When Colorado teachers rallied outside the state Capitol in April, they were asking lawmakers to ensure they have a stable retirement pension, among other demands.
And in the last hours of the session, the state legislature approved a plan aimed at doing just that — but teachers may not like it. It makes cuts to retirement benefits and requires workers to hand over a larger share of their paychecks. The hope is the extra cash will help shore up an unfunded public employee retirement pension.
“No one is happy,” House Majority Leader KC Becker told a Democratic caucus ahead of a House floor vote on the proposed legislation. “I still think it is the right thing to do. At the end of the day, we have to think long-term.”
The changes aim to help buoy the state’s unfunded pension plan that about 585,000 state workers, teachers and other public employees rely on for their retirement benefits. The plan is managed by the Public Employees’ Retirement Association, or PERA, and currently has an unfunded debt to retirees that is expected to only grow without legislative intervention, putting at risk the pension these workers rely on in lieu of Social Security.
Many Democrats voted against the reform package despite encouragement from the majority leader and Gov. John Hickenlooper. Several said they were upset they only had two hours to digest the changes before voting. The Colorado Education Association, the state’s largest teacher union that organized rallies at the state Capitol, opposed the reforms.
“We are very disappointed in our elected officials who did not support educators and retirees, and even chose to take money out of their pockets,” said CEA President Kerrie Dallman.
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.
Lawmakers want to have enough money in the pension to cover the cost of benefits in 30 years.
“When you’re trying to address a $50 billion liability, it’s a painful solution,” said Sen. Jack Tate, a Republican from Centennial who helped craft the deal.
The plan relies on $225 million from taxpayers, an extra two percent pay from workers, and cuts to retirement benefits. It reduces 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 1.5 percent, but could ratchet up or down depending on the financial health of the pension. The retirement age will also increase for new employees from 58 to 64.
The proposed law includes a so-called 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.
Republicans have long sought to allow workers to opt into a 401(k)-style defined-contribution plan. This option is now available to all employees except teachers and some state workers.
Gov. Hickenlooper, in a rare appearance at a Democratic caucus late Wednesday night, backed the proposed changes.
“This is nobody’s idea of a perfect solution,” Hickenlooper said. “In the end, you have to look at the long-term.”