Governor Bill Ritter signed SB 1 into law on February 23. The bipartisan legislative effort behind SB 1 will improve PERA's sustainability for about 400,000 public employees and retirees in Colorado. The law, sponsored by Sens. Brandon Shaffer and Josh Penry, will keep PERA from becoming insolvent, unable to pay benefits in the future (for approximately 30 years). PERA has a new chart that shows how the Legislature's changes affect active and retired members of PERA.

On February 26, two PERA retirees filed a lawsuit in Denver District Court, charging that the new law is unconstitutional because it impairs retirees' contractual rights to get pension benefits at the levels promised them when they became eligible to retire or when they retired.

SB 1 History

The Senate Education Committee amended the bill January 26 and the amendments, which CEA and the Colorado Coalition for Retirement Security support, stayed in the bill in the full Senate. CEA changed its Oppose position to Support following the Senate Education Committee's action.

One Senate amendment changed the original Retiree COLA language to provide that PERA retirees would get no cost-of-living increase in 2010 and a two percent COLA in 2011 and beyond.

A second key amendment creates a Rule of 88 for future school employees hired after January 1, 2011 (School and DPS Divisions): the minimum retirement would be age 58 with 30 years service. Beginning in 2017, PERA members in all the other divisions would have a Rule of 90: age 60 with 30 years service.

CEA supports this amendment because raising the minimum retirement age in school districts forces employees to work longer and costs district money as it limits their ability to replace retiring employees at the top of the salary schedule with new employees who make less.

The third important amendment would increase the employer share of PERA by two percent in coming years (called an "AED"). It would also bump up the employee share, called an "SAED," by districts having to set aside 2.5 percent more for a larger employee contribution to PERA.

PERA has published a chart that shows its original proposal, SB 1 as introduced, and SB 1 as amended.

There is now a fiscal note and amended version of Senate Bill 1 on the Senate's web site. (The PERA Chart noted above is much easier to use.)

More about The Colorado Coalition for Retirement Security and Background on the Issue

CEA joined the Colorado Coalition for Retirement Security in 2006 to find ways to shore up PERA's long term health and protect PERA from the Legislature and Gov. Bill Owens who wanted to change the defined benefit plan into a defined contribution plan. Today the coalition is working to find solutions that will keep PERA secure following the late 2009 market crash.

The coalition, representing more than 200,000 PERA members, has one goal: protect the investments of all PERA members and secure their retirement for the future.

Recognizing that changes are needed to preserve the plan so it does not run out of money and cease paying benefits altogether, we agree with the PERA Board of Trustees that any change should be based on these principles: We must all share responsibility. There must be intergenerational equity. The plan must remain a defined benefit plan and be sustainable. The benefit structure must be maintained across all PERA divisions.

But we differ somewhat with PERA on how to fix the current funding problem. We believe we should reinvest in the fund and stabilize it, but not at the expense of significantly reducing retirement security. More than 400 government and public agencies in Colorado rely on PERA for their employees' retirement benefits. These employees do not earn Social Security benefits for their public service and, in many cases, they rely solely on PERA for retirement income.

During the last legislative session, the Legislature charged the PERA Board with developing a plan to restore the fund's solvency. This past October, the board approved its plan for stabilizing the fund, calling it the "2/2/2 PLUS" plan and including a two percent increase in both employer and employee contributions and a reduction in the retiree cost-of-living factor (COLA) to the lesser of the CPI-W index or two percent.The PERA Board put several benefit reductions and changes in its package. Meredith Williams, PERA executive director, recently stated that the new plan would make members "work longer, pay more, and receive less." Read PERA's outline of its proposal.

Our Coalition Position

After months of listening and researching, our coalition has decided to support a modified 2/2/2 PLUS plan. After reviewing recent PERA information, a majority of the member organizations has reached agreement on a proposal we believe is fiscally sound and represents a shared responsibility among employees, employers, and retirees:

1. A two percent contribution increase for employees and employers, provided that the double increase in 2013 can be worked out for school division employers (there is already an extra contribution by school districts that year) -- We know this will be a large burden for employers and employees on top of sacrifices made in 2006. This extra contribution may be in addition to increased health care costs and possible reductions in employee take-home pay.

2. No COLA in the first year and a two percent COLA annually after that - Coalition members have reviewed PERA's modeling that shows that we must reduce the COLA if the fund is to survive. COLA dollars are compounded annually and make a huge difference in the plan's solvency.

3. "Guardrails" at 90 percent and 103 percent, meaning that the 2/2/2 changes would ratchet down a quarter of one percent a year when the fund reaches 103 percent funding and ratchet back up that same amount each year when the fund drops below 90 percent funding. When the fund as a whole reaches 103 percent funded, the COLA cap would increase one quarter of one percent each year.

4. A legislative review of these changes every five years - We want lawmakers to review the two percent COLA cap and compare it to inflation and the CPI-W, and review the status of the fund to make sure we have not "over-corrected" for current problems, especially if market returns are greater than the projected eight percent/year. This review is necessary to ensure we do not over-burden retirees, employees, and employers.

5. There are two major pieces of the "PLUS" proposal that do not, in our opinion, have a big financial impact on the fund's solvency, but have a big impact on employees: HAS and "rule of" calculations.

When you retire, your benefit is determined by your highest average salary (HAS) over three years. We believe a three-year index is appropriate. But to protect against salary spiking or big one-year increases in salary immediately prior to retirement, we support lowering the spiking cap to eight percent in line with the cap for employees hired after January 1, 2007.

"Rule of" calculations help determine when you will be eligible to retire with a full benefit. Members hired prior to July 1, 2005 have a Rule of 80: to retire with a full benefit, your age and years of service must total 80 and you must be at least 50 years old. Members hired between July 1, 2005 and July 1, 2007 must be at least 55. Members hired after January 1, 2007 have a rule of 85 (age and years of service must total at least 85 and you must be 55).

Several plans are being discussed about modifying this "rule of" calculation for non-vested employees and newly hired employees. Our coalition is still evaluating these proposals, but has established guiding principles to use when assessing any change to retirement eligibility:

- It is a fairness issue. An employee who works at the same job as his co-worker, but was hired one day later (July 1, 2005 instead of June 30, 2005), could have to work an additional five years longer than his co-worker before being able to retire with a full benefit if PERA links retirement rules to the year you began the job. Doing so is unfair and creates dissension in the workplace.

- An employee who is made to stay in the retirement system longer before she can retire costs employers more money and ties up positions that could be offered to younger employees just entering the workforce.During tough budgetary times, many retirement systems lower the requirement for retirement in order to create substantial budget savings.

More about our position

The coalition has taken positions on the remaining "PLUS" items in the PERA Board's proposal, though these are more technical:

1. Changes dealing with employees - We support an employee having to become vested (five years in the system) before he can receive the 50 percent match when withdrawing his money from PERA.

2. Changes dealing with retirement - We do not support a change to the COLA start date. The current system works fine: a retiree gets a partial COLA based on the number of months retired for the initial post-retirement COLA adjustment. We do not support the post-January 2007 provisions that deal with retirement effective dates and benefit indexing expanded to those hired before that date.

We support modifying the early retirement benefits to be actuarially sound. This means you would receive the same dollar amount in your benefit if you retire early; it would be spread over more years and result in a smaller monthly benefit.

We support the idea that retirees who return to work pay the employee contribution. We support a new benefit for those who suspend their retirement, instead of recalculating their original benefit.

Now what?

In the coming weeks, our coalition will continue to work with Governor Ritter, legislative leadership, and the PERA Board of Trustees to find a solution that we can all support. We believe it will be similar to our coalition's current position -- and we know it must ensure both PERA's security and our members' retirement.

Background
According to PERA, "even in light of the recent upturn in the markets, projections show that PERA cannot invest its way out of the situation created by the worst economic downturn since the 1930s. PERA's investments would have to earn nearly 60 percent in 2009 to return PERA to pre-recession funded levels." State lawmakers passed a bill in 2009 requiring the PERA Board to "submit specific, comprehensive recommendations to the General Assembly regarding possible methods to respond to the decrease in (PERA's) assets…and to ensure that each division of the (PERA) will become and remain fully funded."

PERA Board members conducted eight regional meetings in August to get member, retiree, and public input into a legislative proposal. The August 11 meeting was recorded as a webcast which you can view online at the PERA web site. PERA also conducted a survey, asking active and retiree members to weigh in on dozens of options. The meetings and the survery garnered trhe attention of thousands of PERA members statewide.

In the fall, PERA held a series of Shareholder meetings. If you could not attend one of those meetings, you can view a video on PERA's web site about them.

Our Coalition
CEA and other employee groups are working together in the Colorado Coalition for Retirement Security, the coalition that successfully coordinated the 2006 fight at the Legislature to protect PERA. CEA is a leader in the coalition, partnering with the AFT (American Federation of Teachers); CASE (Colorado Association of School Executives); retiree groups such as CSPERA (Colorado School & Public Employee Retirement Association) and Friends of PERA; and public sector labor unions including AFSCME (American Federation of State, County and Municipal Employees) and SEIU (Service Employees International Union).

The coalition, backed by the National Public Pension Coalition, will ensure that PERA members' voices are heard before the legislative session begins January 13 and throughout the session as legislators debate the bill.

PERA's Proposal
The PERA Board's proposal is outlined at the PERA web site, where there is a chart detailing the effects of proposed 2010 legislation on the groups within PERA's membership. To see how you could be impacted by PERA's proposed changes, review the chart.

Who's on the PERA Board? CEA has supported all the board members in the School Division and Carole Wright in the Retired Division.