The state legislature’s plan to fix PERA, the public employees’ lavish pension fund, is no fix at all. It’s a short-term Band-Aid on the hull of the Titanic.
It insulates PERA beneficiaries from harsh economic realities and lets the taxpayers be damned. This is Colorado’s scale-model version of the looming federal Social Security bankruptcy.
This problem is not unique to our state. It’s a crisis affecting taxpayers across the nation in hock for trillions of dollars to similar public employee pension plans with benefits dwarfing those of the private sector.
If this plan “fixes” PERA, it does so in the way a prize fight might be fixed. The outcome was preordained. With only minor alterations, the legislature has adopted the recommendations of the PERA board. This wasn’t surprising. The PERA board serves the interests of PERA members, not the interests of taxpayers in general. And most state legislators are PERA members themselves, with majority Democrats heavily dependent on the votes of public employees and contributions from their unions. Talk about a conflict of interest.
PERA is a defined-benefit pension plan whose time has passed. The auto industry’s union-driven defined-benefit pension plans were a major contributor to its financial collapse. In the face of economic necessity, the private sector has been phasing them out for years in favor of far less generous defined-contribution plans. Somehow, government employees believe they should be immune to this same economic reality.
Private sector employers that even offer employee retirement plans (most don’t) typically contribute 2 to 3 percent of an employee’s pay to a 401 (k) plan, plus 6.2 percent for Social Security, for a total of about 9 percent. By comparison, under the legislature’s proposed fix, to maintain promised benefits, government employers — ultimately, Colorado taxpayers — will be required to contribute 20 percent or more of an employee’s pay to PERA. There’s just no money in the budget to do this.
The PERA board claims these retirement benefits are inviolable contractual and constitutional obligations that can never be reduced. Nonsense. That’s not even the case with Social Security. The U.S. Supreme Court ruled in 1960 that no one has a “contractual earned right” to Social Security benefits, and that the right to alter them resides with Congress.
My private-sector employer, squeezed by the economic downturn, has suspended its contributions to our employees’ 401 (k) plan. I didn’t like that, but I understood why. And there were no taxpayers to make up the difference.
The PERA proposal includes the fiction that its members will forgo a portion of future pay increases to make contributions to the retirement kitty. More nonsense. When they get a 3 percent raise, they’ll simply claim that it would have been a 5 percent raise absent this deal.
PERA projects a compounded annual return on its investment portfolio of 8 percent. This is unrealistic, wishful thinking. If the actual return is only 5 or 6 percent, or if the stock market tanks again, PERA’s house of cards collapses.
The legislature’s “fix” merely tinkers around the edges. PERA is an economic dinosaur that will collapse on Colorado taxpayers unless radical surgery is performed.
Here are some substantive remedies: File a declaration of fiscal emergency along the lines of a bankruptcy settlement. Immediately eliminate PERA’s defined-benefit plan for all new hires and future legislators, and substitute a 401(k) plan with employer contributions limited to no more than 10 percent of gross pay. Raise the PERA retirement age to 66 like Social Security’s and scale back benefits to where they were before the irresponsible 1997 increases. End the manipulation and abuse of “highest average salary” calculations. And bar PERA beneficiaries from the board and place it under taxpayer control.
If the legislature doesn’t act, put this on the 2010 ballot.
Mike Rosen’s radio show airs weekdays from 9 a.m. to noon on 850-KOA.
