Following the announcement earlier this year that Colorado’s Public Employee Retirement Association or PERA had $30 billion in unfunded liability, the Board is now recommending comprehensive reforms designed to reduce the overall risk and reduce the amount of time it will take the retirement program to be fully funded. The Board’s recommendations, which must be approved by the General Assembly, include taking steps that will significantly change the benefit provisions and contribution structure of the plan. The recommendations call for the modification to the benefits of current retirees, members and future members, increasing member contributions into the fund, and making changes to the program that would make member contributions and benefits more equitable. PERA Executive Director Gregory Smith says the recommendations provide meaningful and comprehensive changes that will lower costs and raise necessary funds to ensure PERA’s long-term strength. A comprehensive breakdown of the proposed changes is available below.
Modify the benefits of current retirees, members, and future members.
- Increase the number of years used to calculate Highest Average Salary from three years to five for most divisions. The exception is the Judicial Division, which currently uses a one-year HAS and will now use a three-year calculation. For new hires starting in 2020 and for members with less than five years of service credit as of January 1, 2020, more years of salary will be considered to calculate an average salary used to determine the total retirement benefit.
- Change the age of eligibility for full service retirement benefits to 65 for new hires starting in 2020. For State Troopers, the minimum age for full service retirement eligibility will be raised to age 55. This change aligns PERA with national trends, including Social Security and peer defined benefit plans across the country.
- Reduce the Annual Increase (commonly called the Cost of Living Adjustment or COLA) provided to current and future retirees. Most current retirees receive a 2 percent Annual Increase and that will be lowered to 1.5 percent. Those who became members after 2006 currently do or will receive an Annual Increase based on the CPI with a limit up to 2 percent. This Annual Increase would also be capped at 1.5 percent. This change will go into effect on the date legislation is passed.
- Suspend the Annual Increase for two years for current benefit recipients. Under existing law, current benefit recipients have experienced a one-year waiting period upon retirement to receive an increase. Future retirees would have a three-year waiting period before their Annual Increase begins. This change will go into effect on the date legislation is passed.
Increase contributions into the fund.
- Increase employee contributions for members hired before 1/1/2020 by an additional 3 percent above current contribution rates. This increase would impact all active PERA members and retirees working after retirement.
- Increase employee contributions for members hired on or after 1/1/2020 by an additional 2 percent.
- Increase employer contributions by an additional 2 percent.
Ensure the equitable alignment of “input” or contributions and service credit, with “output” of benefits paid out.
- Change the definition of PERA-includable salary to require PERA to collect contributions on salary that includes Internal Revenue Code Section 125 and 132 deductions. In other words, PERA contributions would be made on gross pay rather than net pay. These changes would impact current and future members as well as employers.
- Change the definition of full-time service accrual. Under the Board’s proposal, PERA future members will earn service credit for part-time work based on the percentage of full-time employment they are actually working.
A nearly year-long process preceding this recommendation involved input from a variety of stakeholders. The vast majority – from 80 to over 90 percent – of those who provided input agreed with core principles: “PERA should be a retirement plan that…”
- Calculates retirement benefits in line with career paths and contributions,
- Allows retirees to maintain their standard of living throughout their lifetime,
- Is fair and attractive to future public employees,
- Serves as a tool for employers to recruit and retain top quality talent,
- Requires shared responsibility among members, retirees, and employers.
By State law, the Colorado General Assembly sets contribution rates and benefit levels and the PERA Board of Trustees has oversight of investments and benefit administration. More information on the Board of Trustees is available here.