So far, the Colorado legislature has done nothing this session to plug what some experts fear may be a shortfall of $12.8 billion over the next 30 years in the state’s Public Employee Retirement Association finances.
But behind the scenes, experts are crafting an artful compromise known as the “3 percent solution.”
Sen. Dave Owen, R-Greeley, crafted the proposal to divert 1 percent of the pay increase granted state employees for each of the next three years to a fund to strengthen pensions for the 378,454 PERA members, a group that includes 71,088 retirees now receiving benefits. That increase, totaling 3 percent of employee pay after 2009, would parallel a similar 3 percent hike in matching employer contributions, from 10.15 percent of the employee salaries to 13.15 percent. Current law already requires that increase by 2012.
Employee organizations aren’t thrilled by the prospect of paying more into their pension plan.
But we prefer such a shared sacrifice to the “two-tier” plan proposed by the PERA board itself and embodied in Senate Bill 174 by Sen. Paula Sandoval, D-Denver. That proposal would cut future benefits for employees hired after Jan. 1, 2007, by 19 percent while leaving current employees unscathed.
There have been no hearings on either Sandoval’s bill or the Owen plan, SB 162. But key lawmakers, including Senate President Joan Fitz-Gerald, have been working hard behind the scenes. One possible approach involves spreading out the hike in employee contributions to 0.5 percent for 6 years – putting workers on the same 2012 timetable that employers face.
Such a compromise, coupled with a proposal to base pensions for new employees on the five highest years of their earnings rather than the three-year average used for current employees and a few smaller changes, seems more than adequate to ensure PERA’s stability. The plan already has $35 billion in assets. If it enjoys strong returns on those investments, it might be able to pay scheduled benefits for 30 years even if no reforms were made. Still, PERA managers rightly see it is prudent to strengthen the plan now, when relatively small changes will have dramatic impacts over the decades ahead.
Employee groups deserve praise for taking a constructive role in this debate instead of just viscerally opposing any changes. Their concerns should be rewarded in this legislative session with a long-lasting reform of PERA that is fair to employees and taxpayers alike.
