of any gain or loss in any given year, and a gain is defined as how far away you are from that 7.25 percent. So if you hit 7.25 percent, then you should be right there where you have no gain or loss,” he said. “If you exceed it, you’re going to have a gain and then you’re going to recognize that in five increments, 20 percent each year over five years, so it’s 20 percent in the current year and 20 percent in each of the next four years.”
The Lebanon County Municipal Building is at 400 S. 8th St., Lebanon. (File photo)
The smoothing method is used in down years too, according to Graby.
“If you have a loss, that’s a shortfall under 7.25 (percent), the same thing. You recognize 20 percent of the loss in the current year and the other four 20 percents get recognized over the next four years,” Graby said.
It was noted Lebanon County’s rate of 7.25 percent is slightly higher than other municipalities.
A prepared slide indicated that “reduced capital market expectations have caused many plans to reduce their investment return assumptions in recent years.”
Graby said the National Association of State Retirement Administrators has 7 percent as the median assumption average for most municipalities.
“The median right now, among the largest plans, so we’re looking at NASRA, which is the state retirement administrators, and they put it out for the states and it includes some of the largest municipalities like New York City. The median right now is 7 percent. So you’re really not that far off,” Graby said. “So 7.25 is a reasonable place to be, but it is something to continue to look at.”
Lebanon County’s employee pension fund is at 86.5 percent, a sign of overall fiscal health. (Unsplash)
Seets agreed with Graby on this point.
“I don’t have any issues with that, you know, anywhere around that. But if you were at 8.5, we would be having a discussion. 7.25, it’s something that you can continue to monitor,” Seets said. “It’s a good conversation with the investment consultants and the actuaries and the investment consultants to work together to look at what are the projected benefit payments of the plan.”
It was stated that there are questions to be asked to determine what the county’s rate should be.
“Do we want to match that to certain assets and see what we expect the returns to be? What kind of liquidity do you want to keep in case there’s another 2008 downturn?” Seets stated. “So there’s a lot of things that you can look at and you can also look at reducing risk. If you want to lower that to 7 percent you can take a little risk out of the portfolio, but, again, where you are, I don’t think you have a sizable (risk).”
The workshop presentation closed with commissioners being told they will receive an estimated ADC letter for 2025 in October and a Cost-of-Living Adjustment, or COLA, letter for 2025 that same month.
COLA for pensions is a benefit increase designed to help retirees and beneficiaries maintain the purchasing power of their retirement income against the effects of inflation. Essentially, as the cost of living increases, a COLA aims to increase a pension benefit proportionally, allowing a retiree to purchase the same amount of goods and services as before prices rose.
Following the workshop season, Lebanon County controller Bob Mettley told LebTown the numbers explained in the presentation shows that the county’s retirement fund is healthy.
“We’re at 86 percent funded, which is good,” Mettley said. “What that means is that the county is in, the pension fund is in solid status. That it’s not gonna go bankrupt or anything like that.”
Commissioners went into executive session following the workshop presentations to discuss union negotiations.
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