DENVER—Colorado is moving to become the first state to cut retiree benefits to prevent its pension system from going broke.
The state Senate voted 25-10 on Monday to back a proposal to overhaul the Public Employees Retirement Association, sending it on to the House.
Without any changes, the pension system, which covers 450,000 state workers, teachers and local government employees as well as lawmakers is on course to go broke within 20 years. The overhaul plan brokered by the top Democrat in the Senate, President Brandon Shaffer, and the top Republican, Minority Leader Josh Penry, is aimed at making it solvent within 30 years, largely by cutting benefits.
“The problem is so huge it could swamp the entire state,” Penry said of why he offered to work with Shaffer on a bipartisan fix.
The plan is also backed by Democratic Gov. Bill Ritter.
Under the proposal (Senate Bill 1), retirees would get no cost of living increase this year instead of the normal 3.5 percent increase, which would save PERA $80 million. Next year they would get the lesser of inflation or 2 percent and, after that, annual increases could be no higher than 2 percent.
Backers want to pass the bill before March, when PERA would have to issue its normal cost of living increases.
The retirement age for new employees would rise from 55 to 60, and contributions would increase for both employees and their government employers.
Ron Snell, director of state services at the National Conference of State Legislatures, said Colorado is the only state he’s aware of that is trying to cut retiree benefits to save its pension system. In recent states, he said at least four others have increased contribution rates to shore up their funds—New Mexico, Iowa, Nebraska and New Jersey.
PERA is suffering partly because of the recession. Its assets fell from $41.4 billion in December 2007 to $29.5 billion in July 2009 although PERA estimates that it will have a 15 percent rate of return when all its investments are counted from 2009.
Sen. Greg Brophy, one of just three Senate Republicans to vote with Penry on the plan, said that lawmakers are also to blame for previously increasing benefits, including several changes made when the economy was booming in the late 1990s.
All Senate Democrats voted for the PERA fix. Ten Republicans voted against it. Some wanted to prevent existing retirees from losing benefits. Others wanted to go further and allow more new employees to be offered a 401(k)-style defined contribution plan.
Brophy said the state has to come up with a way to pay workers who have already contributed into the pension system or face a $10 billion hit to the state budget.
“The D.C. plan is not only a deal breaker, it’s a budget breaker,” he said.
