The economic downturn is taking its toll on Arapahoe County’s employee retirement plan.

According to an analysis by Mercer, the county’s financial advice contractor, the pension plan is at a shortfall of $122 million. The funded status of the plan stands at about 57 percent, compared to 87 percent one year ago.

The firm’s June 16 report to the Arapahoe County Board of Commissioners says the fund’s shortfall can only be eliminated by achieving annual asset returns in excess of 7.5 percent, increasing contribution rates or by reaping gains from unexpected demographic changes.

Commissioner Frank Weddig of Aurora thinks the situation raises serious issues as to what the county’s budgetary priorities should be.

“Almost any scenario could mean a very significant increase in employee-employer contributions to bring the plan to where we’re told it should be, which is 90 percent funded,” he said. “The question is, are we ready to put that much of our personnel budget every year into retirement?”

The Arapahoe County Retirement Board, comprised of staff, elected officials and citizens, has already taken some action by decreasing benefits for employees hired after April 1, 2006. Such workers pay the same contribution rate as longer-serving employees. The early retirement age was raised from 52 to 55 for the same workers.

“These benefit changes have had a small measurable effect on the plan, but these changes alone are not enough,” County Treasurer Doug Milliken recently wrote in memo to the board of commissioners.

The retirement board has requested that the contribution level be raised again over the next few years. One proposal is to increase the level next year from the current 6.5 percent to 7 percent. Additional half-percent increases would kick in in 2012 and 2014.

According to Mercer’s report, the newer employees’ contributions should be sufficient to cover their eventual pension payments and can be used to help pay down the shortfall for existing and former employees.

Still, the report says under current assumptions and contribution rates, the retirement plan can still not be expected to reach overall “sufficiency” in the next 20 years.

Although no member of the county’s board of commissioners is taking the sobering analysis lightly, some disagree with a few of Mercer’s assumptions.

For one, Commissioner Susan Beckman of Littleton doubts the county will be offering 4.5 percent salary increases any time soon.

“Mercer put worst-case assumptions into something to make it look much worse than what it is,” she said. “If you look at flat salaries for a period of time, which is probably more realistic, the plan probably comes into line.”

Provision changes proposed by Mercer include:

Raising the 100 percent vesting schedule from eight years of service to 10 years

Raising the county’s retirement age from 65 to 66

Lowering the annual interest rate on contributions from 4 percent to 2 percent

Eliminating the 10-year minimum pay-out, meaning an employee’s payments would cease upon death

According to the report, if these changes and others were implemented, the plan’s shortfall would be reduced by between $125 million and $140 million by 2029.

The board of commissioners is expected to continue studying options for overhauling the pension plan over the next few months.

Beckman, the board chair, is confident that the county will be able to maintain a solvent retirement program for its employees in any case.

“The sky isn’t falling,” she said. “The world is changing. There are some changes we will have to make that we will make. Maybe what will happen is the commissioners and the retirement board will come to an agreement. We control the variables. We control the salaries.”

“The sky isn’t falling. The world is changing. There are some changes we will have to make that we will make.”

Susan Beckman, board chairwoman