As Sacramento County continues to negotiate for contract concessions from its employee unions to save money next fiscal year, officials are looking ahead to changes in the county's pension system that could save significant money in the future.

Some officials see changes - like reducing benefits for new hires - as a necessity given the increased burden pension costs are placing on the cash-strapped county.

Union leaders, however, are a bit more circumspect. They recognize the county's probable needs, but worry the market downturn could be an excuse to make draconian cuts that won't help with the immediate budget problems.

"I'm not saying it doesn't need to get looked at," said Nancy Matulich, business representative for the American Federation of State, County and Municipal Employees Local 146. "It's not going to change the immediate problem."

Sacramento County faces its third consecutive dismal budget year with a projected $118 million shortfall in the $2 billion general fund for fiscal year 2010-11.

This year Sacramento County projects $256 million in pension-related costs, according to county figures. About $160.5 million of that will be contributions to the Sacramento County Employees' Retirement System, or SCERS. The county will spend an additional $95.5 million in principal and interest payments on pension obligation bonds - money the county borrowed years ago to help fund the system.

Current employees will kick in $38 million to $40 million this year, according to SCERS.

"The total cost of the pension system is a significant budget issue. No doubt about that," said Steve Keil, the county's chief labor negotiator.

That burden is projected to get worse as investment losses cause the county's contribution rate to nearly double in the years to come. The downturn is also projected to increase the unfunded liability in the pension system, said Richard Stensrud, SCERS' chief executive officer.

The county's system was overfunded at 107 percent as recently as 2002, records show. By the start of this year, the funding was down to 86 percent. Conservative estimates suggest it could drop as low as 70 percent in the next five years, Stensrud said, although a faster economic recovery could stem the loss.

"Collectively we've gotten to the point where our benefits are too expensive and not sustainable," Keil said.

Sacramento County is part of a coalition of area governments looking at ways to change pension formulas, Keil said.

One such option is to lower benefits for new hires, which could be done by dropping the rate at which pensions are calculated or raising the retirement age from, say, 55 1/2 for non-public safety workers to 60.

Governments can't make significant changes to pensions for current employees, officials said.

The market downturn and not exorbitant pensions is the real culprit, said Kathy O'Neil, the Service Employees' International Union Local 1021's chapter president. The average pension is about $30,500 a year, she said.

"I'm of an age I could retire. I've got 24 years of service. But I can't afford to retire," O'Neil said. "It's only top management that's retiring with the big amounts."

In 2009, 245 retirees or beneficiaries received at least $8,333 a month ($100,000 a year), according to records SCERS provided. That's about 3 percent of all retirees. Their median time worked in the county was 32 years, eight months.

Matulich said unions are talking with the county about extending their contracts - which are set to expire at the end of next fiscal year - in exchange for deferring some raises scheduled for fiscal year 2010-11. County officials have said negotiated raises will cost the general fund more than $40 million next year.

The county, however, has been hesitant to agree to extensions, instead focusing on doing something about pensions, Matulich said.

"Every dollar we spend on pensions is a dollar we don't have to spend on the active employees," Supervisor Roberta MacGlashan said.

At least one union might be resigned to a pension change. The Sacramento County Deputy Sheriffs' Association is expecting the county to push for increasing the retirement age from 50 to 55, said Bill Miller, vice president of the association. The deputies' contract isn't set to expire until 2014.

"The system can't support it any longer," Miller said, adding that his members will listen to what the county has to say. "We're not digging our heels in."

O'Neil also acknowledged something needs to be done, but she stopped short of saying the county should roll-back benefits for new hires.

Residents who don't have any retirement security may be upset when they see government unions fighting to keep their pension benefits, O'Neil said, but there shouldn't be a race to the bottom.

"The public should say, 'Everyone deserves a secure retirement no matter what you've done,' " she said.