The Public Employees Retirement Association, the state’s pension system, is in financial trouble.
It’s no mystery why PERA is in dire straits. As the financial meltdown of 2008 touched every sector of the economy, the impact on PERA was severe. The value of its holdings dropped by approximately $13 billion. Further, early retirements offered in the late 1990s and early 2000s were unsustainable in any but the most favorable of investment climates. The economic environment over the past year accelerated its path toward insolvency.
With its current funding and benefit level, the system will be unable to pay retired employees beyond 2031.
PERA represents one of Colorado’s most significant commitments to nearly 500,000 active and retired public employees. The state takes money from their paychecks, matches their contributions, invests their funds, and promises a pension upon retirement.
PERA’s current economic difficulties transcend partisan politics. That’s why we’ll work together, Democrats and Republicans, to put PERA on a stable financial path. We’ll assure those who are retired, those who are still working, and those who will come behind them a secure retirement system. This is a promise the state will honor.
We have an obligation to the taxpayers of Colorado to be wise managers of the financial affairs of the state. The burden required to repair the system must be shared equitably among all stakeholders. Achieving this balance is a task that would challenge Solomon, let alone our far more meager talents.
Any solution requires anticipating future economic conditions. Estimating any economic trend is a risky business in itself, over which no one has mastery. In this endeavor, however, we can be conservative or aggressive in predicting growth and the returns each approach provides.
We think the PERA board has made a responsible recommendation that will provide greater security to weather the financial turbulence we may encounter. Our proposal will largely follow their recommendations.
Unfortunately, changes to PERA will require more funding and fewer benefits.
As part of the solution, we propose the state add an additional 2 percent contribution with a reduced burden over the long term; employees contribute an increased 2 percent until the fund is 100 percent solvent; and retirees’ inflation protection be tied to CPI, capped at 2 percent for the next two years, then fixed at 2 percent until fully system is funded. The age of retirement will be raised for employees who have not yet vested. When the pension system is again secure, the surplus will return to stakeholders.
We’re pleased that PERA has made the first tentative steps toward stability with higher than average returns for 2009.
As PERA reforms move through the legislative process, we’re open to ideas that advance the goal of financial integrity, stability and equity in the system. We must proceed prudently, and we cannot delay reforms that are overdue.
Throughout this process, we will maintain a healthy, open and constructive dialogue with those who have vital interests at stake in the outcome. We’ll provide responsible leadership to secure the public retirement system.
Brandon C. Shaffer, D-Longmont, is president of the state Senate, and Josh Penry, R-Grand Junction, is state Senate minority leader.
