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Lawmakers Consider Reform to PERA

By Gene Davis, DENVER DAILY NEWS
A bipartisan group of lawmakers has introduced a bill aimed at fixing the financially damaged retirement plan that covers more than 430,000 Colorado state employees.
Senate Bill 01, PERA’s Long Term Stability, will get its initial hearing today at the state Capitol. The bill introduced by Sen. Brandon Shaffer, D-Longmont, and sponsored by Sen. Josh Penry, R-Grand Junction, calls for larger contributions from employers and employees and a smaller cost of living increase to help balance the retirement fund that has dropped by approximately $23 billion.
“This bill represents a bipartisan, careful, balanced, responsible and fiscally conservative approach that will put PERA on a stable financial path,” said a statement from Shaffer.
But Barry Poulson, a senior fellow with the Independence Institute who served on a commission to reform PERA earlier this decade, believes SB-01 is only a Band-Aid solution. He opposes the bill in part because the new money that would be generated and saved would not be earmarked to pay PERA’s unfunded liabilities — the more than $30 billion promised to current and future retirees that PERA doesn’t have the resources to cover. He also fears that employer contribution rates could increase to the point where 20-30 percent of payroll would go towards paying off unfunded liabilities.
“It’s clear to me that this will not solve the problem,” he said.
The recession has hit PERA hard. Last year, the market value of PERA’s portfolio fell 27.2 percent, from $41.4 billion to $30.1 billion. Without changes, the PERA fund will be broke by 2031, according to the Colorado Senate Majority press office.

Doomed from start?
PERA was doomed from the start after promising an 8.5 investment return for 50 years, according to Aaron Harber, a Denver Daily News columnist who was registered as an investment advisor with the Securities and Exchange Commission. Harber believes that PERA’s promise was “wildly unrealistic ” — with most investment returns generally only being guaranteed for around 3 percent and for a much shorter period of time — and that PERA and lawmakers are still being unrealistic with SB 01.
“What legislators and others need to do is have an honest appraisal of what the fund can afford,” he said. “Until realism arrives at PERA and the general assemblyÉit is likely that none of these proposals (in SB 01) will really solve the problem.”
In addition to increasing employer and employee contribution rates by 2 percent and lowering cost of living increases, SB 01 also raises the minimum retirement age from 55 to 58. Employees hired before 2007 would be exempt to the change.
The PERA board has given its initial support to SB 01.
“These new recommendations comply with the board’s previously determined principles of shared responsibility among members, retirees and employers, intergenerational equity, long-term sustainability, preservation of the defined benefit plan, and maintaining the same benefit structure for PERA’s different divisions,” PERA said on its Web site.
Rep. Kent Lambert, R-Colorado Springs, and Sen. Keith King, R-Colorado Springs, introduced an alternative PERA reform bill last week. The bill would change PERA from being a defined benefit plan, which promises a specified monthly benefit at retirement, to a defined contribution plan similar to a 401k. The bill would also raise the retirement age to around 65. No Democrats have currently thrown their support behind the bill.
One in nine teachers, police officers, state troopers, park rangers and other state employees rely on PERA for their retirement.

Distributed by Colorado Capitol Reporters

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