Legislature Passes Bill Giving PERA Allocation Flexibility

The Colorado General Assembly gave its approval to a bill that helps keep the PERA Defined Benefit Plan on track to meet its funding goal by giving PERA additional flexibility in how it allocates contributions to the Plan.

Legislators passed House Bill 1400, which now heads to Governor Jared Polis for action.

Background

In 2025, PERA’s actuaries conducted an analysis of the Automatic Adjustment Provision (AAP), the mechanism included in Senate Bill 18-200 that automatically adjusts member and employer contributions, retiree annual increases, and the State’s annual $225 million direct distribution based on PERA’s funding progress. The goal was to examine how well the AAP has been functioning so far and consider whether any proactive changes are warranted.

While the AAP has largely worked as intended, the actuaries identified two modifications to help reduce the chance of triggering automatic adjustments in the near future without jeopardizing our funding progress. Both changes involve giving PERA more flexibility in how it allocates contributions to the trust funds.

Flexibility in allocating the State’s direct distribution

Every year on July 1, the State of Colorado makes a direct payment of $225 million to PERA. Under current state law, PERA is required to allocate the $225 million to three of the five division trust funds (State, School, and Judicial) proportionally based on total payroll.

The division trust funds differ in their funding levels and some are closer to reaching full funding than others. This disparity is likely to continue, which results in the less-funded divisions having a disproportionate impact on the annual AAP calculation and triggering automatic adjustments if their contributions are not keeping up with the amount needed each year to reach full funding.

House Bill 1400 would allow PERA to allocate the State’s direct distribution on an actuarial basis, meaning the money will be deposited to whichever fund(s) would reduce the likelihood of triggering the AAP in the future.

Redirecting a portion of employer contributions to the health care trust fund

The second provision of the bill reduces employer contributions to PERA’s health care trust fund from 1.02% of employee salaries to 0.52%. The 0.50% reduction is then redirected to the pension trust funds to help pay down the unfunded liability.

The health care trust fund is much closer to full funding than the pension trust funds, so this change will make sure those contributions are going where they’re needed most. Employer rates would remain the same, with incrementally more money going to pay off the unfunded liability and keeping PERA on track for full funding.

What’s next?

If the Governor signs House Bill 1400 into law, the changes take effect July 1, 2026.

The 2026 legislative session is still underway and other PERA-related bills remain under consideration. Visit our 2026 Proposed PERA-Related Legislation Status article for the latest information.