Last fall, members of the Colorado Public Employee Retirement Association (PERA) got some bad news: the amortization periods for the public pension system’s two largest funds had ballooned dangerously. Under current assumptions, the state fund would not be fully funded for 55 years, and the even larger school fund would not be fully funded for 75 years. Both of these far exceeded PERA’s target of 30 years established under a set of 2010 reforms passed by the legislature, known by their bill number, SB1.
The proximate causes of this slide were PERA’s lowering the expected rate of return from 7.5 percent to 7.25 percent, and adopting new actuarial tables that assume longer lifespans. But those are simply measurements of reality, not actual attempts to change the reality of PERA’s instability.
Every year they delayed making these changes was another year PERA, the Legislature, and the public at large was forming opinions and making decisions on unreliable or misleading information. And that information lay at the heart of PERA’s repeated opposition to proposed reforms, and refusal to offer up alternative changes of its own. When PERA insisted that its long-term basis was sound, that the SB1 reforms were working, it was using these assumptions that it has just revised.
In response PERA created a statewide “Listening Tour,” designed less to listen than to manufacture consensus for its planned legislative proposals.
Based on my attendance at two of these meetings, those proposals are likely to be small and technical, rather than bold and visionary.
PERA began with a blunt statement that PERA was committed to retaining the current defined benefit plan. The other big change available to PERA, one that could do great good for its funding ratio and amortization periods, would be increasing the retirement age to match that of those taxpayers expected to support the system. And it’s one change that PERA seems determined to resist.
PERA Executive Director Greg Smith is fond of pointing out that the average age of a PERA retiree is comparable to that of a retiree in the general population. What he fails to mention is that the average age at retirement is considerably younger, 58 years old for both the School and State Divisions, according to PERA’s own Annual Financial Report, a number that has held steady for at least the last 15 years, and was actually higher in the mid-90s.
Instead, Smith seemed to telegraph support for increasing employees’ contributions from 8 percent of salary to 10 percent. He also mentioned closing a number of loopholes by which members are able to game the system by accumulating years of service on part-time or reduced salaries, only to go full-time or full-salary for their last three years, when benefits are calculated, effectively decoupling benefits paid out from money paid in.
PERA may also entertain an increase in the number of years used to calculate the Highest Average Salary (HAS), which would have the effect of reducing the HAS. In the past, PERA has opposed this very change.
Of course, none of these changes is likely to produce long-term stability. Instead, as with each other incremental reform, we are likely to be told that PERA is once again stable, only to find ourselves right back in the same position a few years from now, with member benefits and community priorities once again at risk.
While PERA tries flicking switches and turning knobs to buy time, some states with similar problems have been taking bolder action to solve them. Pennsylvania recently passed sweeping state pension reform.
The bipartisan deal, passed by a Republican legislature and approved by a Democratic governor, will move all employees hired after January 1, 2019, into a 50-50 Defined Benefit (DB)/Defined Contribution (DC) plan, with an option to join the DC plan exclusively. Existing members will have a 90-day window within which to choose to join the new hybrid plan. It won’t pay off or eliminate the state’s $71 billion unfunded liability, but it will substantially reduce the risk to the state, its communities, and its retirees.
Instead of settling for tweaks that will keep us at the gaming tables until the next downturn, Coloradans should be asking, “If Pennsylvania can do this, why can’t we?”
The views expressed by contributors are their own and are not the views of The Hill.