Executives are celebrating that Colorado’s state pension fund has reduced its enormous liabilities by $15 billion. Good news, right? Unless you’re a retiree, in which case, you’ll be paying for it.
According to a report released today by the Colorado Public Employees’ Retirement Association, the pension fund is making little progress in its efforts to cover the costs of employee retirement. The report is an update on 2010 pension reforms designed to put the Colorado Public Employee’s Retirement Association on solid financial footing within 30 years.
Back in 2000, PERA was overfunded and had more than enough money to pay for employee pensions.
Then, in swooped Gov. Bill Owens and the Colorado General Assembly, who pushed laws allowing PERA members to buy their way to retirement at fire-sale prices. Two recessions followed. By 2010, PERA’s assets-to-liabilities ratio had dropped from 105 percent to 66 percent. In short, PERA was doomed to struggle for the foreseeable future to cover its pension obligations.
The legislature stepped in during the 2010 legislative session with Senate Bill 10-001, which was intended to put PERA back on strong financial ground. The measure shifted most of the costs for getting PERA back into the black to its members, including retirees. That earned it the scorn of retirees when their cost-of-living increases were cut, and they sued. That lawsuit was eventually resolved in PERA’s favor.
Today’s report shows that while the plan has reduced its liabilities by $15 billion, it’s almost entirely from cutting cost-of-living increases for retirees. The PERA report says that retiree pensions are keeping pace with inflation, with annual cost-of-living increases at around 2 percent. It had been at 3.5 percent prior to 2010.
According to the report, the pension plan needs 37 years of contributions and good investment returns to cover existing pensions for state employees. The school division, which includes all school teachers and staff except for the Denver Public Schools, will need 38 years.
The problem is that SB 1 was designed to get PERA into the black within 30 years, the industry standard.
Greg Smith, PERA’s chief executive officer, told a joint meeting of the House and Senate Finance committees today that it will take longer to pay off current pension costs than was projected five years ago. The report attributes the lack of progress in part to fewer-than-expected new employees paying into the system, particularly in the state and school divisions.
The report said that PERA projected it would have around 217,000 active (non-retiree) members paying into the system as of 2014. Instead, the number of active members is almost identical to what it was in 2009: just over 202,000.
The true cost to retirees? About seven years of pension benefits, according to PERA. “A typical retiree receiving a $3,000 monthly benefit as of January 1, 2010, will sacrifice the equivalent of about seven years of retirement payments over a 25-year retirement,” the report stated.