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.

The American public continues to hold positive opinions of defined benefit pension plans, according to <a href="https://www.nirsonline.org/reports/what-do-americans-think-about-pensions-for-public-employees/" target="_blank" rel="noreferrer noopener">the latest survey data from the National Institute on Retirement Security</a> (NIRS).



Researchers contacted more than 1,200 adults aged 25 and older across the country to understand public opinion about defined benefit plans like what Colorado PERA offers. They found 86% of survey respondents think all workers should have access to a defined benefit pension, and not just public employees.



In addition, while Americans may be divided politically, the NIRS survey found strong agreement on the value of pensions. More than 80 percent of each political group—Democrats, Republicans, and Independents—voiced their support for pensions.



Unlike a defined contribution plan such as a 401(k), a defined benefit plan like the PERA Defined Benefit Plan provides retirement income a person cannot outlive. That makes for a valuable benefit that can be a powerful tool in maintaining a qualified workforce.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="2428" height="1414" src="https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions.png" alt="Two pie charts showing results of a survey of Americans' attitudes toward pensions. The left chart shows 82% of Americans agree that pensions are a good way to recruit and retain qualified teachers. The right chart shows 84% of Americans agree that pensions are a good way to recruit and retain qualified public safety employees." class="wp-image-54938" srcset="https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions.png 2428w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-300x175.png 300w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-1024x596.png 1024w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-768x447.png 768w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-1536x895.png 1536w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-2048x1193.png 2048w" sizes="(max-width: 2428px) 100vw, 2428px" /><figcaption class="wp-element-caption">Image courtesy: National Institute on Retirement Security</figcaption></figure>



Defined benefit plans are most common in the public sector today, and the NIRS survey asked respondents whether they agreed that pensions are a valuable tool to recruit and retain workers who provide important public services, such as teachers and public safety workers. The survey found 82% agree that pensions help recruit and retain teachers and 84% agree that they help recruit and retain public safety workers.



Since 1931, Colorado PERA has been helping support Colorado’s public workforce by providing lifetime retirement and other benefits. In addition to the PERA Defined Benefit Plan, PERA members have access to defined contribution plans, health care benefits, and more, ensuring the state’s public workers have the tools they need for a secure retirement.

Survey Finds Strong Support for Public Pensions

Two years into the COVID-19 pandemic, school districts across the country are facing serious shortages of qualified teachers and other staff, and those shortages have led to widespread concern.



In <a href="https://www.nirsonline.org/wp-content/uploads/2022/02/FINAL-2022-Americans-Views-of-Public-School-Teachers-.pdf" target="_blank" rel="noreferrer noopener">a recent survey from the National Institute on Retirement Security</a> (NIRS), 84 percent of people surveyed said they’re worried about shortages of teachers and school staff, and 81 percent said they’re worried about people leaving the profession.



The educator shortage was the topic of a recent forum held by the <a href="https://www.pebc.org/" target="_blank" rel="noreferrer noopener">Public Education and Business Coalition</a> (PEBC), a Denver-based organization that works with school districts, teachers and business leaders across the country to improve public education. Colorado PERA was a sponsor of PEBC’s Colorado Education Workforce Forum.



At the forum, state education officials, district superintendents and business leaders came together to discuss the sobering reality of Colorado’s educator shortage and brainstorm solutions.



In the 2020-2021 school year, there were nearly 7,000 teaching positions to fill in Colorado, but only about 3,000 graduates from teaching programs, according to PEBC. In addition, school districts across the state are dealing with a 16 percent turnover rate and per-student funding that’s well below the national average.



Teacher pay is a major factor in discussions about shortages, and so are benefits — particularly retirement benefits. In the NIRS survey, 90 percent of respondents agreed that teachers and school staff should have access to a pension for retirement security, and 94 percent agreed that elected officials should ensure those pensions are adequately funded.



<h2 class="wp-block-heading">The role of Colorado PERA in attracting and retaining teachers</h2>



Decades ago, it was common for many workers to receive a defined benefit (DB) retirement plan — also known as a pension — from their employer. Today, public employees like teachers and other school employees are among the few who still have access to DB plans. Most other workers have to rely on defined contribution (DC) plans like 401(k)s to save for retirement.



<blockquote class="wp-block-quote">
Related: <a rel="noreferrer noopener" href="https://peraontheissues.com/states-consider-reviving-closed-pensions-in-effort-to-recruit-retain-public-workers/" target="_blank">States Consider Reviving Closed Pensions in Effort to Recruit, Retain Public Workers</a>
</blockquote>



PERA’s hybrid&nbsp;defined benefit&nbsp;plan is a particularly strong recruitment and retention tool because of the value it offers to employees regardless of the length of their career. PERA’s plan design has evolved to serve both long-service employees as well as those who only work for a short time in public employment. For example, every dollar a PERA member contributes to their account is theirs, and they can take those funds with them when they leave PERA-covered employment. This plan design benefits Colorado’s public employees, their employers and the valuable services delivered to Colorado taxpayers.



In the 2022 legislative session that just wrapped up in May, Colorado lawmakers tackled the issue of educator shortages with <a href="https://co.chalkbeat.org/22899633/colorado-education-school-bill-tracker-2022" target="_blank" rel="noreferrer noopener">a number of bills</a> to increase public school funding. They also <a href="https://peraontheissues.com/2022-proposed-legislation-status/" target="_blank" rel="noreferrer noopener">passed two bills</a> that allow some PERA retirees to return to work in school districts dealing with critical shortages.



Solving the teacher shortage in Colorado and elsewhere will require creativity and commitment, and Colorado PERA remains a valuable tool for school districts looking to hire and keep qualified educators.

Pensions a Valuable Tool in Efforts to Solve Teacher Shortages

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.



<h2 class="wp-block-heading">Colorado’s commitment to PERA</h2>



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" class="broken_link">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" class="broken_link">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

A <a href="https://www.nirsonline.org/reports/betterbang3/" target="_blank" rel="noreferrer noopener">recent study</a> from the National Institute on Retirement Security found that defined benefit (DB) pensions like Colorado PERA’s continue to offer substantial cost savings over defined contribution (DC) accounts like 401(k)s.



The research affirms NIRS’s findings from 2008 and 2014 that DB plans can provide retirement benefits at about half the cost (49 percent) of the typical DC plan.



The cost savings come from key differences in how DB and DC plans work, the authors state. In particular, they highlight the following three advantages of DB plans:



<ul>
<li>Longevity risk-pooling: Defined benefit plans cover a large number of people, with each person’s benefits coming from the same trust fund. For that reason, DB plans only have to accumulate enough money to fund benefits for the average life expectancy of the group. An individual in a defined contribution plan, on the other hand, has to accumulate enough funds to cover their expenses for the rest of their life, including the possibility of living longer than their life expectancy. That means a DC account needs to have a higher balance at retirement in order to provide the same level of benefits as the DB plan.</li>



<li>Maintenance of portfolio diversification: Individuals in DC plans are typically encouraged to shift their portfolio to a more conservative, or lower-risk, mix of investments as they get older to protect their balance from drops in the stock market. A DB plan, with its shared trust fund, can maintain a well-balanced portfolio over the long term and weather short-term risks in the stock market, ultimately earning higher returns.</li>



<li>Lower fees and professional management: Because of the pooled nature of DB plans, the fees for managing investments are shared by the group and are lower than the typical DC plan, in which each individual pays fees on their account. In addition, DB plan investment managers have a fiduciary duty — they must make decisions to ensure the longevity of the fund — while individual investors in DC plans may not have the expertise to make the right decisions.</li>
</ul>



Simply put, a person saving for retirement in a DC plan needs to save more money than the typical DB plan. Overall, the authors conclude that it is about twice as expensive to save for retirement under a DC plan like a 401(k) than it is with a DB pension plan.



Both DB and DC plans have their advantages, and Colorado PERA offers both, with some members having the ability to choose whichever plans works best for them. PERA offers all of its members a hybrid defined benefit plan that gives members increased flexibility and additional options, whether through a monthly lifetime benefit or complete portability to another retirement plan. PERA members can also supplement their retirement savings with a <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">401(k) or 457 plan</a>. 



It’s a powerful retirement tool that adapts to the many different paths people take in public service: whether working part-time or full-time, whether planning on a long tenure or a short one, and whether near retirement or far from it. Learn more about PERA’s <a href="https://www.copera.org/welcome-pera-members/new-members/new-members-in-the-defined-benefit-plan" target="_blank" rel="noreferrer noopener">defined benefit plan</a>.

Tag Archives:

Survey Finds Strong Support for Public Pensions

Pensions a Valuable Tool in Efforts to Solve Teacher Shortages

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

Study: Defined Benefit Pensions Continue to Be More Cost-Effective Than 401(k)s

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