Bill leaves current PERA benefits intact

Owens: Pension deal a major legislative accomplishment

David Milstead, Rocky Mountain News

Wednesday, May 10, 2006

The state's pension fund will become a little less generous for future hires under new legislation, but members of the Public Employees' Retirement Association have essentially dodged a bullet.

The compromise legislation emerged in the General Assembly's final days as Democrats, PERA and Colorado's employee unions hatched a plan to fix the pension plan's $11.3 billion unfunded liability. The governor, who had threatened a special session if a PERA bill was not passed, signed on to the compromise Friday.

Key provisions:

• Current members' benefits are basically untouched, with changes in the plan affecting only members hired Jan. 1, 2007, and after.

• Future hires are still eligible for the same monthly payments as current members. Both of the major PERA bills this session proposed a new tier of members who would get a pension roughly 16 percent less than current members. But that provision was scrapped in the latest bill.

• PERA members maintain strong control of the pension plan's board. While three political appointees will be on a 15-member board, most PERA reformers, including Gov. Bill Owens, wanted a board of no more than nine in which members would not have a majority.

The price to current members is a pay cut, an idea taken from the plan backed by Owens. For the next six years, 0.5 percent of salary that would otherwise have been part of a raise will instead be diverted to the pension plan.

Politicians, PERA and the people they serve were struggling to find a solution for the plan, which needed an injection of new money or a prolonged run in the stock market to avoid a collapse sometime after 2034. The pension plan has 370,000 active, inactive and retired members who do not earn Social Security benefits while in PERA.

"With enactment of this bill, the financial problems facing PERA will be solved," the pension plan said in an official statement. "Colorado will not face the prospect of long-term budget challenges resulting from a PERA shortfall."

The Colorado Coalition for Retirement Security, an alliance of 10 employee groups and unions representing 100,000 PERA members, initially opposed a PERA-backed bill that created the lower tier of benefits. Once that was dumped, the coalition jumped on. The compromise means "PERA is on a sound footing for the future," the coaltion said.

The plan, as passed, gives PERA an actual schedule to eliminate its unfunded liability by 2051, the first time in several years a payoff plan has existed. However, for the next decade or so, PERA will violate government accounting standards that require a 30-year payoff schedule.

State Treasurer Mike Coffman, one of the earliest proponents of PERA reform, sounds a discordant note. Coffman, who remains concerned that all of PERA's projections rely on 8.5 percent annual returns, criticized the removal of a provision that called for greater employee contributions if PERA dipped below a funding ratio of 90 percent.

"There is no protection for Coloradans that PERA won't come knocking on their door if the plan goes south again," Coffman said. "I think this legislation buys time, but it's not the permanent fix we're looking for."

Dan Hopkins, Owens' spokesman, acknowledges the board of trustees composition "is not what he asked for, but better than we had." Hopkins said the governor considers the PERA bill "the biggest accomplishment of the session."

The bill also requires the General Assembly to contract for an independent actuarial study before future benefit increases.

Plan changes

Some of the changes for new PERA hires after Jan. 1, 2007:

• They will not have the guaranteed 3 percentcost-of-living increase that active members and retirees get.Instead, it will be the lower of 3 percent or the Consumer PriceIndex. Retirees may have to wait a year or more after retirement toget the increase, and PERA will need to have the COLA money ina special fund before it's paid.

• The"rule of 80," which allows PERA members to retireafter age 50 when their years of service plus their age equals 80,will be changed to a "rule of 85" that requires a minimum retirement age of 55.

• The pension benefit formula will allow only 8 percentannual salary increases in the final three years of employment, a measure designed to limit "spiking" of pension benefits.

David Milstead is finance editor of the Rocky Mountain News. He can be reached at milstead@RockyMountainNews.com or 303-892-2648.