Public employees will need to contribute more of their pay and retire later to shore up a $12.8 billion shortfall in the state’s pension plan, a high-powered panel recommended Wednesday.
Teachers and other school workers would contribute an average of $701 more a year. Local water-department workers would pay $970 more, and state prison workers would pay $1,000 more.
Another recommendation would lift the minimum retirement age from 50 to 55.
Upon learning of the proposed changes, one employee, Audrey Newman, program assistant at the University of Colorado Health Sciences Center, said, “We played by the rules; we did what we were supposed to do. Raising the retirement age is unfair to current employees.”
The recommendations, considered contentious, must be accepted by the legislature and the governor before taking effect.
Former Gov. Dick Lamm, panel co-chairman, acknowledged that the changes would be hard to accept but said they are necessary.
“Thirty years from now, there won’t be enough (money in the pension plan),” he said. “We fall off a cliff.”
Colorado’s Public Employees’ Retirement Association, or PERA, covers about 365,000 state and local government workers and retirees – such as elementary-school teachers, highway workers and state judges.
The plan currently has only 73 percent of the money needed to meet its obligations.
Five years ago, the plan was fully funded.
But instead of leaving a cushion to build against a market downturn, the legislature at the time boosted retirees’ benefits, lowered government-contribution levels and dropped the minimum retirement age to 50.
The stock market’s steep decline, starting in 2000, left the plan cash-strapped.
To prevent a repeat, the state treasurer’s Commission to Strengthen and Secure PERA recommended overhauling PERA’s 16-member board of trustees, a governance model it called “outmoded and ineffective.”
The number of trustees should be reduced, employers and taxpayers given a greater say on the board, and trustees required to have financial expertise, the commission said. Legislative oversight of the plan must be strengthened, and the legislature must be allowed to reduce benefits when necessary, it said.
“When you give a benefit, it is almost impossible to take it back,” Lamm said. “But you can’t increase and not decrease.”
PERA members currently contribute 8 percent of pay into the pension plan, which worked out to $457 million last year.
The commission recommends increasing the contribution rate to 10.15 percent. Based on last year’s payroll, public employees would have had to contribute an additional $122 million.
The new contribution level would match up what employees and employers contribute. Both groups would eventually see contribution levels rise to 13 percent of pay under the commission’s proposal.
Other recommendations include lifting the minimum retirement age for all workers to 55 and capping cost-of-living increases for all members to the rate of inflation or to 3 percent, whichever is lower.
Current members can now retire with full benefits after 30 years of service at age 50, while hires who came on after July 1 can retire at age 55.
Raising the retirement age and lowering the cost-of-living adjustments represent benefit cuts. If implemented, the changes probably will result in lawsuits, Lamm conceded.
“The recommendations put 100 percent of the load on the employees,” said Miller Hudson, executive director of the Colorado Association of Public Employees. “It takes only one disgruntled employee to file a lawsuit.”
PERA, in a statement, said its trustees would not comment until they had studied the recommendations.
“PERA will communicate the board’s position on the recommendations contained within the report after fully analyzing the contents,” the statement said.
The commission rejected a dissenting proposal from member Barry Poulson to automatically enroll new public employees into a defined contribution plan comparable to the 401(k) plans offered in the private sector.
Such plans would be fairer to young workers and reduce PERA’s unfunded liability going forward, said Poulson, a CU professor.
State Treasurer Mark Hillman will review the commission’s recommendations and decide which ones to go forward with, said Ben Stein, deputy state treasurer.
Draft legislation will follow, along with the recruitment of legislators who are willing to carry the recommendations forward.
Former state treasurer Mike Coffman, an ex-officio trustee on PERA’s board, organized the commission last year after PERA’s funding shortfall rose despite record-beating portfolio returns in 2003.
Other members of the commission are CU president Hank Brown, the other co-chairman; oilman Bruce Benson; banker LaRae Orullian; software magnate Ed McVaney; former Lt. Gov. Sam Cassidy; Southeast Business Partnership executive John Lay; economist Patricia Pacey; and finance executive Thomas Williams.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
