Senate Bill 1 and Current Conditions: How Things Are Different Now
Legislation & Governance
August 9, 2017
In 2010, Colorado became one of the first states in the nation to respond to the consequences of the economic crisis by passing major reforms to the defined benefit plan. Landmark legislation, Senate Bill 10-001, reversed the course of PERA funding and returned it to sustainability. Since 2010, conditions continue to evolve and PERA has responded.
PERA now faces changes that will have a significant impact in the future. First, PERA members and retirees are living longer and, on average, receiving a benefit over a longer period. Second, the PERA Board of Trustees has reviewed the recommendations of economists, actuaries, and investment advisors and determined that the expected rate of return on its investments may not be as high moving forward as it has been in the past. Therefore, last year, the Board lowered its expected rate of return to 7.25 percent from 7.5 percent previously.
Changes in economics and demographics have increased the time PERA needs to become fully funded, and therefore also increased the risk level of PERA’s funding – not only for PERA members, but for all taxpayers throughout the state of Colorado where PERA members live, work, and support the economy.
PERA measures funding risk using a “signal light” color framework to clearly categorize and communicate the current level of risk to each division. Today, all PERA divisions are in the orange category, indicating that PERA needs to formulate a plan to reduce that risk. (Read more about what the orange signal light means for PERA). Shortening that period of time is an appropriate step to secure the retirement for the 565,000 members and retirees that make up PERA today.
The PERA Board has asked PERA staff to undertake an effort to inform and listen to members, retirees, employers, taxpayers and others about improving PERA’s funded status and reducing its risk exposure, while also maintaining secure retirement benefits and strengthening the Colorado economy.
Known as PERAtour, the first stage includes gathering input on principles and guidelines for future changes. PERA staff held a series of meetings this spring, and attendees at the meetings were overwhelmingly supportive of preserving a fair and sustainable retirement system that provides a dignified retirement for public employees for both today and the future. They also recognized that, like in 2010, potential changes will require shared responsibility and teamwork from all participants: members, retirees, and employers. (More detailed results of feedback are available on the PERAtour website, where feedback can still be provided.)
The Board expects to explore different options to improve PERA’s funded status this fall in order to make any recommendations for necessary action to be considered during the 2018 legislative session. Such efforts have recent precedent in SB 10-001, which required that all stakeholders contribute to the solution.
Senate Bill 10-001 Recap
In 2009 and 2010, the PERA Board of Trustees worked with PERA members, retirees, employers, and other stakeholders to develop a package of recommendations for the Legislature to consider in order to increase funding for the plan while also reducing costs over time. The leading principle of those recommendations was shared sacrifice, meaning that all members – retired, current, and future – as well as employers gave up something as a way to improve the sustainability of the fund.
Major provisions of the changes recommended by the PERA Board in 2009 and approved by the legislature and signed by the governor in 2010 included:
- Increases in contributions from members and employers to reduce the unfunded liability over time;
- A 2 percent cap on the Annual Increase or Cost of Living Adjustment (COLA), for all current and future retirees; and
- Increases in the minimum age to qualify for service retirement for new members as well as other provisions such as requiring retirees who return to work to make employee contributions at the same rate as all members working for that employer.
- Some recommendations made by the Board were not included in the enacted legislation. These included increasing the number of years in the Highest Average Salary calculation and a higher age for service retirees in the School Division.
These changes illustrate the willingness of the PERA Board, membership, and employers to take critical (and often self-sacrificial) steps to improve PERA’s risk profile and ensure a long future ahead.
FILE UNDER
Related Posts
Subscribe to PERA On The Issues
Stay informed by subscribing to our newsletter. Youʹll receive one email every two weeks that contains a summary of all the latest news.