Reducing benefits for future hires who join the Colorado Public Employees’ Retirement Association could leave the state vulnerable to lawsuits, foes of the proposed changes argue.
“New employees will challenge that legally,” said House Minority Leader Joe Stengel, R-Littleton. In January, Stengel introduced the first of three expected bills seeking to fix an $11 billion shortfall in the state’s largest pension plan.
PERA’s offering, not yet introduced in a bill, would lower benefits to new hires by about 20 percent and reduce employee contributions from 8 percent of pay to 7 percent. Contribution levels to the plan would adjust depending on how well the plan performed.
Stengel’s bill and a similar ballot measure from the Americans for Prosperity Foundation would shift all new hires into a defined-contribution plan, comparable to 401(k) plans in the private sector. The plan would be financed by 8 percent of employee pay and an 8 percent match from PERA employers, primarily state government and school districts.
But the plan overall would remain under funded. To correct that, the two proposals would continue to require employers to contribute a total of 11 percent to 13 percent of employee pay. The difference would go to cover the shortfall in the older plan.
Separating new hires into their own plan and leaving them responsible for their returns offers the state and taxpayers more legal protection, said Barry Poulson of Americans for Prosperity.
It also will protect taxpayers should Colorado’s plan continue to decline. The plan has about 70 percent of the assets it needs to meet obligations to 370,000 members.
“The average Joe, when the smoke all clears, will be asked to pony more money to bail out a failed system,” Stengel said of PERA’s proposal. “This will eat our lunch.”
Both the ballot measure and Stengel’s bill create a framework that would allow future benefit cuts for current PERA members who aren’t retirees.
In 1988, the Colorado Supreme Court ruled that pension benefits could be changed when actuarially necessary, provided those changes would benefit the plan, Stengel said.
He said then-Attorney General Ken Salazar issued an opinion in 2004 that supported benefit changes when a public pension plan faced a fiscal crisis.
But PERA has resisted calls to declare such an emergency. It is confident that higher employer contribution rates and the creation of a two-tiered system can reverse the shortfall over time.
PERA spokeswoman Katie Kaufmanis said the 1988 court case involved a pay-as-you-go pension plan, which is much different from PERA, which has accumulated $35 billion in assets and could pay benefits for several years without taking in any more money.
PERA has another opinion from the attorney general’s office stating that it can’t reduce benefits, she added.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
