Efforts to help Colorado PERA run into a familiar enemy: lack of money

Six years and billions of dollars into Colorado's 30-year pension rescue plan, the Public Employees' Retirement Association has less than a 50-50 chance of meeting its goal of being fully funded by 2048.

PERA officials are expected to report to the Legislature's pension review subcommittee on Monday on what it would take to increase those odds to 67%.

The answer: $13 billion in upfront payments or a sweeping package of “draconian” cuts, according to PERA actuaries.

Another year of disappointing financial results has raised the possibility of automatic benefit cuts for retirees and contribution increases for state employees and the agencies they work for. For the first time since 2018, lawmakers, independent regulators and PERA board trustees are discussing what can be done to improve the state pension's financial performance — while trying to ease the financial burden on retirees.

But the initial discussions are running into some familiar obstacles: a lack of political will and a lack of money.

The $13 billion figure is largely illustrative. There are no plans from the Legislature or the PERA board to increase the pension to a 67% chance of meeting its goals. Still, state law requires PERA to spell out what it will take to get there.

An alternative path presented to the PERA board last week would reduce the cost of living increase for retirees to 0.5% per year and increase employee and employer contribution rates by 1 percentage point each. Social benefits would also be reduced for future employees. Doing all that would still require the state to contribute $4 billion in cash to reach the mark.

Earlier this year, an independent report commissioned by the oversight subcommittee suggested a $2 billion infusion that seems modest by comparison – an amount that Democratic lawmakers still dismiss as political nonsense given the state's budget woes.

Jack Tate, a former Republican senator who helped craft the 2018 pension reform, told The Colorado Sun that the gigantic dollar amount did not surprise him.

Although he acknowledged that it is not possible for the state to contribute $13 billion, he also believes that the pension needs a little more money today to reduce the risk of a catastrophe. A recent analysis by pension actuaries found that the risk of the school division becoming insolvent and insolvent is nearly one in ten. The oversight committee's independent analysis found it could be as high as 1 in 5.

“That’s the risk we should really be looking at from a public policy standpoint,” said Tate, a member of the subcommittee. “If that happens, it’s bad.

“If our austerity measures pay off in 35 years instead of 30 years, it is what it is – it's not ideal,” Tate said. “But if we avoid a black swan event, a major liquidity crisis, we can say we have done our job.”

PERA's chief executive says if the Legislature and its oversight board are serious about improving pension funding, there is a simple answer: Require government agencies to set the “actuarially determined contribution,” or ADC – pension speak for the exact dollar amount, that is required to finance it – fully finance it, bring benefits and pay off the long-term debts.

In Colorado, government agencies pay the statutory annual contribution rate, whether or not it is sufficient to meet the pension's financial needs. According to PERA financial reports, Colorado's employer contributions have been more than $5 billion short of that amount since 2001 – a long-standing shortfall that helped send PERA into its current financial hole.

“If you look at states that are well funded, one thing is common: They pay the ADC,” Chairman Marcus Pennell said at the board meeting in Colorado Springs last week. “You ask the actuaries to calculate what to pay and they just pay it.

“I really want us to speak with a long-term, sustainable voice, that if you want to make a change, let's just make the change to pay for the ADC because that's the real way forward.”

Instead, lawmakers and board members are considering more modest changes.

A proposed law would increase the state's annual inflation payment by $225 million each year, a move that pension actuaries say would help — but only a little.

Another idea discussed by the board would be to cut contributions to the PERA health care trust fund — which is in better financial shape — and instead redirect them to the pension's unfunded debt.

Overall, PERA actuaries say these changes would likely delay the next round of automatic benefit cuts and premium increases by several years.

They could also pay for something else: financial help for retirees.

Pennell suggested Thursday that the potential savings could be used to offset the cost of rising cost-of-living adjustments to 2% for people age 80 and older, up from 1% today.