PERA board members voted unanimously last week to oppose legislation that would radically restructure the board. PERA’s executive director, Meredith Williams, said that contrary to some accusations, PERA is one of the leanest run, most efficient programs in the world and that changing the board would have no effect on legislatively mandated benefits.
Prompted by comments made by Rep. Jim Kerr, R-Littleton, and legislation introduced by him last week to change the structure of the Public Employees Retirement Association (PERA) Board of Trustees, Williams said the changes Kerr wants to make would accomplish little.
Kerr told the Colorado Independent last week that a bill he is sponsoring would help eliminate conflicts of interest on the board of trustees. Kerr’s bill would change the composition of the board by placing eight gubernatorial appointees on the board in place of members who are now elected by their employee divisions to represent them. The board currently has 16 members, one of whom cannot vote, and 11 who now receive or will likely receive benefits.
“The current structure… brings a lot of perspectives to the table.” Williams said. “I’m not sure that concentrating on one perspective actually accomplishes much.”
Kerr questioned whether it was possible for board members to represent the best interests of the taxpayers when the majority of PERA board members are also likely recipients of the pension payouts.
“I hope to create a board with people who do not have a dog in the fight making decisions with about a billion dollars in trust money, that is what I hope to gain.” Kerr told The Independent. “If you think about it, if you have a kid and you give him a choice of broccoli or ice cream, what do you think that kid is going to do?”
Williams said that contrary to concerns like Kerr’s, the PERA board does not control benefits plans, and he said the board recently recommended legislation that led to one of the largest changes to a public pension program in the United States in decades.
“They probably do have some interest in what the benefit structure is, but they have no control over it. Nor do they have any control over the contribution structure,” Williams said. “The board is an oversight administrative board… The power to do those things is vested in the general assembly.”
Williams said that all members of the board, much as in a corporation, have a fiduciary responsibility to the members of the association. He said that was true whether a board member was appointed, voted in by members of the pension or is the secretary of the state.
“There is case law around the country where a trustee might have forgotten that charge and has been sued and has lost. The fiduciary responsibility influence isn’t recognized in the proposal,” Williams said of Kerr’s bill.
Williams pointed to last year’s Senate Bill 1 (pdf), which cut cost of living increases while increasing public employee and employer contributions–among other changes–as an example of a case where the board saw a threat to the pension and acted. He said while they could only recommend legislation to help maintain the integrity of the pension, their work eventually helped set the trust back on track to be fully funded in 30 years.
“The criticism that a board that has a majority of elected members would never do anything to adjust the benefit schedule I think is totally refuted by what the board proposed, which became Senate Bill 1,” Williams said. “Our members will receive less in their retirement years, including those who were already retired. Those who are still working will be required to pay more into the system, to work longer and receive less. So the cost structure of the system was significantly reduced by that legislation and those changes were recommended by the board.”
While Kerr had evoked the personage of Joe Six-pack in describing some taxpayers who may be jealous of what appears to be PERA’s lavish retirement package, Williams said employees have paid for what they are getting.
“Our members do contribute a significant amount of money during their working career. So when they retire they receive what I will characterize as a lifetime formula benefit. It is a statutory formula, it is their years of service times 2 ½ percent–a multi-year salary average,” Williams said. “Our members have contributed about 21 percent of the money that has come into PERA. Their employers, the taxpayers, have contributed about 19 percent. The balance of the money that has come into PERA has come from the earnings in the system. PERA at its very basic terms is a trust.”
According to Williams, one of the board’s primary responsibilities is ensuring the trust’s growth. He said they are responsible for deciding what markets to invest in, though the day to day trades are made by staff or outside advisors. As a result of their role in financial decision-making, members are provided lessons in the trust’s management and access to world-class experts in the field. In addition, three appointed members must have experience in related fields.
In noting that Colorado taxpayers do pay into the system, Williams said PERA pays for itself.
“We take in less than a billion dollars in taxpayer dollars, and we pay out 3 billion dollars into the Colorado economy–so, it isn’t a bad tradeoff,” Williams said.