by Joshua Sharf
When word came last December that Colorado’s two largest public pension funds – the State Fund and the School Fund – were slipping into trouble, the Public Employee Retirement Association (PERA) vowed to go on a statewide listening tour to see what can be done.
PERA will then return to the legislature with a list of recommended options, some more recommended than others.
No doubt, the sudden urgency comes as a surprise to the state’s teachers and government employees who are used to hearing little but happy talk from the PERA Board.
In 2010, in the wake of the financial crisis that left PERA headed towards bankruptcy, the state legislature passed Senate Bill 10-001, a comprehensive reform bill that called for benefit reductions and increases in taxpayer contributions.
While PERA, and some of the legislators involved in SB 1 deny it now, that bill was sold to members, legislators, and communities as a fix that would stabilize the pension plan for the foreseeable future.
Here’s how then-Executive Director Meredith Williams described the new law in 2010’s Comprehensive Annual Financial Report (CAFR): “With this bill, it is expected that Colorado PERA’s unfunded liability will be eliminated within the next three decades, and Colorado PERA’s trust funds will be accumulating more assets than liabilities (emphasis added).”
This sunny optimism was par for the course for PERA. In 2004, immediately after the legislature increased employer contributions, Williams stated, “PERA remains financially secure (emphasis added).”
Two years later, after taxpayer contributions were further boosted, William commented in the plan’s CAFR, “Senate Bill 06-235 emerged, which bridged the gaps between key parties and put Colorado PERA back on strong financial footing.”
Two years later, the financial markets would make a mockery of such assertions.
In PERA’s 2010 Shareholder Meeting, current Executive Director Greg Smith stated, “We in fact were successful with Senate Bill 1. We did in fact reach a 30-year amortization in each division. And we do again have a sustainable defined benefit plan for the public employees of the state of Colorado.”
That would become PERA’s calling card for the next six years, as it opposed virtually every piece of reform legislation offered up. In each case, the refrain was the same – SB 1 is working, let SB 1 work.
Proposed changes included measures to improve PERA’s actuarial soundness; permit all members to opt-out to the more stable Defined Contribution option; raise the retirement to match Social Security; or reduce pension spiking by raising the number of years used to calculate the highest average salary.
PERA’s members will probably also be surprised to see that some of those options, or ones very similar to them, will be on the menu during the listening tour for consideration.
Especially because some organizations representing them – the AARP, the AFL-CIO, and Colorado WINS, the union representing some state employees, worried about a potential loss of benefits or increase in employee contributions – showed up to testify against these bills.
In fact, Smith’s and Williams’s assertions about the amortization period were obsolete almost as soon as they were made. Even taking into account the rising employer contributions, they rose to 35 years in 2011 for the State and School Divisions, were over 40 years by 2014, and as of the end of 2015 stood at 44 and 46 years respectively.
Currently, they stand at 55 years and 75 years.
PERA begins its Listening Tour around the state this May and June, seeking its fourth round of fiscal sandbags in 13 years. Members and non-members alike should be prepared to ask PERA’s board some tough questions about their credibility.
Barring some fairly convincing answers, the state’s citizens should seriously begin to consider the only fix that will secure the future for both retirees and communities – getting the state out of the benefits management role for its employees altogether. This requires moving away from a defined benefit to a defined contribution retirement system, which would give state employees ownership over their retirement funds, and get get PERA out of the business of making disingenus claims and obstsructing reform.
Joshua Sharf is a Fiscal Policy Analyst at the Independence Institute, a free market think tank in Denver, and head of the Institute’s PERA Project.