To: Board of Supervisors of Sonoma County, Board of Directors of the Sonoma County Water Agency, Board of Directors of the Sonoma County Agricultural Preservation and Open Space District, Board of Commissioners of the Community Development Commission
Department or Agency Name(s): County Executive’s Office, Sonoma County Employees’ Retirement Association, Auditor-Controller-Treasurer-Tax Collector
Staff Name and Phone Number: David Guhin (CEO), Nikolas Klein (CEO), 707-565-2431; Julie Wyne (SCERA), 707-565-8100; Amanda Ruch (ACTTC), 707-565-2281
Vote Requirement: Informational Only
Supervisorial District(s): Countywide
Title:
Title
2026 State of the Retirement System Annual Report
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Recommended Action:
Recommended action
Receive the annual report on the state of the County’s retirement system that highlights policy and legislation updates, annual costs through Fiscal Year 2024-25, projected future costs, unfunded liabilities, plan membership data, historical investment experience, and results from the Sonoma County Employees’ Retirement Association’s December 2025 actuarial valuation.
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Executive Summary:
The County’s annual State of the Retirement System Report provides annual pension costs and pension-related liabilities through Fiscal Year 2024-25, as well as the Sonoma County Employees’ Retirement Association’s (SCERA) membership data, investment returns, and actuarial valuation results as of December 2025. The County’s FY 2024-25 pension-related costs totaled $133.8 million, a net increase of $17.0 million compared to the prior fiscal year. Over the past 5 years, unfunded liabilities decreased by $176.6 million, or 28.5%, to $352.2 million. The SCERA pension fund had a funded ratio of 94.56% as of December 2025 and annualized investment returns over the past 30 years averaging 7.7%. This report will also provide an update on the County’s policy and legislative initiative to implement targeted cost-of-living adjustments for current retirees.
This annual update is part of the County’s ongoing efforts to improve accountability and transparency with respect to reporting on the County’s pension costs and liabilities. The FY 2014-15 Sonoma County Grand Jury Report, the July 2016 report of the Independent Citizens’ Advisory Committee on Pension Matters, and the September 2018 report of the Board’s Ad Hoc Committee on Pension Reform all recommended that the County provide annual reports to communicate information to the public.
Discussion:
Pension Update
The County’s FY 2024-25 pension-related costs totaled $133.8 million, a net increase of $17.0 million compared to the prior fiscal year. The County’s pension contribution costs increased by $15.5 million due to expiration of certain employee groups’ supplemental contributions towards unfunded liabilities, which shifted costs to the County as employer, plus actuarial assumption changes reflected in SCERA’s 2022 valuation that impacted FY 2024-25 contribution rates. Pension Obligation Bond debt service costs increased by $1.5 million in FY 2024-25 based on the 20-year debt payment schedule. The County’s unfunded pension liability, which includes both remaining Pension Obligation Bond debt and the County’s share of SCERA’s unfunded liability, continues to decline due the pension fund’s strong investment performance in 2025, the County’s accelerated contributions towards unfunded liabilities, and pay down of pension bonds. The final Pension Obligation Bond payment for the 2010 issuance will occur on December 1, 2029. Over the past 5 years, unfunded liabilities decreased by $176.6 million, or 28.5%, from $528.8 million in 2022 to $352.2 million as of June 30, 2026.
The SCERA pension fund continues demonstrating strong performance as of its latest valuation dated December 31, 2025, with annual investment returns of 17.7% and a funded ratio of 94.56%. Annualized investment returns over the past 30 years averaged 7.7%, compared to SCERA’s current assumed discount rate of 6.75%. The December 2025 valuation calculated an average contribution rate decrease of 0.28% of payroll to 19.78%, which will be incorporated into benefits costs in the County’s upcoming FY 2027-28 budget.
Overview of Report Contents
The annual State of the Retirement System Report, provided as Attachment 1 to this summary, presents data and information on several topics related to Sonoma County’s pension system:
• Local policy and state legislation update, including AB 1601 retiree cost-of-living adjustment legislation pertaining to Sonoma County, AB 1383 which applies to public employee retirement benefits statewide, and the Board’s policy decision to create and fund a Section 115 Pension Trust.
• Historical pension expenses from FY 2020-21 through FY 2024-25.
• Measurement ratios showing pension expenses as a percentage of the County’s total salaries and benefits, pensionable payroll, and operating revenue.
• Forecasted future year pension cost projections through FY 2034-35, including preliminary (unaudited) actuals for FY 2025-26.
• Pension Obligation Bond debt issuances, including remaining principal balances, and inception-to-date returns for bond proceeds invested in the SCERA pension fund.
• Historical trends for the County’s share of the pension system’s unfunded liabilities.
• History of Board-approved accelerated payments towards unfunded pension liabilities.
• Results from SCERA’s most recent December 2025 actuarial valuation.
• Major factors contributing to changes in SCERA’s unfunded liabilities in recent years.
• SCERA’s membership data, average retirement benefits, and average years of service.
• Historical annualized investment returns from 1-year to 30-year timeframes.
Pension Expense Data Assumptions and Sources
The financial data presented in this Annual Pension Report is gathered from several sources, and the scope of the report is limited to certain County and County-affiliated agencies/districts. Pension contribution expenses, pensionable payroll, operating revenue, and net pension liability amounts are based on data from Annual Comprehensive Financial Reports:
• The “County of Sonoma” category includes all Governmental and Business-Type activities reported in the County’s Annual Financial Reports, such as County departments, Open Space District, and affiliated agencies such as SCERA, Sonoma County Fair, First 5 Sonoma County, Law Library, Local Agency Formation Commission, Waste Management, and Northern Air Pollution Control District.
• Water Agency (Sonoma Water) as reported in its annual financial reports.
• Community Development Commission as reported in its annual financial reports.
• Reported costs exclude the following non-County entities participating in SCERA’s pension plan: Superior Court of Sonoma County, Sonoma Valley Fire Protection District, and Sonoma County Transportation Authority.
Of note, the County’s reported annual pension costs in any given fiscal year do not match annual contributions calculated in SCERA’s actuarial valuations for the following reasons:
• The County’s fiscal year is July 1 - June 30, whereas the SCERA valuation aligns with the calendar year;
• SCERA’s valuation uses estimates of expected future payroll costs, but the County reports actual costs; and
• 18-month delayed contribution rate implementation (e.g., SCERA’s December 2025 valuation contribution rates will be implemented in County Fiscal Year 2027-28).
SCERA's annual valuations account for the difference between expected versus actual contributions when setting contribution rates for the future year to ensure the County’s contribution costs are always trued up and paid over time. SCERA’s December 2025 actuarial valuation, as well as prior year valuations, are available for review on its website: <http://scretire.org/Financial/Actuarial-Reports/> <http://scretire.org/Financial/Actuarial-Reports/>.
Pension System Overview Document
In addition to the annual report, the Pension System Overview document provided as Attachment 2 to this summary includes information about a variety of topics, including: pension system governance; calculation of pension benefits; explanation of different retirement tiers; design of the County’s ad-hoc pension cost-of-living-adjustment program; funding of the pension plan; cost sharing with employees; and issuance of Pension Obligation Bonds.
Strategic Plan:
N/A
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
10-21-2025 - Received the 2025 Annual State of the Retirement System Report
10-22-2024 - Received the 2024 Annual State of the Retirement System Report
05-09-2023 - Received the 2023 Annual State of the Retirement System Report
04-05-2022 - Received the 2022 Annual State of the Retirement System Report
05-11-2021 - Received the 2021 Annual State of the Retirement System Report
03-20-2020 - Received the second Annual State of the Retirement System Report
12-08-2018 - Received the first Annual State of the Retirement System Report
09-18-2018 - Approved Pension Ad Hoc Report recommendations
07-12-2016 - Received final report of the Independent Citizens Advisory Committee.
Fiscal Summary
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FY26-27 Adopted |
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FY28-29 Projected |
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Narrative Explanation of Fiscal Impacts:
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Narrative Explanation of Staffing Impacts (If Required):
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Attachments:
1) 2026 State of the Retirement System Annual Report
2) Pension System Overview
Related Items “On File” with the Clerk of the Board:
N/A