Retirement insights from a Colorado PERA perspective

A distant view shows a mountainous landscape with sloping peaks, green trees in the foreground, and a cloudy sky above.

In the past two decades, several states have closed their defined benefit (DB) pension plans to state and local government employees and moved those workers to defined contribution (DC) plans like 401(k)s instead. But some of those states are now considering reversing course as they recognize the value of DB plans in recruiting and retaining qualified workers.



Alaska closed its DB plan to new state employees in 2006 over concerns about the plan’s unfunded liability. Since then, the state has struggled to hire and keep teachers, state troopers and other public employees. Those workers often receive their training and then leave for other states that offer better retirement benefits, <a href="https://www.alaskasnewssource.com/2022/02/04/facing-retention-crisis-alaska-legislature-considers-more-generous-first-responder-retirement-scheme/" target="_blank" rel="noreferrer noopener">according to officials</a>. And that frequent turnover can have a high cost: It costs nearly $200,000 to recruit, train and certify a single state trooper, <a href="https://dps.alaska.gov/getmedia/ca76d118-d1ca-43c4-85be-49600a4fb8d0/Recruitment-Retention-Plan-Overview-2018-2023" target="_blank" rel="noreferrer noopener">according to a report</a> from the Alaska Department of Public Safety.



Alaska’s lawmakers <a href="https://www.ktoo.org/2022/04/04/alaska-legislators-consider-reviving-pensions-for-public-employees/" target="_blank" rel="noreferrer noopener">are now considering legislation</a> that would reopen the DB plan and thereby reduce the high costs associated with turnover and constantly hiring and training new employees.



It’s a similar situation in Oklahoma, which shifted some of its state employees to a DC plan in 2014. Its legislature <a href="https://www.ocpathink.org/post/house-votes-to-roll-back-oklahoma-pension-reforms" target="_blank" rel="noreferrer noopener">is also considering reversing course</a> and putting those workers back on a DB plan.



Pensions have long been seen as a valuable tool to help hire and keep teachers, state employees and other government workers, since most private employers do not offer DB plans and the reliable source of retirement income that comes with them. Research also shows that amid widespread concerns about retirement security, Americans from every generation <a href="https://peraontheissues.com/survey-millennials-gen-x-especially-pessimistic-about-retirement-prospects/" target="_blank" rel="noreferrer noopener">value defined benefit pensions</a> and believe every worker should have access to one.



States like Colorado provide strong evidence that defined benefit plans continue to help attract and retain teachers and other public employees. According to <a href="https://www.nirsonline.org/wp-content/uploads/2019/01/Teacher-Pension-vs-401ks-in-Six-States_FINAL.pdf" target="_blank" rel="noreferrer noopener">research from the National Institute on Retirement Security</a>, 65 percent of teachers in Connecticut, Colorado, Georgia, Kentucky, Missouri and Texas — all of which offer DB plans — serve for at least 20 years.



<h4 class="wp-block-heading">Colorado’s commitment to PERA</h4>



Over the past decade-plus, Colorado lawmakers have indicated they remain committed to strengthening PERA so the state’s public workers can continue to rely on a defined benefit pension for retirement security.



In 2010, the Colorado General Assembly passed <a rel="noreferrer noopener" href="https://content.copera.org/states-consider-reviving-closed-pensions-in-effort-to-recruit-retain-public-workers/" target="_blank">Senate Bill 10-001</a>, which contained a number of reforms to improve PERA’s funded status and sustainability, with a focus on preserving the Defined Benefit Plan. Five years after SB10-001, the state <a rel="noreferrer noopener" href="https://peraontheissues.com/poked-prodded-and-perused-pera-passes/" target="_blank">commissioned a study</a> to compare PERA with other plan types, such as defined contribution plans. That study concluded PERA’s hybrid defined benefit plan was the most cost-effective, efficient plan available, and provides more income at retirement than the alternative plan designs for all ages and career paths. Another package of reforms then followed in 2018 with <a rel="noreferrer noopener" href="https://www.copera.org/states-consider-reviving-closed-pensions-in-effort-to-recruit-retain-public-workers" target="_blank">Senate Bill 18-200</a>.



Changes resulting from those two pieces of legislation include increased member and employer contributions, reductions in the Annual Increase paid to benefit recipients, introduction of the <a rel="noreferrer noopener" href="https://www.copera.org/states-consider-reviving-closed-pensions-in-effort-to-recruit-retain-public-workers" target="_blank">Automatic Adjustment Provision</a> and a direct distribution from the State budget of $225 million, to be paid to PERA annually. While the legislature opted to forgo 2020’s payment due to unprecedented pandemic-related budget cuts, <a rel="noreferrer noopener" href="https://peraontheissues.com/2022-proposed-legislation-status/" target="_blank">efforts are underway</a> to make up that payment.



While the changes to member and employer contributions and Annual Increases haven’t been easy, they ensure that PERA’s Defined Benefit Plan will be able to continue providing reliable retirement income that retirees can’t outlive.



Ensuring that PERA is sustainable allows school districts, local governments, public safety departments and other government agencies to continue to attract highly qualified, skilled employees and retain their expertise for years to come.

States Consider Reviving Closed Pensions in Effort to Recruit, Retain Public Workers

For the past several years, public pension reform has been a
hot topic as states and municipalities wrestle with how to keep their
retirement plans funded. As many Colorado PERA members and retirees know, 2018
saw the Colorado General Assembly pass a <a href="https://content.copera.org/the-year-so-far-in-public-pension-reform/">significant
reform bill</a>, and numerous other states followed suit in 2019. Here’s a
sampling of the new efforts as of mid-year.



Arkansas



<a href="https://content.copera.org/the-year-so-far-in-public-pension-reform/">State Highway Employees’ Retirement System</a>



March 2019



Increased employee contributions over two years, from 6.0
percent to 7.0 percent by July 2020. Increased employer contributions from 12.9
percent to 14.9 percent starting July 2019.



Kentucky



<a href="https://kyret.ky.gov/Pages/index.aspx">Employees
Retirement System</a>



Pending as of June 2019



The Bluegrass State has been debating a variety of pension
reform options for about two years. In early June, <a href="https://www.copera.org/the-year-so-far-in-public-pension-reform">thestate Supreme Court ruled against</a> the governor’s attempts to keep a financial
analysis from public disclosure, and <a href="https://www.copera.org/the-year-so-far-in-public-pension-reform">thegovernor has indicated</a> that a special session of the state legislature may
be necessary later this year to resolve various disputes.



New Mexico



<a href="https://www.nmerb.org/" class="broken_link">Educational Retirement
Board</a>



April 2019



Comprehensive legislation changed the salary thresholds that
determine employee contribution rates; increased employer contribution rates
from 13.9 percent to 14.5 percent starting July 2019; changed years-of-service
multipliers and highest average salary (HAS) guidelines for new hires; increased
minimum retirement age for new hires; and changed return-to-work rules.



North Dakota



<a href="https://ndpers.nd.gov/">Public Employees Retirement
System</a>



April 2019



Eliminated retiree health insurance credit for new hires
after January 2020; redirects employer contributions of 1.14 percent of salary
to the retirement plans; modified HAS calculations for retirees after January
2020; and reduced the HAS multiplier from 2 percent to 1.75 percent.



Oregon



<a href="https://www.oregon.gov/PERS/Pages/index.aspx">Public
Employees Retirement System</a>



May 2019



<a href="https://www.ai-cio.com/news/oregon-pension-reform-squeaks-legislature/">Extends</a>
the fund’s minimum payment schedule by eight years; redirected a portion of
employee contributions (depending on hire date) into an account that supports
pension benefits; cut 30-year employees’ overall benefits by 1 to 2 percent for
those making more than $30,000 per year; mandated a one-time, $100 million
contribution to an “incentive fund” that will provide a 25 percent match to
extra employer contributions; gave employees more control over investment
allocations; removed certain limits on working after retirement; and directed
some proceeds from the Oregon Lottery to the employer incentive fund.



Other developments:



In March 2019,
California’s <a href="https://www.latimes.com/local/lanow/la-me-ln-pension-court-20190304-story.html">state
Supreme Court upheld 2012 reforms</a> that curtailed the purchase of service
credits and raised employee health care contributions.



In June 2019, <a href="https://www.ai-cio.com/news/ohio-teachers-pension-sued-eliminated-colas/">two
retired teachers sued</a> the State Teachers Retirement System of Ohio over the indefinite elimination of
annual increases for retirees. The plaintiffs are seeking to certify their suit
as a class action.



In June 2019, Rhode
Island’s <a href="https://turnto10.com/politics/ri-supreme-court-upholds-pension-reform-in-cranston">state
Supreme Court upheld</a> the city of Cranston’s 2013 reforms that suspended
cost-of-living adjustments, increased retirement ages, and introduced a hybrid
DB/DC plan.

The year (so far) in public pension reform

Earlier in June, PERA Interim Executive Director Ron Baker sent a letter to Colorado’s Congressional delegation asking that they withhold support from potential legislation that could undermine public pension recovery efforts and recent pension reforms in Colorado and around the country.



Over the past eight years, Rep. Devin Nunes (R-CA) has introduced legislation known as the <a href="https://www.copera.org/pera-corrects-the-record-about-proposed-federal-legislation-2" target="_blank" rel="noreferrer noopener">Public Employee Pension Transparency Act (“PEPTA”)</a>. Rep. Nunes recently asked each member of Congress through a “Dear Colleague” letter to co-sponsor similar PEPTA legislation this session.



In his letter, Baker outlines a number of reasons why PEPTA is concerning for public pension plans in general and for Colorado PERA specifically.



<ul>
<li>The legislation would require public employee plans, including PERA, to report their pension liabilities and assets using an assumption that their investments will only earn the U.S. Treasury bonds interest rate. PERA’s $49 billion trust fund is a diversified portfolio of stocks, bonds, real estate, private equity and other assets. Historically, these investments have earned a <a href="https://content.copera.org/pera-corrects-the-record-about-proposed-federal-legislation-2/" target="_blank" rel="noreferrer noopener">rate in excess</a> of the legislation’s artificial benchmark. Any states and local governments associated with public plans that did not comply with this requirement would be stripped of their ability to issue federally tax-exempt bonds.</li>



<li>PEPTA is based on an assumption that many state and local retirement plans are headed toward insolvency and don’t share meaningful information about their financial condition. Each year, PERA produces a Comprehensive Annual Financial Report, a voluminous data source available online. Further, PERA reports to three (soon to be four) legislative oversight committees during the interim session and the regular legislative session.</li>
</ul>



The letter also notes that PEPTA would not lower taxpayer costs, increase transparency, expand accountability, or improve understanding of state and local government retirement plans.



PERA staff will continue to monitor the progress of PEPTA and other federal legislation that could impact public pension plans or PERA members. PERA’s letter to Colorado’s Congressional Delegation is available <a href="https://peraontheissues.com/wp-content/uploads/2018/06/No-PEPTA-Letter-to-Congressman-Lamborn_06-20-2018.pdf" target="_blank" rel="noreferrer noopener">here</a>.

PERA corrects the record about proposed federal legislation

With the 2018 legislative session soon drawing to a close, <a href="http://leg.colorado.gov/bills/sb18-200">Senate Bill 18-200</a> (SB 200) cleared its latest legislative hurdle on Tuesday morning, when the Colorado House passed the legislation.



The vote came after a clarification about 21(c) rules, which enable legislators to recuse themselves from a vote if they have a conflict of interest in the matter at hand. The final tally was 38-23, with four lawmakers excused. On May 2, the Senate moved to create a <a href="https://legisource.net/2018/03/29/conference-committees-a-quick-review-of-the-options-2/">conference committee</a> to work out the differences between the two chambers.



On Monday evening, SB 200 passed the House on a voice vote during second reading, after about 90 minutes of spirited and amicable bipartisan debate. The deliberations didn&#8217;t begin until just after 8:00 p.m., reflecting state lawmakers&#8217; packed agenda with only nine days left on the legislative calendar.



During approval discussions about the House Finance Committee report, representatives offered 16 amendments, including four related to restoring the defined contribution plan option that the House previously amended out of the Senate version of the bill. Those four motions all failed, but eight of the other amendments passed. These included:



<ul>
<li>Three technical amendments that corrected or clarified prior language in the bill</li>



<li>A deletion of the previous version with new members after December 31, 2019, retiring at any age and 40 years of service credit at 65 with 5 years of service credit and adding retirement eligibility for new hires at age 60 with 30 years of service credit</li>



<li>Expansion of the existing Police Officers’ and Firefighters Pension Reform Commission to include oversight of PERA and creating a Subcommittee exclusively focused on PERA and staffed with four legislators appointed from the Commission and ten appointed external experts in relevant industries.</li>



<li>A provision that allows the annual direct distribution from sources in addition to the General Fund via the budgeting process</li>



<li>A change to the direct distribution provisions that delineates the amount assigned to the state and to K-12 public education</li>
</ul>



Later on Monday evening, during the Committee of the Whole reading after the main proceedings, Rep. Polly Lawrence (R-Roxborough Park) offered two amendments. The first would change the Highest Average Salary calculation to seven years and was defeated, 37-28. Rep. Lawrence&#8217;s second amendment to raise the retirement age for new PERA hires to age 65 also went down, 36-29. Rep. Kevin Van Winkle (R-Highlands Ranch) reintroduced his amendment to reinstall the defined contribution option for new PERA hires into the bill, but it also lost, 36-29. And Rep. Justin Everett (R-Jefferson County) moved to indemnify the State Legislature and taxpayers against legal action as a result of the passage of SB 200. This amendment also was defeated, 37-28. The House voted to adopt the Committee of the Whole report, 43-22.



To see a comparison of the latest version of Senate Bill 200 with prior versions and the Board&#8217;s recommended package, please see <a href="https://www.copera.org/house-approves-senate-bill-18-200">this chart</a>.

House approves Senate Bill 18-200

After two committee hearings, a spirited preliminary debate, and remarks from legislators prior to the final vote, major PERA reform legislation gained final approval by the full Senate last week. If passed, <a href="https://leg.colorado.gov/bills/sb18-200">SB 18-200</a> would impact every current and future PERA member and beneficiary.



Below is a breakdown of the bill’s path through the legislative process.



Senate Finance Committee After over four hours of testimony on the bill on Tuesday, March 13, the Committee delayed the amendment phase and final vote. When the hearing continued on Thursday, March 15, they considered four amendments. Two of the amendments, which both passed by votes of 3-2, removed language that would have increased employer contributions beginning in 2018, as well as the employer contribution increases that were part of the automatic adjustment provision. Another amendment, which passed without objection, clarified that the four members of the proposed public pension oversight committee who are “experts in the area of pensions or retirement plan design” would not be legislators, and therefore would not have the power to vote on matters before the committee. The only amendment that did not pass out of Senate Finance would have removed the provision in SB 18-200 expanding the option of choosing the defined contribution plan to all new hires. The committee members voted 4-1 to refer the amended bill to Senate Appropriations.



Senate Appropriations Committee With no public testimony, the Appropriations Committee hearing was quick. One amendment appropriated $200,000 of general fund money which may be used by the legislative council for an “independent review of PERA assumptions.” The committee voted 4-3 to advance the amended SB 18-200 to the floor of the Senate.



Senate floor The full Senate debated SB 18-200 over the course of two days; Friday, March 23 and Monday, March 26. During the debate, several amendments were considered, but only two passed: (1) removing the provision to adjust retirement eligibility for current members (PERA Interim Executive Director Ron Baker expressed concerns about this provision during the Senate Finance Committee hearing) and (2) moving up the implementation date from 2020 to 2019 for allowing eligible new members to opt-in to the defined contribution plan. On Tuesday, March 27, the full Senate voted 19-16 to send the bill, as amended, to the House of Representatives.



What’s next SB 18-200 has been introduced and assigned to the House Finance and House Appropriations Committees. A hearing has been set for Monday, April 16 at 1:30 p.m. Once the hearing starts, everything will begin anew: public testimony, consideration of amendments by committees and the full house, and, if the bill continues to pass through the process, eventually final approval from the House. If the House version of the bill differs from the Senate version—and all indications are that it will—then the Senate will be asked to concur with House amendments and send the bill to Governor Hickenlooper, or a conference committee of members of the House and Senate will be formed to try to forge a compromise that can win the support of both chambers. All of this must happen prior to Wednesday, May 9, which is the final day of the legislative session.



As always, for up-to-date information on SB 18-200 and any other PERA bills that might still be introduced, check back with PERA on the Issues.



See this <a href="https://www.copera.org/house-approves-senate-bill-18-200" target="_blank" rel="noreferrer noopener">fact sheet</a> for a comparison of the PERA Board’s recommendation and SB 18-200.

PERA reform legislation passes Colorado Senate

As SB 18-200 makes its way through the Legislature, there has been significant discussion over the goal line: the 30-year timeframe in which PERA becomes fully funded. There has been debate over whether achieving full funding in 30 years is the right goal – some say it is too aggressive while others say it is not sufficiently so. Agreement on the goal is a critical part of the conversation, as the destination surely dictates the direction.



There are several reasons why the PERA Board of Trustees and many others are advocating for a 30-year goal, which is also referred to as an amortization period, and why it served as the basis for the <a href="https://www.copera.org/house-approves-senate-bill-18-200" target="_blank" rel="noreferrer noopener">Board’s recommendation</a> to the General Assembly.



Full funding in 30 years is compliant with Colorado statute and the PERA Board’s policy. In 2015, the PERA Board of Trustees adopted <a href="https://www.copera.org/despite-changes-in-accounting-standards-pera-remains-on-track" target="_blank" rel="noreferrer noopener">The Colorado PERA Defined Benefit Plan Funding Policy</a> to inform decisions on whether to seek legislative changes to benefits and contributions. Within the policy, the time frame to reach full funding is set at 30 years. This is reflective of the section of Colorado State statute that states, “A maximum amortization period of thirty years shall be deemed actuarially sound.”



Full funding in 30 years is achievable. Late last year, after many months of gathering input from stakeholders, the PERA Board finalized a <a href="https://www.copera.org/house-approves-senate-bill-18-200" target="_blank" rel="noreferrer noopener">legislative recommendation</a> that would fully fund PERA within 30 years and was based on “shared responsibility” between members, retirees, and employers. These deliberations included months of internal debate, consultations with actuaries and other experts, an extensive in-person listening tour with stakeholders throughout Colorado led by PERA staff, and a series of telephone town hall meetings.



The Board’s recommendation includes a unique feature, the automatic adjustment provision that would allow PERA to remain on a path to full funding in 30 years without requiring additional legislation. The automatic adjustment mechanism would trigger modifications to contributions and the annual increase to ensure the 30-year goal is met.



Full funding in 30 years gives PERA resiliency. While 30 years may seem like a long time to pay down the unfunded liability, it is important to note that the plan will continue to get stronger over that period of time. Under the Board’s proposed 30-year plan, PERA’s funded status would improve as the unfunded liability decreases. This improvement would help the fund’s ability to withstand economic fluctuations and market corrections.



While it might seem enticing to extend the funding deadline to mitigate the effect on benefits and contributions, that path is not prudent fiscal pension policy. For example, the model of a 40-year amortization period shows that PERA’s funding levels remain flat for decades before finally turning upward. This means PERA’s unfunded liability will grow for decades before decreasing.



Full funding in 30 years is fair to all generations of public employees. The average service period for a PERA member is 23 years at retirement. If the length of time to pay off PERA’s unfunded liability were to be extended, it would also spread the cost of paying down the liability over a 40-year time period. In doing so, there would essentially be a transfer of cost to future generations who may well receive no benefit.



Full funding in 30 years helps the State’s credit rating. Standard &amp; Poor’s has indicated the State’s credit outlook will be downgraded unless a plan to retire PERA’s unfunded liability is developed. Extending the period to pay down the unfunded liability to beyond 30 years does not meet the criteria stated by S&amp;P. A credit rating downgrade would raise the cost of borrowing capital for the State and cost Colorado taxpayers.



While the PERA Board has no legislative authority, it does have expertise. The proposal offered by the Board last fall was intended to offer the foundation for the conversations that are underway now at the Capitol. But the fact that the bipartisan SB 200 was introduced with the 30-year funding timeline indicates that lawmakers agreed with the assessment of the PERA Board and its many expert consultants.



As the conversation surrounding the destination of SB 200 continues, the 30-year goal line should remain intact, reflecting the qualities of being sensible, equitable, and achievable.

Setting a goal for PERA reform: Why does the time period to full funding matter?

As the Legislature <a href="https://www.copera.org/retirement-age-requirements-how-colorado-pera-stacks-up-today-and-under-proposed-legislation">debates</a> the details of <a href="https://www.copera.org/retirement-age-requirements-how-colorado-pera-stacks-up-today-and-under-proposed-legislation">Senate Bill 18-200</a>, intended to improve PERA’s funded status and lower its overall risk, it is helpful to keep in mind how PERA compares to similar public employee retirement plans across the country – both today and if legislation is approved.



The proposed legislation incorporates many of the <a href="https://www.copera.org/2018-pera-on-the-issues-legislative-preview" target="_blank" rel="noreferrer noopener">recommendations</a> that the PERA Board approved last September, including changes to the age and service requirements necessary for a full service retirement benefit. The Board had recommended increasing those requirements to age 65 for most divisions with a minimum of five years of service. (The recommendation for State Troopers was a lower, but still increased, age.). These increases reflected the data gathered from the experience study that showed the PERA retiree population was living longer than previously projected. Read more about the Board’s changes to actuarial assumptions <a href="https://content.copera.org/actuarial-impact-analysis/" target="_blank" rel="noreferrer noopener">here</a> and <a href="https://www.copera.org/impact-assumption-changes" target="_blank" rel="noreferrer noopener">here</a>.



As currently written, the bill would increase age and service requirements for all members who begin employment on or after January 1, 2020, inline with the Board’s recommendations. The bill would also change retirement eligibility for all current members who are age 46 or younger as of that date by adding one year to retirement eligibility for every four years less than age 46, not exceeding 65 years of age.



The minimum age at which an employee can retire and receive a full retirement benefit (often shortened to “retirement age”) is an important component of any retirement plan. Even for Social Security (which is not really a retirement plan but rather a social safety net to reduce old-age poverty), the retirement age for a full, or normal, retirement benefit, is now 66. For many years, it was 65 but <a href="https://www.ssa.gov/planners/retire/ageincrease.html" target="_blank" rel="noreferrer noopener">has been gradually increasing</a> for people born in 1938 or later. It will continue increasing until it reaches 67 for people born after 1959.



Different pension plans determine retirement eligibility using a variety of factors that typically include some combination of age at retirement combined with years of service (or purchased service, in some cases).



Looking at various features of similar public pension plans across the United States – that is, large public plans with members who, for the most part, do not participate in Social Security – Colorado PERA currently falls in the middle of the pack for retirement age requirements.



The minimum age for a normal PERA retirement is 58 for the most recent hires in the School Division and 60 for the most recent hires in other divisions not including Troopers, giving Colorado one of the lower – but not the lowest – retirement ages in this comparative group. Under the proposed legislation, Colorado’s retirement age of 65 would be one of the higher – but not the highest – retirement ages. And the retirement age would still fall lower than that of Social Security.



Many of the plans with a lower retirement age are making trade-offs elsewhere. For example, Ohio Teachers has a retirement age of 60 but just reduced its cost of living adjustment or <a href="https://www.copera.org/retirement-age-requirements-how-colorado-pera-stacks-up-today-and-under-proposed-legislation" target="_blank" rel="noreferrer noopener">COLA to zero</a>. In Kentucky, a number of changes are currently pending in the legislature that would <a href="https://kypolicy.org/whats-senate-pension-bill/" target="_blank" rel="noreferrer noopener">reduce the COLA to 0.75%.</a>



The chart below shows how Colorado’s retirement age requirements compare to this group, reflecting normal or full retirement eligibility requirements for the most recent hires or newest retirement tiers, where applicable.



(It should be noted that the data presented here are simplified for purposes of this discussion and caution must be used in interpreting the information. For example, in Colorado, State Troopers pay a higher employee contribution and have a lower minimum retirement age. While a few of those exceptions are noted, in most cases the most common or average for a given plan is used. Our sources include data compiled by PERA staff in February 2017 and comparison data from the <a href="https://www.copera.org/colorado-pera-plan-design-compared-to-other-non-social-security-public-employee-retirement-plans" target="_blank" rel="noreferrer noopener">Wisconsin Legislative Council</a> from December 2016.)


<div class="wp-block-image">
<figure class="aligncenter"><a href=""><img decoding="async" src="https://content.copera.org/retirement-age-requirements-how-colorado-pera-stacks-up-today-and-under-proposed-legislation/"" class="wp-image-1804"/></a></figure></div>

Retirement age requirements: How Colorado PERA stacks up today and under proposed legislation

A digest of timely information and insight about finance, investing, and retirement.



<a href="https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/" target="_blank" rel="noreferrer noopener">This is what life without retirement savings looks like</a> |&nbsp;<a href="https://www.theatlantic.com" target="_blank" rel="noreferrer noopener">The Atlantic</a>Roberta Gordon never thought she’d still be alive at age 76. She definitely didn’t think she’d still be working. But every Saturday, she goes down to the local grocery store and hands out samples, earning $50 a day, because she needs the money. “I’m a working woman again,” she said in the common room of the senior apartment complex where she now lives, here in California’s Inland Empire. Gordon has worked dozens of odd jobs throughout her life—as a house cleaner, a home health aide, a telemarketer, a librarian, a fundraiser—but at many times in her life, she didn’t have a steady job that paid into Social Security. She didn’t receive a pension. And she definitely wasn’t making enough to put aside money for retirement.



<a href="https://www.marketwatch.com/story/a-new-idea-mandatory-retirement-accounts-to-help-workers-delay-claiming-social-security-2018-02-28" target="_blank" rel="noreferrer noopener">A new idea: Mandatory retirement accounts to help workers delay claiming Social Security</a> |<a href="https://www.marketwatch.com" target="_blank" rel="noreferrer noopener">MarketWatch</a>A new proposal would create retirement saving accounts that would enable people to postpone the age at which they claim Social Security, thereby increasing monthly benefits.



<a href="https://www.nytimes.com/2018/03/05/opinion/investor-class-pensions.html" target="_blank" rel="noreferrer noopener">The real reason the investor class hates pensions</a>|<a href="https://www.nytimes.com" target="_blank" rel="noreferrer noopener">The New York Times</a>No issue in America today better illustrates the divergent interests of working Americans and the 1 percent than pension reform. Substantial empirical evidence shows that the 401(k), recently renounced by its own investors, is grossly inadequate and will leave tens of millions of Americans with insufficient retirement assets. And yet states and cities are busy converting traditional pensions into these failing 401(k)s or equivalents, to the great benefit of money managers and the finance class. 401(k) holders let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vote as shareholders and we never tell our investment managers how we think they ought to vote.



<a href="https://content.copera.org/retirement-roundup-what-retirement-looks-like-with-no-savings/" target="_blank" rel="noreferrer noopener">Kentucky pension bill illegal in at least 21 ways, Beshear tells lawmakers</a> |<a href="https://www.copera.org/retirement-roundup-social-security-retirement-age-going-up" target="_blank" rel="noreferrer noopener">Lexington Herald-Leader</a> In February, Kentucky Attorney General Andy Beshear told state lawmakers that a proposal to overhaul Kentucky’s ailing public pension systems contains “multiple legal violations.” In a six-page legal opinion, Beshear outlined 21 ways he believes proposed legislation violates the “inviolable contract” the state has made with teachers and employees of state and local governments. “It is clear that if you pass [the bill] into law, you should expect numerous lawsuits, which the commonwealth will lose,” Beshear warned lawmakers.



<a href="http://www.governing.com/topics/workforce/gov-pension-reform-new-employees-retirement.html" target="_blank" rel="noreferrer noopener">Retirement experts to new government employees: Think for yourself</a> |<a href="http://www.governing.com" target="_blank" rel="noreferrer noopener">Governing</a>When politicians talk about pensions, it’s usually about the enormous weight they place on government budgets. According to the Volcker Alliance, state and local governments are on the hook for $1 trillion in unfunded pension liabilities. Lawmakers on both sides of the aisle push for pension “reform,” a word often used in a positive sense, to rescue dollars that could instead be used for other services. But what about future retirees? Is pension reform positive for them? In many cases, not so much.



<a href="https://www.copera.org/retirement-roundup-what-retirement-looks-like-with-no-savings" target="_blank" rel="noreferrer noopener">31 weird things about retiring you probably didn&#8217;t know</a>&nbsp;|&nbsp;<a href="https://content.copera.org/retirement-roundup-what-retirement-looks-like-with-no-savings/" target="_blank" rel="noreferrer noopener">Nasdaq</a> It&#8217;s never too early to start thinking about how you want to spend your time — and your money — in retirement. No matter if you&#8217;re hoping to retire as early as possible or plan to work until you can&#8217;t, having a plan for how you want to spend your senior years helps make sure your dreams come true. Fortunately, there are some weird and interesting facts that could help you make the most out of retirement. Read and see how you can make retirement easy.

Retirement Roundup: What retirement looks like with no savings

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Senate Bill 18-200 ensures PERA is on the path to full funding in 30 years
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On March 7, 2018, SB 18-200 was introduced in the Colorado State Senate. The intent of the legislation is to improve PERA’s funded status and lower its overall risk. Sponsors include Sen. Jack Tate (R-Centennial), Sen. Kevin Priola (R-Henderson), Sen. Cheri Jahn (U-Wheat Ridge), House Majority Leader KC Becker (D-Boulder), and Rep. Dan Pabon (D-Denver). SB 18-200 has been assigned to the Senate Finance Committee, and a hearing is expected to be scheduled soon.



The PERA Board held a special meeting on Wednesday, March 7, and directed staff to continue engagement on reform legislation. Bill sponsor Senator Tate had <a href="https://peraontheissues.com/wp-content/uploads/2018/03/PERA-Board-Letter-1.pdf" target="_blank" rel="noreferrer noopener">a letter</a> read at the Board meeting thanking the PERA Board for their significant contributions to the development of this legislation. In September 2017, the PERA Board approved a&nbsp;<a href="https://www.copera.org/2018-pera-on-the-issues-legislative-preview" target="_blank" rel="noreferrer noopener">package of recommendations</a> to the General Assembly that would restore the fund’s resilience.



If passed by the Legislature and signed into law by Gov. Hickenlooper, the bill upholds the PERA Board’s goal of bringing all five of PERA’s Trust Funds to 100 percent funding within 30 years. The bill incorporates many of the PERA Board’s recommendations that would impact retirement benefits and contribution levels of all current and future PERA members and retirees. In addition, the legislation includes the Board’s recommended increase in contributions for PERA-affiliated employers. Certain provisions of the legislation would go into effect as soon as this year, while others would be phased-in over the next few years.



The bill includes a set of automatic adjustment provisions that would go into effect to ensure that PERA remains on the path to full funding in 30 years. These provisions would modify employee and employer contributions and the annual increase paid to retirees to offset any deviation from the 30-year timeframe. The bill would also require PERA to report to an interim legislative committee to ensure progress is being made toward full funding. This committee would also have the power to consider and recommend legislation regarding PERA to the full General Assembly.



The legislation would also allow new hires from all divisions the option to choose between the PERA Defined Contribution (DC) plan and PERA’s Hybrid Defined Benefit Plan. Currently, only employees in the State Division have this option.



Below are additional details on how the bill would affect retirees, current members, future members, and employers.



Retirees The only provisions affecting retirees (who are not working after retirement) are related to the annual increase. For current retirees, there would be a two-year suspension of the annual increase in 2018 and 2019, followed by a reduction in the cap of the annual increase paid each year thereafter to 1.25 percent from the current 2.0 percent.



Current members The immediate impact for current members would be a phased-in 3 percent contribution increase from the current 8 percent to 11 percent of pay, starting in July 2018.



Like retirees, current members would have a lower cap on the potential annual increase paid. In addition to a reduction in the annual increase, the waiting period would increase to three years from the current one year.



Current members would also see a change to the definition of PERA-includable salary that would include certain pre-tax benefit programs under Sections 125 and 132 of the Internal Revenue Code.



Finally, as currently written, the bill would change the retirement eligibility age for all members who are age 46 or younger as of January 1, 2020, by adding one year to full service retirement eligibility for every four years less than age 46, not to exceed 65 years of age. A similar requirement would apply for reduced service retirement, not to exceed 60 years of age.



In addition to the changes listed above, nonvested members (those with fewer than five years of service credit) would see a change in the length of time used to determine Highest Average Salary (HAS). Currently, HAS is determined by using the three highest years of salary while this proposed legislation would increase the number of years to seven.



New members on or after January 1, 2020 All of the above changes would apply to new members, except for the retirement age eligibility modifications for current members described above. For new hires, eligibility requirements (age and service) for full service retirement benefits would increase to age 65 for most members with a minimum of five years of service and age 55 with 25 years of service for a reduced service retirement (for certain employees, mainly State Troopers, full service retirement benefits will require recipients be age 55).



New hires would earn service credit based on the full-time equivalency of their position.



New hires in all divisions would also be able to choose between the PERA Hybrid Defined Benefit Plan and the PERA DC Plan.



PERA-affiliated employers For all PERA employers, there would be a phased-in contribution increase of 2 percent of pay beginning July 1, 2018.



Additionally, employers would be required to calculate contributions on PERA-includable salary to include employee participation in certain benefit programs outlined above starting in January 2020.



Finally, for certain Local Government Division employers who choose to disaffiliate from PERA, the discount rate used to determine liabilities will be modified.



To learn more about how the introduced bill compares to the <a href="https://www.copera.org/2018-pera-on-the-issues-legislative-preview" target="_blank" rel="noreferrer noopener">PERA Board’s recommended package</a> from September 2017, please refer to <a href="https://peraontheissues.com/wp-content/uploads/2018/03/Comparison-Board-and-SB18-200-1.pdf" target="_blank" rel="noreferrer noopener">this fact sheet</a>. To stay up-to-date on all PERA-related legislation, please subscribe to the PERA on the Issues newsletter by <a href="https://content.copera.org/legislation-to-reduce-peras-risk-profile-introduced/" target="_blank" rel="noreferrer noopener">signing up here</a>.

Legislation to reduce PERA’s risk profile introduced

Unsuccessful Shift to Costly 401(k) Accounts Led to Unprecedented Public Employee Turnover



A new case study released by the <a href="http://www.nirsonline.org" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS), <a href="https://www.nirsonline.org/reports/retirement-reform-lessons-the-experience-of-palm-beach-public-safety-pensions/" target="_blank" rel="noreferrer noopener">Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions</a>, looks at a decision by the Palm Beach Town Council to close its defined benefit (DB) pension retirement plan in 2012 and move its police officers and firefighters to a “combined” plan that offered a dramatically lower pension benefit along with individual 401(k)-style accounts.



As the case study shows, public safety workers quickly fled Palm Beach, retiring or finding employment in other cities that continued to offer DB retirement plans. Only four years after the sharp cuts to the traditional pension, the town found that about a third of its police department had three years of experience or less. Along with a retirement rate of 20 percent after the 2012 change, 53 mid-career safety officers left Palm Beach from 2012 to 2015. By comparison, only two mid-career employees departed from 2008 to 2011.



Palm Beach faced significant financial challenges as a result of the high attrition. The town had to cover high levels of overtime to fill staffing gaps and soaring training costs as it brought in rookie police officers and firefighters. And as the case study notes, “the move to (defined-contribution) accounts does nothing to reduce plan liabilities on its own.”



After the costs of employee turnover and recruitment skyrocketed, Palm Beach reversed course and, in 2016, <a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener">abandoned the defined-contribution aspects</a> of new retirement plans and strengthened the defined benefit provisions. As a result of the exodus of workers, the town council strengthened the pension elements of the plan with the aim of improving recruitment and retention.



The high rate of retirements and departures from the town might not be that surprising, given the value that public sector employees place on retirement benefits. A 2015 <a href="https://www.nirsonline.org/wp-content/uploads/2017/07/final_opinion_research_2015.pdf" target="_blank" rel="noreferrer noopener">NIRS study</a> found that 88 percent of public-sector employees rate retirement benefits as extremely or very important, compared to 57 percent who said the same the about salary.



The experience in Palm Beach mirrors <a href="https://www.nirsonline.org/wp-content/uploads/2017/11/public_pension_resource_guide_-_case_studies_of_state__pension_plans_that_switched_to_defined_contribution_plans.pdf" target="_blank" rel="noreferrer noopener">similar experiences of statewide plans</a> in Alaska, Michigan, and West Virginia, where shifts from DB pensions to 401(k)-style accounts caused pension plan costs to skyrocket.



For more on defined benefit and defined contribution research, see these PERA on the Issues posts:



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener">Cautionary Tales: Case Studies Show How States Face Funding, Debt Challenges After Switching to Defined Contribution Retirement Plans</a>



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener">Report: Defined Benefit Plans Increase Retention and Reduce Turnover Costs</a>



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener">Importance of Public Sector Defined Benefit Plans</a>

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