Sonoma County’s unfunded pension liability down 28.5% over four years

Sonoma County has reduced its unfunded pension liability by $176.6 million over the last four years, a decline of 28.5%, according to the annual State of the Retirement System report presented to the Board of Supervisors today. 

The County’s pension debt fell to $352.2 million as of June 30, down from $528.8 million in 2022. The pension system was 94.56% funded at the end of 2025, up from 92.9% in 2021.

The improvements reflect a combination of investment gains, required County contributions, additional payments approved by the Board of Supervisors and the continued repayment of pension bonds.

Maintaining a well-funded retirement system is essential to ensuring the County can meet the pension commitments made to employees, retirees and their beneficiaries. Reducing pension debt also lowers the County’s long-term financial risk and helps prevent this obligation from squeezing funding for public services.

“Every dollar we don’t spend on pension debt in the future is a dollar that can remain available for the services our communities depend on,” said Supervisor Rebecca Hermosillo, chair of the Board of Supervisors. “At the same time, we have an obligation to the employees who earned these retirement benefits. The progress in this report shows why we need to keep taking the long view: paying down our obligations, preparing for future costs and making sure the retirement system remains financially sound.”

The County’s unfunded pension liability has two major components. One is the County’s share of the gap between pension assets and liabilities for benefits owed to employees and retirees. The other is remaining principal and interest payments on bonds the County issued in 2010 to refinance earlier pension liabilities at lower interest rates.

Both declined during the past year. The County’s share of the unfunded liability fell from $224.4 million to $203.2 million, while remaining principal and interest payments on the 2010 pension bonds declined from approximately $185 million to $149 million. Together, those reductions lowered the County’s total unfunded pension liability from approximately $409 million in June 2025 to $352.2 million in June 2026.

Strong investment returns helped strengthen the pension system, managed by the Sonoma County Employees’ Retirement Association. The pension fund earned 9.62% in 2025, well above its 6.75% target return. It held $3.85 billion in assets at the end of 2025.

The decline in unfunded liabilities also reflects a sustained policy decision by the Board of Supervisors to pay down pension obligations faster than required. Since 2015, the Board has authorized $28.6 million in additional payments toward the County’s unfunded pension liability, including $4.4 million in the 2024-25 fiscal year. Those additional payments reduce future interest costs by paying down the liability ahead of schedule.

The County’s annual pension costs rose 14.5% to $133.8 million in the 2024-25 fiscal year, primarily because of an anticipated shift of pension contribution costs from employees to the County as employer. Despite the increase, pension-related expenses represented 15.4% of the County’s total salaries and benefits, down from 18.2% in 2020-21.

In May, the Board created a Section 115 Pension Trust to set aside money for future pension costs. The following month, the Board adopted a policy to make annual contributions to the trust equal to 2.0% of the County’s pensionable payroll, or approximately $10.3 million in the current fiscal year. The trust account could also help fund future cost-of-living adjustments for retirees, if approved by the Board.

The annual report provided an update on Assembly Bill 1601, County-sponsored legislation signed into law by Gov. Gavin Newsom in September. The new law gives the Board greater flexibility to consider targeted cost-of-living adjustments for retirees whose pensions have lost purchasing power to inflation. County staff and SCERA are evaluating the options provided by the new law.

The pension plan serves employees at the County of Sonoma and five other agencies, including Sonoma Water, the Community Development Commission, the Sonoma County Superior Court, the Sonoma County Transportation Authority and the Sonoma Valley Fire District. As of December, SCERA had 4,571 active members, 5,275 retirees and 732 beneficiaries. Seventy percent of active members were hired after 2012, when state pension reforms took effect that reduced benefits and increased the retirement age under the Public Employees’ Pension Reform Act.

The 2026 State of the Retirement System Annual Report is available at https://bit.ly/2026RetirementReport. 

###
Media Contact:
Ted Appel, Communications Specialist
publicaffairs@sonomacounty.gov
(707) 565-3040