Cuts to benefits and bump in worker and taxpayer contributions part of PERA reform proposal
Details need to be worked out, Democrats say, but they are committed to addressing financial woes of PERA pension
Public workers would be required to pay a little more toward their retirement as part of a long-awaited reform package unveiled by lawmakers on Wednesday aimed at putting the state’s public employee pension plan on a more sustainable path.
The proposed changes to the Public Employees’ Retirement Association, or PERA, pension would cut benefits for retirees and increase contributions from workers and employers. The proposal is part of a larger effort at the state Capitol this year to reform the pension that serves about 585,000 members—including teachers, city workers and state employees.
The pension plan has a $32 billion to $50 billion unfunded liability, which means PERA currently does not have enough money to pay out current and future benefits to all its members. And in the event of another economic downturn, PERA could be unable to pay benefits to retirees. The reason for this dilemma, PERA says, is that members are living longer than anticipated and the expected rate of return on pension investments was recently adjusted down, resulting in less money for the fund.
The bill has bipartisan sponsorship from Sen. Jack Tate, R-Centennial and House Majority Leader KC Becker, D-Boulder, and borrows many ideas from the Hickenlooper administration’s proposed budget and the PERA Board of Trustees proposal released last September.
But despite a bipartisan commitment, both parties will raise concerns as the bill is debated in coming weeks.
For Democrats, they are already opposed to a provision that expands an option for public employees to enroll in a 401(k)-style defined-contribution plan, which is currently only offered to state employees. This is a key concession that more conservative Republicans have repeatedly called for as part of any reform package.
“When people have a choice, we believe there is a higher level of satisfaction,” Tate told reporters at the Capitol on Wednesday.
Democrats, however, want to safeguard the defined-benefit plan as a perk to being a public employee, especially for teachers during a time of shortfalls in public education funding. They also say it does little to address the issue of the unfunded liability.
Becker said this is a key area of disagreement among members of her caucus.
“They feel that it is the beginning of a deterioration of the defined-benefit plan,” Becker said. “The defined-benefit provides the most secure retirement. No one wants to see the erosion of that.”
Currently, PERA says it would take 78 years to pay off the unfunded liability for the school division and 58 years for the state division. Lawmakers want to move the amortization period to 30 years.
To do this, the bill proposes reducing the cost of living adjustment, or COLA, on retirees’ benefits from the current 2 percent to zero for the next two years. In 2020, it would then go up to 1.25, and could ratchet up or down depending on the financial health of the fund. The bill also increases the retirement age to 65 for most divisions for future and some current employees.
Over the next two years, the proposal asks workers to pitch in an extra three percent of their paycheck and for employers—or taxpayers—to contribute an additional two percent.
It will be difficult for Republicans to support a provision that spends tax money on the fix. But Tate said it is necessary to address the issue of the unfunded liability, which he estimated to be as high as $50 billion.
The bill includes a fail-safe measure that allows contributions and benefits to be adjusted up or down as the financial conditions of the fund change without legislative approval.
Kerrie Dallman, president of the Colorado Education Association, said in a statement she is concerned that weakening PERA benefits will only worsen the state’s teacher shortage.
“This is a critical time to deliver on the promise of teaching as a rewarding career, not weaken the ability of educators to live and work in the communities where they serve children,” Dallman said.
This document compares the differences between the bill and PERA’s proposal
“This legislation follows through on many of the recommendations from the PERA Board,” said Timothy M. O’Brien, chairman of the PERA Board of Trustees, in a statment. “The bill reflects the Board’s desire to preserve the Defined Benefit system, address PERA’s funding, and share the responsibility of cost among members, employers, and retirees.”
The co-sponsors on the bill are Sen. Kevin Priola, R-Henderson, Rep. Dan Pabon, D-Denver, and Sen. Cheri Jahn, I-Wheat Ridge.
The bill is expected to go to Senate Finance early next week, according to Tate.
Lead photo: Paris Elementary School teacher Elizabeth Rodriguez checks in with students on Aug. 28 2015. Photo by Nic Garcia
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