This year’s legislative session, like previous ones, has seen efforts to reorganize the Board of Trustees of the Public Employees’ Retirement Association of Colorado (PERA).
While PERA, like all investors large and small, has felt the impacts of our country’s economic challenges, it is misguided to blame the PERA Board for these problems.
The PERA Board of Trustees has 16 members:
*11 are elected by PERA members and retirees;
*Three are appointed by the governor and confirmed by the State Senate, and must have significant experience in relevant fields;
*One non-voting member is appointed by the Denver Public Schools Board;
*The State Treasurer automatically gets a seat.
Those who claim that Trustees who are members or retirees have a conflict of interest conveniently ignore the fact that only the Colorado General Assembly, not the PERA Board of Trustees, can change benefit or contribution levels.
Colorado PERA was the first public pension fund in the United States to respond to the economic downturn. During 2009, the Board of Trustees formulated a recommendation for the General Assembly’s consideration that would return PERA to long-term sustainability.
The Board’s recommendation largely became last year’s Senate Bill 1, a bi-partisan law that cut benefits and increased contributions.
Trustees acted to ensure the viability of the PERA trusts by cutting their own benefits. SB 1 is working, with projections showing that PERA is now on track to financial security.
Another false perception of the elected Trustees is that they lack the educational background and experience to serve on the Board. This is also not based in fact. The 11 Trustees who are members or retirees hold many advanced degrees including 10 master’s degrees. Two hold law degrees, one has a Ph.D. in public policy, and one Trustee is a C.P.A.
Academic research has shown that having more “beneficiary” board members correlates with higher investment returns. Boston University Law School Associate Professor David H. Webber’s research demonstrates that Trustees who are beneficiaries have “skin in the game” and are much more likely to focus exclusively on investment return including aggressively prosecuting securities fraud, in contrast to politician board members who have an inferior track record when it comes to generating investment return.
The PERA Board has only two core functions, physical delivery of the pension payments and investment of the assets of the PERA trust funds. The academic research is clear that the PERA Board configuration is the best structure for the functions being performed.
PERA’s critics often dismiss an important source of PERA’s funding – the investment markets – and decry the burden public pensions place on taxpayers. However, according to research by the Pacey Economics Group, over the quarter century ending in 2008, 21 percent of money in the PERA trust funds came from employees’ own contributions to their retirements, with 19 percent coming from public employers who are supported by taxpayers. The rest, 60 percent, of the money in the trust funds comes from investing these contributions.
The hard choices PERA recommended are now being recognized by others. As reported by Institutional Investor Magazine and republished on CNBC “over the past three years, most states have taken measures to shore up their defined benefit pension plans. A few, such as Colorado, Minnesota and South Dakota, have made the difficult choice of cutting benefits to current retirees.”
Colorado’s Senate Bill 1 contained “some of the nation’s most extensive public pension reforms,” according to the Pew Center on the States.
“Colorado is actually looked at as a model for a lot of other states for some of the changes you made last year to strengthen your funding,” noted Center for State and Local Government Excellence Executive Director Elizabeth Keller in a presentation to Colorado legislators a few weeks ago.
The bottom line is that PERA’s current Board composition did not prevent the Trustees from recommending the difficult action of sacrificing today for the long-term sustainability of the fund.
Carole Wright is a retired educator from the Aurora Public Schools and has served most recently on the PERA Board of Trustees since 2005. She was elected Board Chair in 2011. EDITOR’S NOTE: This is an online-only column and has not been edited.
