The stars finally may be aligned for a test of whether Colorado’s courts will permit sensible reform of this state’s public pension system.
If they don’t, taxpayers could be in for a shellacking.
The Colorado Public Employees Retirement Association, in its own words, “can’t invest our way back to long-term sustainability” given market losses over the past year that have left it only 52 percent funded. The system will crash and burn even if it earns an utterly improbable 10 percent on its holdings over the next quarter-century.
Other options? Boost contributions from employers (aka taxpayers), hike contributions from workers, or reduce benefits.
In flush times, lawmakers and PERA would be partial to the first path: raiding government coffers. Trouble is, some jurisdictions (such as the state itself) are already under harrowing budgetary pressure. On top of that, their pension contributions are slated to rise over the next few years even if nothing is done.
Surely lawmakers will balk at mandating higher spending on pensions at the same time they are warning us that basic services are under assault. What a cockeyed message that would send.
Meanwhile, most PERA members enjoy (or will enjoy) a 3.5 percent annual cost-of-living adjustment in benefits, although actual inflation has exceeded that figure only once in the past decade. In fact, inflation during that period averaged nearly a full percentage point below the PERA formula.
I’ve been told that PERA could go a long way toward digging itself out of its hole if the cost-of-living adjustment were lowered to 2 to 2.5 percent — a still decent inflation shield. PERA retirement packages would remain more generous than what the vast majority of private workers enjoy even as most members shared in the modest sacrifice necessary to restore the system’s health.
By contrast, hiking employee contributions — the final major option — would limit the sacrifice to those still working.
Keep in mind that private employees are sacrificing, too. “Nearly a third of the pension plans offered by Fortune 1,000 firms are now frozen,” USA Today reported last week.
Ah, but would the courts go along with benefits reform?
According to an opinion by Ken Salazar when he was Colorado attorney general, perhaps not. “When a PERA member retires from active service and begins receiving a pension,” Salazar concluded in 2004, “the member’s pension becomes a vested contractual obligation of the pension program that is not subject to unilateral change of any type by the General Assembly.” More incredibly, “a reduction in future PERA benefit accruals” may also be out of bounds.
If so, Coloradans could be hostage for decades to the atrocious political judgment of the 1990s when PERA benefits were recklessly expanded.
If that’s the case, though, it’s high time we found out for sure — time for lawmakers to put PERA on a sustainable basis through desperately needed reform and see how the courts respond. Will judges really insist adjustments in benefits can only be raised, never relaxed?
Will they be utterly deaf to the real-world actuarial crisis?
Later this year, PERA’s board is scheduled to propose a legislative fix for its funding gap. In a break with the past, PERA officials are saying that everything — including benefits — will be on the table.
They had certainly better be. Because if the official proposal doesn’t rest mainly on benefit adjustments — and not only to the cost-of-living escalator — it will amount to a scandalous fraud.
E-mail Vincent Carroll at vcarroll@denverpost.com.
