A state-appointed panel said today that Colorado’s public employee pension fund should cut benefits and replace its entire board of directors to erase a projected $12.8 billion shortfall.
The panel, chaired by former Gov. Dick Lamm, warned the Public Employees Retirement Association will go bankrupt in 30 to 40 years unless changes are made.
PERA covers 68,000 retirees and 175,000 active workers in state and local governments.
Lamm said politicians had too much control over the association.
He said the 16-member board does not have the experience needed to run a $30 billion fund carrying such a large unfunded liability.
“Politicians are at fault, PERA is at fault, governors were at fault. There is enough blame to go around,” Lamm said.
Katie Kaufmanis, a spokeswoman for the fund, said the board was not given a chance to review the report before it was released. She said the board will study it and make recommendations to lawmakers, who would have to approve the changes.
The panel was established by Mike Coffman, the state treasurer who took a leave of absence to serve with the Marines in Iraq.
Acting state Treasurer Mark Hillman received the recommendations from Lamm.
“Coloradans deserve a plan that state workers can count on and taxpayers can afford,” Hillman said.
The commission recommended that state lawmakers start by replacing the 16-member PERA board, which includes the state auditor and the state treasurer as ex-officio members. It has nine elected members from the state and school division; two members representing municipalities, one judicial member and two PERA retirees. Each division chooses its own representatives.
It also recommended increasing the employee contribution rate from 8 percent to match the employer’s contribution rate of 10.15 percent; lowering the cost of living adjustment for current employees to either 3 percent or the rate of inflation, whichever is lowest; and increasing the retirement age for current members under 40 years of age to 55 and possibly as high as 65.
“As the key findings of the commission bear out, the overriding cause of PERA’s financial deteriorating stems primarily not from circumstances in the external environment, but rather the failure of PERA management and its governance structure to act as responsible stewards,” the commission reported.
Still, the commission recommended keeping the current pension fund structure in place.
University of Colorado economics professor Barry Poulson, a member of the commission, disagreed and issued his own report. He said the only way the pension plan can survive is by changing from a defined benefit plan, where PERA pays a given benefit and taxpayers assume the risk, to a defined contribution plan where employees and employers pay a share of wages into a personal account and the employees own their own accounts.
“PERA belongs to a bygone era,” Poulson said.
Lamm, a Democrat, said PERA ran into serious problems in 1999, when politicians including GOP Gov. Bill Owens, the first Republican governor in 24 years, allowed public employees to buy years worth of service credits drastically below cost in an attempt to reduce the size of government.
That resulted in a flood of new retirees, shortly before the fund began incurring record losses between 2000 and 2002 as the state economy slumped. Public employees rushed to take advantage of the opportunity, in some cases taking out second mortgages on their homes so they could retire early.
In 2003 alone, PERA members purchased $2 billion worth of service credits for $772 million, increasing the unfunded liability.
Owens’ spokesman, Dan Hopkins, said the governor’s goal at the time was to reduce government costs. Owens said state lawmakers agreed with the plan and approved it.
Lamm said Democrats also bore responsibility by agreeing to a fixed, 3.5 percent cost of living adjustment.
“The result of this change is that on a current dollar basis, the average retiree will in the future actually receive more in retirement income than the average active worker will receive in pay,” the commission said.
The commission said other bad decisions included lowering the retirement age to 50 (with 30 years of service), decreasing employer contribution rates and matching voluntary contributions.
Lamm said the nine-member commission was unable to agree on the best way to appoint new board members and would leave that to lawmakers.
