Grand Jury Report | Planning For The Future: The Board Of Supervisors’ Approach To The Growing $220-million Problem Of Unfunded Pension Liabilities

On June 8, 2024, the Grand Jury published “Nevada County’s Ability to Meet Future Pension Obligations,” recommending that within six months the County “produce a comprehensive plan to eliminate the unfunded pension liabilities.” The Board of Supervisors responded on August 20, 2024: “This recommendation has not yet been implemented, but will be implemented over the next year.” The 2025-2026 Grand Jury decided to revisit the issue. As of October 2, 2025, there was no plan. In contracts dated July 1 and 18, 2025, the County hired a law firm and a consultant to assist it in formulating a plan. As of this report, there is no plan.

At the end of Fiscal 2015, the County’s unfunded pension liability was $117,142,264. Since the 2024 report, the County’s financial position with respect to unfunded liabilities has continued to worsen, and the total amount of unfunded pension liabilities increased to $223,565,943 at the end of Fiscal 2024. That is quickly said and quickly read, and it bears repetition: since 2015, the County’s unfunded liability amount has almost doubled. The County’s annual payment to CalPERS has more than doubled, from $9,508,354 in 2015 to $22,735,736 for FY 2026. That is not progress.

Background

Nevada County has a pension plan for its employees. The County and its employees contribute to the plan with each paycheck. Pension funds do not just sit in a vault somewhere. Counties invest them with the expectation that, if the investments are sound, the future pensioners will be safe, and the County may make additional money that it can apply to various projects. If investment returns are disappointing, the total of a County’s set-aside funds will fall below the amount the County will need to pay future pensions. The pension fund then is less than 100% funded. CalPERS is Nevada County’s (and many other counties’) investment agent.

At the turn of the century and for some years thereafter, the Nevada County pension fund was at or near full funding. That is, there was enough money in the pension account to pay the pension benefits that would become due over time as employees retired and became eligible for payouts. The Great Recession of 2007-2009 took a toll on pension accounts. CalPERS holdings of pension assets took a nose dive, from a high of about $260 billion to $160 billion, a 38.5% decline. Pension plans that had been at or close to full-funding status saw their value reduced and were no longer near that mark. The loss in value created unfunded liability; there were no longer sufficient funds in the accounts to satisfy the accrued (but not yet payable) pension debt. As of the 2024 Grand Jury report, the County’s pension plan was about 68% funded. When the final figures for FY2023 came in later that year, the plan had decreased to 63.9% funded.

Counties’ pension liabilities constantly change according to several variables.

Hiring employees increases pension liabilities if they stay long enough for their retirement benefits to vest. Employees also leave County service, so that pension liability to them ceases to accumulate. Salary increases lead to higher pension liabilities. A county’s total pension liability is a constantly moving figure. As counties grow, pension liabilities tend to increase as counties hire additional staff, salaries increase over time, and employee longevity increases.

Pension liability debt does not all come due at once. Employees retire at different ages and collect pension payments for differing periods of time. Market performance, with its ups and downs, also affects counties’ ability to pay pensions when they are due.

In its response to the 2018 Grand Jury report, the County appeared to acknowledge the seriousness of the problem.

The County of Nevada takes this matter very seriously and has taken numerous proactive measures to mitigate the impact of rising pension costs and manage Net Pension Liability impacts. The County maximizes revenue opportunities and has accumulated fund balance to help address rising pension costs. If the economy and revenues drop significantly for a sustained period of time, or there are additional changes from CalPERS requiring higher contributions than are currently known, there may be impacts to services.

Although the County generalized about “numerous proactive measures,” it did not identify even one in its response. Simultaneously, the County minimized the need for taking action. Finding 2 of that report stated that the County’s financial position did not allow it to reduce UPL. The County responded:

Disagree.

Responding only for County of Nevada agencies. Annual required contributions (ARC) set by CalPERS are intended to pay down the Net Pension Liability over a period of time. The County has always met the ARC and expects to do so in the future.

It is true that the annual amortization payments are supposed to pay down UPL. It is true that the County has always made timely amortization payments. Beyond that, it is true, as Finding 18 states, that the County has saved hundreds of thousands of dollars in interest costs by paying each year’s amortization payment at the beginning of the year, avoiding interest charges. All that is true.

The chart on page shows how well that has worked for the County since CalPERS shifted from 30-year to 20-year amortization. With that approach, the County’s unfunded pension liability has nearly doubled since 2015. ” Despite the County’s “numerous proactive measures,” between 2019 and 2024, the County’s unfunded liability increased by more than 40%.

Money in the General Fund Not Used to Reduce Unfunded Liability Debt

At the end of each fiscal year for the FY 2019 through FY 2024, the County has had General Fund balances ranging from $38.3 million to $47 million. For FY 2025 and FY 2026, it projects ending General Fund balances of $48.3 million and $43.8 million respectively. The following chart shows the County’s allocation of those funds to making voluntary additional payments to reduce its unfunded pension liability.

Chart 1

To be sure, not all of those amounts should have gone to offsetting the mounting unfunded liability debt, but one might reasonably suspect that some part of it greater than $0 could have become one of the County’s “numerous proactive measures,” to reduce a debt of well over $200 million.

Since then, the County has taken no significant action to address the problem beyond making the required annual amortization payments. The County has done little to explore alternatives to continuing with the broken retirement system. Unless CalPERS experiences consistent double-digit returns on investment over the next four or five years (at least), the County may ultimately be headed for bankruptcy, to the detriment of its citizens, employees, and former employees. Bankruptcy is not imminent, and the County can take steps now to avoid that possibility. It should. Constantly mounting debt is not sustainable for any debtor.

Nevada County officials regularly argue that many other counties are in comparable situations to Nevada County with respect to unfunded liabilities. That may be, but Nevada County citizens are in no better position merely because other counties’ citizens are also at risk.

CalPERS manages Nevada County’s pension retirement plans, investing pension payments that it receives from public employers and employees around the state so that as pension payments to retirees become due, there is money to pay them. For more than a decade, there have been reports of CalPERS having financial difficulties from failing to meet its ROI goals. The scorecard is unimpressive. Under CalPERS’ stewardship over the last decade, combined with the County’s “numerous proactive measures, to mitigate the impact of rising pension costs and manage Net Pension Liability impacts. . . ,” the County’s liability has risen more than 90%.

To address unfunded pension liability, CalPERS requires annual amortization payments from its member counties, the stated goal being to return accumulating pensions to fully funded status over a 20-year period.

• FY 2015: Unfunded pension liability amount = $117,142,264
• FY 2015: amortization payment = $9,508,354
• FY 2015 through FY 2024: total payments = $167,407,385
• FY 2024: Unfunded pension liability amount = $223,565,943
• FY 2026: amortization payment = $22,735,736

Thus, the County at the end of FY 2024 had paid almost 143% of its FY 2015 unfunded pension liability only to see that amount nearly double.

Employees’ pension rights become vested after five years with the County.

Each year, more employees reach that mark. To some extent, departing employees who have not reached the five-year mark offset the increases. Pay raises also increase the County’s pension obligation as does employee longevity.

It is important to understand, as the Board of Supervisors’ consultants, Cal-Muni and WeistLaw have made clear, that the “County bears all investment risk. Failure by CalPERS to achieve target investment returns does not relieve County from pension benefit guarantees to employees and retirees.” That is simply another way of saying that although the County has delegated to CalPERS authority to make investments on its behalf, it cannot delegate its responsibility.

The full report is available for download here or on the Grand Jury website.