Colorado public pensions

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Colorado public pensions administered by Colorado PERA. The pension system includes members who are state employees, public school teachers in the state, many university and college employees, judges, many employees of cities and towns, state troopers, and the employees of a number of other public entities.^[1] Employees choose between a defined benefit plan or defined contribution plan.^[2] The association has more than 201,000 active workers as members and approximately 94,000 benefit recipients. It is the 21st-biggest U.S. public pension plan.^[3]

Colorado has 96,875 total public employees as of 2010.^[4] In Fiscal Year 2010, the state has a total of 368,961 active and inactive pension fund members, with 88,819 receiving periodic benefit payments. ^[5]

According to the United States Census Bureau, the state has 65 locally-administered pension plans.^[6]

The average Colorado public employee stops working at age of 58 and deposits a check for $2,883 each month.^[7]

PERA is comprised of five separate pension funds, including one for Denver Public Schools. A look at PERA as a whole follows:

Colorado Public Employee Retirement Association

The PERA was established in 1931 as a defined benefit plan for more than 440,000 public employees. PERA membership includes state employees, school employees, judges and municipal employees. The fund has an automatic 2 percent cost of living adjustment. Prior to a 2010 legislative action to protect the fund's solvency, the cola was 3.5 percent. The fund operates under an assumed 8 percent rate of return, down from 8.5 percent in 2008.

Decline in funding

Colorado's system was under 70% funded in 2008, down from 105% funded in 2000.^[8] The decrease in funding can be attributed to:

1. Increased benefits In the late 1990s, Colorado instituted automatic cost-of-living increases for retirees and a drop in the age of normal retirement from 55 to 50 with 30 years of service.

2. Missed contributions From 2002 on, the state paid only between 50%and 70% of its actuarially required contribution, for a total of $2.4 billion in payments that were skipped. These missed payments are added to future payments with the result that the contribution requirement goes up. The plans paid $2.8 billion in benefits to retirees in 2008, whereas contributions from employers and employees totaled only $1.6 billion.

3. Investment losses In 2008, Colorado’s investment losses were 26%, but when accounting for the expected 8.5% return, in effect, that the state lost not only $11 billion, but also the $3.46 billion it was expecting to earn that year to stay even.

A recent study by economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Chicago Booth School of Business concluded that the Colorado pension fund will run out of money in 2021.^[9] Should the pension fund run out of money then, the cost the following year would be $7.8 billion, which would be 54% of state revenue.^[10]

A 2012 report by Morningstar, Inc. said the Colorado Public Employees' Retirement Association is not not "fiscally sound." PERA has $26 billion in unfunded liabilities. The Morningstar study said Colorado's PERA funded ratio for its state division was 57.7 percent, the number it based its "not fiscally sound" determination on. However, some of PERA's individual divisions were better off. The Denver Public Schools fund, for example, was funded at 81.5 percent, while the local and judicial divisions were each at 69.3 percent. ^[11]

Pension Plans

Contribution rates

Chapter 65, Laws of 2010 (SB 146), increases the employee contribution rates to the Public Employee Retirement Association for state employees, troopers and judges for FY2011 by 2.5% and equally decreases the employer contribution. For example, the state employee contribution rate changes from 8% to 10.5% of salary, while the employer rate goes from 10.15% to 7.65%. Contribution rates for local government members and teachers are not affected.^[12]

For 2010, the state contribution per month is 13.85% of gross salary following any Section 125 salary reduction.^[2]

Retirement age

The Colorado state legislature increased the 'retirement rule' for state employees to 88 from 85 as of 2011, and to 90 as of 2017.^[13] The teachers' union, however, prevented an increase in the retirement age.^[13]

Cost of living adjustment

In 2010, Colorado legislators passed a law that reduced the raise that people who are already retired get in their pension checks each year, capping the cost-of-living adjustment at 2% instead of the 3.5% raise that many retirees were getting, concluding that was the fastest way to revive its pension fund, which was projected to run out of money by 2029.^[14] The retirees have sued to block the reduction.^[7]

Colorado is the first state to impose pension cuts on its current employees, not just future employees. Most states do not do so because officials presume that they are legally bound to shield current workers from pension cuts.^[14] A Colorado Supreme Court ruling from 1961 held that pension cuts for current workers were allowed if “actuarially necessary,” and the state plans to contend that the ruling also applies to retirees as well.^[14]

Funding levels

The state's pension liabilities according to the Pew Center on the States^[15], the American Enterprise Institute^[16] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[17]

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

This data is based on projected data from 2008 census data.^[18] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Rate of return

Colorado presumes an 8.0% return rate on its pension investments.^[8]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 65 locally-administered pension plans.^[6]

Litigation

In Justus et.al., v. the state of Colorado and PERA filed March 3, 2012, the issue facing the court is whether SB1 is unconstitutional because it impairs retirees’ contractual right to receive pension benefits as the level promised when employees retired or became eligible to retire. SB1 legislates that COLA drops to the lower of 2% or based on the Consumer Price Index for Urban Wage Earners (CPI-W). COLA could drop to zero if PERA experiences a negative investment return year.^[19]

The case was DISMISSED by Denver District Court on June 29, 2011 as to the contractual PERA benefits, but PENDING on the non-contractual right to specific COLA benefits. On May 16, 2012, Colorado defendants and PERA defendants filed answer briefs with the Court of Appeals urging further authority and analysis of specific arguments raised by Plaintiffs, including the balancing test used in CO contracts clause cases.^[20]

Transparency

The state Treasurer sued the Public Employees Retirement Association and 14 trustees for data about not beneficiaries retirement plans.^[21]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

The names of recipients and amounts dispersed to recipients are generally not available, unless as required by law, but there is a presumption of privacy absent challenge.^[22]

Fund performance data

Pension fund investment performance data is available on the COPERA site.^[23]

Rate of return

The rate of return is posted on the COPERA site. Through 2011, PERA’s 10 year annualized rate of return was 5.7%. PERA’s annualized investment return was 8.5% over the last 25 years, and over the last 30 years it was 10%, exceeding the 8% investment rate of return assumption established by the Board of Trustees.^[24]

Unfunded liabilities

The fund discloses the amount of unfunded liabilities. A PEW study reports $16,813,048,000 in unfunded pension liability in Colorado.^[25]

Oversight

No information exists regarding external oversight. Audits of pension fund in addition to annual financial report are available and archived.^[26] Pension lobbying information is available. Colorado PERA is spending up to $2.2 million annually on attorneys’ fees, $364,000 on lobbying and $2.8 million in salaries for its dozen top-paid executives.^[27] Pay to play (the practice of investment managers contributing to officials with influence over public pension fund decisions) information is unavailable.

See also

• Public pensions
• Colorado state budget
• Colorado state government salary

External links

• Colorado PERA
• Colorado.gov - Benefits
• Colorado State Pension Fund Management - State Integrity Investigation

References

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