Taxpayers, public employees or both groups would need to chip in $143 million more a year to stabilize the Colorado Public Employees’ Retirement Association, according to a Denver Post estimate.
PERA, which manages three pension plans covering 365,000 members, had only 73.2 percent of the funds needed at the end of last year to cover future obligations.
Raising annual employer-contribution rates by 2.9 percentage points would stabilize the plan and prevent the shortfall from widening, David Slishinsky, an actuary with Buck Consultants, told the Colorado Legislative Audit Committee on Tuesday. Such an adjustment would amount to a nearly 29 percent increase in employer contributions annually.
Last year, government employers contributed close to $503 million on behalf of their employees into PERA. Boosting contribution rates by 2.9 percentage points would require another $143 million, the Post estimates.
But legislators, who raised contribution levels in 2004, might resist calls to put more money into the underfunded pensions.
“You will run into a buzz saw,” warned Sen. Jack Taylor, R-Steamboat Springs. “I don’t think the state has the money to bail out PERA.”
Any fix should involve a larger contribution from public employees, said Sen. Norma Anderson, R-Lakewood.
“I think we are going to have to ask employees to contribute more,” she said.
Most government employers contribute about 10.15 percent of workers’ pay toward the pension plan, and the bulk of government employees contribute 8 percent of their pay.
State employees might consider splitting the costs of the higher contribution if they also can win mechanisms that will stabilize the plan, said Miller Hudson, executive director of the Colorado Association of Public Employees.
“We shouldn’t ignore the fact that PERA didn’t get into trouble by itself,” Hudson said. “The legislature had a lot of responsibility for what happened.”
Colorado PERA briefly enjoyed a surplus in 2000 but didn’t let it build as a cushion against a market downturn after a 19-year bull run in stocks.
Instead, benefits were increased, early retirement was made easier and government contributions lowered. The changes were soon followed by a grueling bear market.
Extra contributions would stabilize the plan only if PERA’s investment team can average the 8.5 percent-a- year return targeted for the plan’s $32 billion portfolio, Slishinsky said.
If PERA achieves only a 7 percent return and doesn’t get higher contributions, it could run out of funds sometime after 2035, according to projections from Buck Consultants.
Conversely, averaging 10 percent returns a year could fix the shortfall.
About 65 percent of the money PERA distributes comes from returns on its portfolio, said PERA executive director Meredith Williams.
“There are an awful lot of moving pieces, but the huge driver is market performance,” he said.
