colorado public employees retirement association

Former Governors: Colorado Pension Benefits Are “Skewed”, Insufficient

Two former Colorado governors penned a column in Friday’s Denver Post that raised questions about whether too many employees were getting the “short stick” regarding pension benefits.

Richard D. Lamm and Bill Owens write:

The debate over the unfunded liability has overshadowed an equally critical issue.

What has gone largely unexamined — by PERA members, policymakers and the broader public — is the question of whether the state’s public retirement plan provides fair benefits to the majority of public servants and allows public entities to recruit and retain the highest-quality employees.

Given that virtually all public school teachers are PERA members — along with other state employees and many who work for Colorado municipalities and counties — this is a critically important question that impacts us all.

We put our trust and the safety of our families in the hands of these educators, state troopers, and snowplow drivers so it makes sense that we want to ensure that they’re treated fairly and that they represent the best and the brightest employees available.

The authors argue that, although Colorado’s average pension benefit appears more than adequate (over $3,000 a month), it masks the fact that many workers lose out. From the column:

Some PERA critics have argued that its benefits are too generous, outstripping what’s available to private sector employees. But the secret that goes unaddressed is that the vast majority of PERA members lose out under its current structure. For many of them, in fact, the benefits are insufficient to provide them with the retirement security they deserve.

Despite the buzz that it’s a 24-carat retirement plan, many of these public servants may end up with fool’s gold.

Why? While PERA highlights its average retiree benefits — $3,068 monthly, according to the latest data — this statistic hides the fact that a few retirees make far more than that and the vast majority make far less. Quite simply, the benefit structure, set by the state legislature, is skewed to benefit a minority of public employees at the expense of the rest.

Who are the rest who get the short stick under the current system? They’re employees who are more typical of the modern-day workforce — those who don’t stay at one job for the majority of their career. This could include those who move between the public and private sector or move in or out of Colorado, including, for example: a teacher who spends a half dozen years in the classroom before taking a private sector job; a public servant who follows his spouse out of Colorado — even if he continues a career in the public sector in another state; and a dedicated career Colorado public employee who wants to continue serving after becoming eligible for retirement.

Richard D. Lamm and Bill Owens are co-chairs of the Colorado Pension Project, “a group working to strengthen retirement security for Colorado public servants”.

Photo credit: “Denver capitol” by Hustvedt – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

Court: Colorado Pension System Can Cut COLAs

The Colorado Supreme Court ruled Monday that Colorado’s largest pension fund could legally scale back cost-of-living adjustments.

In 2010, the Colorado Public Employee’s Retirement Association (CPERA) cut annual COLA increases from 3.5 percent to 2 percent. Retirees took the cuts to court, alleging breach of contract. But the ruling today sided with the pension system, and so the COLA cuts will remain.

From the Denver Post:

The Colorado Supreme Court on Monday ruled that the Colorado Public Employee’s Retirement Association can adjust the cost-of-living increases that current retirees under the state’s largest pension plan receive.

“We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to the perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires,” the Colorado Supreme Court stated in its ruling.

Cost-of-living formulas were first implemented in 1969 and have been adjusted several times over the years, with a 3.5 percent fixed rate set back in 2000 after stock markets had several years of big gains.

Concerns that the pension plan was severely underfunded triggered 2010 legislation that capped annual cost-of-living increases at 2 percent unless the pension’s investment suffered a loss the prior year.

In that case, the increase adjust at the actual inflation rate, up to 2 percent.

Retirees sued, arguing that PERA had a contractual obligation to provide the increases in place at the time they retired for the remainder of their lives.

A district court judged ruled against the retirees in Justus v. State, but the Colorado Court of Appeals overturned that decision.

Colorado Attorney General John Suthers, who office argued the case for the state, said he was pleased with the decision.

“The law in question was an important part of ensuring that PERA remains there for state retirees long into the future. As we argued to the Court, upholding the law helps protect both current and future retirees, and the state’s taxpayers,” he said in a statement.

PERA manages over $40 billion in assets and has over 400,000 members.

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Colorado Treasurer Candidates Differ On Pension Reform

Reforming Colorado’s largest pension plan, the Public Employees Retirement Association (PERA), is one of the looming issues in the state’s upcoming Treasurer election. And the candidates have very different takes on the situation.

Betsy Markey (D) is a former congresswoman who says she’ll fight for financial transparency but isn’t making pensions a central issue of her campaign. From the Durango Herald:

Markey is not overly concerned [about PERA], pointing out that legislative steps have been taken to put PERA on a sustainable path. She said the PERA board voted to lower the anticipated rate of return from 8 to 7.5 percent.

“When you’re looking into the future, the PERA board itself expects to close that unfunded liability gap within the next 30 years,” Markey said. “And they don’t expect that there will be a time in the next 30 years where they will ever not be able to fully meet their obligations to retirees.”

Incumbent Walker Stapleton (R), meanwhile, has made pension reform one of the central issues of his campaign and tenure as Treasurer. Still, he admits the state’s unfunded pension liabilities grew under his watch.

Walker responded to Markey’s position on pensions:

Stapleton said Markey’s position suggests an “alarming lack of knowledge for public-finance issues.

“PERA’s liability has only grown since I’ve been in office.” Stapleton said.

He added: “She said that PERA was fine, and I’m obsessed with it. … But she would also lower the rate of return for PERA? You can’t be for lowering the rate of return and not for additional work to be done.”

[…]

Stapleton has found himself at odds with the state employees’ union and those who manage retirement benefits.

He filed a lawsuit seeking to open the books of the Public Employees’ Retirement Association fund, and he has repeatedly fought to lower the projected rate of return on investments. He has also advocated for lowering cost-of-living raises and increasing the retirement age.

As of 2012, Colorado’s PERA was 63 percent funded and was shouldering $23 billion of unfunded liabilities.

New Transparency Requirements For Colorado Schools Will Shed Light On Pension Costs

Colorado is known for its Rocky Mountains. But the state’s rocky pension funding situation is well known, too, and lawmakers spent a chunk of the last legislative session trying to smooth out that area.

Colorado recently passed House Bill 14-1292, also called the “Student Success Act.” Most of the law deals with increasing state funding for public schools.

But a small portion of the law imposes stringent, all-encompassing financial reporting and transparency requirements on all public schools. Schools will have to report salary schedules, financial audits, and investment performance reports, among other things.

(The suggested template for all schools to follow can be seen at the bottom of this post.)

Many lawmakers are hoping that new transparency standards help shed light on the state’s pensions funding and cost issues.

Colorado’s largest pension system, the Public Employees’ Retirement Association, was only 63.25 percent funded as of 2013.

There are five sub-sets in the system; of all the sub-sets, the “school division”—the division that caters to almost all the state’s public school employees—is by far the largest. It’s also one of the unhealthiest parts of the system, as it only has enough assets to cover 62 percent of its liabilities.

Screen shot 2014-08-12 at 1.02.30 PM — Credit: Ballotpedia

Critics of the state say that part of the reason for the underfunding issues is that Colorado has been paying less and less of its Actuarially Required Contribution (ARC).

Screen shot 2014-08-12 at 1.52.35 PM — Credit: Ballotpedia

But others say that school districts themselves could be to blame for some of the underfunding, as teacher pensions are too high. Transparency standards, they say, would shed light on those issues and make them available to remedy.

Colorado public school officials are not keen on the new reporting standards. From ChalkBeat:

A wide variety of district officials interviewed by Chalkbeat raised four main concerns about the law:

Implementation – District officials generally agree that compliance will be relatively painless for large districts but presents a greater challenge to some medium-sized and small districts. “It is going to be a lot of work for a lot of people. It depends on how big you are and how many people you have working for you,” Gustafson said.

Comparability – Even with the requirement for greater uniformity, some district officials wonder if district and school data will be fully comparable. They raise the question of likely district differences in how they account for costs borne by multiple schools – things like the salaries of special education teachers, psychologists and other staff who split their time among buildings.

Use & Misuse – District officials say they support transparency as an ideal but are openly skeptical that new financial data will see much use by the public.

“Who’s going to actually look at this website?” asked Tracy John, business manager of the 606-student Peyton School District northeast of Colorado Springs.

Anecdotally, districts say there’s little public use of financial information currently available online. “I don’t receive very many calls about transparency,” said Guy Bellville, chief financial official of the Cherry Creek Schools.

And districts are nervous that advocacy groups will use school-level financial data for their own ends, ignoring the context and nuances of why districts spend money as they do.

“Rather than build confidence in school budgeting decisions, it is more likely to provide ammunition to public education detractors who have no interest in learning the deeper context or complexity that comes with school budgeting,” argues Jason Glass, superintendent of the Eagle County Schools.

Impact on student achievement – “Tell me how this is going to impact student achievement,” Gustafson said. “This is a distraction that takes away from student achievement.” Said Boulder’s Sutter, “I’m fairly certain there are no studies about how one more accountant in the district office is going to affect outcomes.”

Below, you can see the template school districts are being asked to use to comply with the new reporting standards.

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