The Colorado Public Employees’ Retirement Association, better known as PERA, is currently underfunded – to the tune of $12.8 billion.
The plan can operate in the red for years without making any changes to retirees’ benefits, but lawmakers owe it to the state’s current workers to return to the Capitol in January and devise a plan to shore up the fund.
Far too many recipients rely on pension benefits for state officials to simply cross their fingers and hope for a new bull market to fill the funding gap.
PERA covers 365,673 state workers, former workers and retirees and oversees a $34 billion investment portfolio.
Last year, employees paid $1.6 billion into the PERA accounts, and PERA paid $2.1 billion in benefits. However, about $3.2 billion came in from investments – a 14 percent return that beat all expectations and exceeded the internal target of 8.5 percent.
Unfortunately, that type of return can’t be counted on for next year, much less the next 30 years.
Using estimates of an average 8.5 percent annual return over the next 30 years, PERA would have only 40 percent of the money it needs to meet its obligations to retirees by 2034.
Part of its problems date back to 2000, when the state’s economy, along with the stock market, was riding at an all-time high PERA posted a surplus during those heady days, so benefits were boosted and employer contribution rates fell from 11.4 percent to 9.9 percent.
But state officials didn’t know at the time that they were at the end of a bull market in stocks, and now the market gyrations have come back to haunt them.
So while trying to assure retirees and workers that the sky is not falling (because it’s most certainly not), lawmakers may be forced to pull back the added benefits from 2000 – at least on current workers – and ask employees and employers, via taxpayers, to chip in more to the plan.
The choices ahead won’t be politically popular, but banking on another bull market would be a mistake.
