PERA

Status of Current Legislative and Ballot Issue Proposals

SB 235 -- Sponsored by Senator Paula Sandoval (D-Denver) and Rep. Rosemary Marshall (D-Denver) - Passed by the Senate, currently in the House - CEA Supports

  • SB 235 is a Defined Benefit Plan; it does not expand the DC option beyond state employees.
  • The PERA Board of Trustees is expanded only by five members appointed by the Governor. All the current elected positions are retained.
  • Current Employee contributions are not increased. Benefits for current retirees are not changed.
  • A Supplemental Employer Contribution is added to the Employer Contribution increase already planned. Beginning in July 2008, an additional .5% per year per employee will go into the fund. For State employees, this money will come from the scheduled salary increase granted by the Legislature. For other employees, including School employees, this money will come from school district's contributions to salary. The combination of the initial increase and the new, supplemental increase is 6% over eight years (2006-2013).

    • The Senate State Affairs Committee passed SB 235 on a 4-1 vote: Sens. Tupa, Groff, Fitz-Gerald, and Windels supported; Sen. Ron May opposed; Sens. Johnson and Lamborn absent/excused.

    The Senate passed the bill on a 20-14 vote. All the Senate Democrats except Dan Grossman (Denver) voted for the bill along with three Republicans: Sens. Lewis Entz, Ken Kester, and Kiki Traylor. The rest of the Republicans voted No and Sen. Jim Dyer was absent/excused.

    The bill will be heard in the House Finance Committee on May 2. Rep. Rosemary Marshall (D-Denver) is the main House sponsor.

    Read SB 235

    SB 162 -- Sponsored by Senator David Owen (R-Greeley) - CEA Opposed; DEFEATED APRIL 26 IN SENATE STATE AFFAIRS COMMITTEE

    PERA Board

  • Terminates the current Board of Trustees and creates a new board as of January 1, 2007, composed of the State Auditor, State Treasurer, five elected PERA member trustees (one each from State, School, Municipal, Judicial Divisions and one from retired members), and four gubernatorial appointees with expertise in investment management; pays these four to serve on the board;
  • Terminates trustees if PERA is actuarially unsound for three consecutive years and allows for the election/appointment of a new board;

    Actuarial Requirements

  • Changes the maximum amortization period from 40 to 30 years effective June 2006;
  • Requires that an “actuarial necessity” shall exist for PERA when the Defined Benefit plan administered by PERA is not actuarially sound; if this occurs, allows the Legislature to modify the amount of (active) member and employer contributions;
  • Requires Legislative Council, if requested by the Legislature, to contract with a private person/ firm to conduct an actuarial analysis of PERA to determine whether increasing members' and retirees' benefits would cause PERA to become actuarially unsound;

    Retirement Benefits

  • Modifies benefits for employees hired on/after January 1, 2007 by basing their HAS on five periods of 12 consecutive months of service credit;
  • Directs PERA Board to present a proposal to the Legislature to reduce future benefits for members hired on/after January 1, 2007, if member contributions and employer contributions have increased a total of 3%, respectively, and PERA’s liabilities for such members are not over 90% funded;
  • Specifies that for members with fewer than 35 years of service credit, retirement may occur when the member’s age and years of service equal 85 as long as the member is at least 60;
  • Specifies that the monthly benefit shall be calculated by multiplying the member’s HAS by 2.1% times each year and a fraction of the year of service credit the member earned; modifies the formula for calculating a reduced service benefit to decrease the amount of such benefit;
  • Allows an annual cost-of-living increase in a retiree’s benefit only if PERA is actuarially over-funded and if two-thirds of the PERA Board votes for the increase;
  • Restricts the permissible annual increase in salary for each year that is included in HAS for members whose benefits become effective after January 2009;
  • Includes members’ pretax contributions to Section 125 plans in the definition of salary;
  • Increases the retirement age for members hired before January 1, 2007, and who are less than 40 years of age when this new law takes effect;

    Contributions to the Fund

  • Makes the member contribution (regardless of division) 7% of salary; requires that if the Legislature increases the employer contribution rate to make PERA more actuarially sound, the Legislature must also increase the member contribution rate by double the increase in the employer rate;
  • Specifies that any increase in member and employer contributions and any reduction in benefits shall be in effect until the actuarial value of assets of the members hired after January 1, 2007 equals or exceeds 100% of PERA’s liabilities for such members;
  • For members hired before January 2007 requires that an amount equal to 1% of each member’s salary be deducted from each employee’s salary increase and transferred to PERA as a supplemental member contribution for FYs 2007-07 through 2009-10;
  • Codifies service credit policy as the actuarial cost of providing the future benefit resulting from the purchase and determines the actuarial cost by the member’s age at the time of purchase and his/her PERA division;

    Defined Contribution

  • Expands the option to participate in a Defined Contribution plan administered by the State Deferred Compensation Committee to any employee who is a member of PERA;
  • States that a member who joins the DC plan and then switches to the DB plan shall have the option to get service credit for the total number of years/months he/she was in the DC plan or to purchase service credit for this period of time with the value of the member’s DC plan;
  • Allows the State Deferred Compensation Committee, in administering the DC plan, to select one or more private vendors to provide optional disability and survivor benefits

    This bill is assigned to the Senate State, Veterans and Military Affairs Committee.

    Read SB 162

    SB 174 (PERA Board of Trustees' Proposal) -- Sponsored by Senator Paula Sandoval (D-Denver) - CEA Opposed, DEFEATED APRIL 26 IN SENATE STATE AFFAIRS COMMITTEE

    This is the PERA Board of Trustees' proposed legislation. It is an expansion of the limited two-tier system for school employees that the Legislature approved in 2004. It would affect employees hired after January 1, 2007, and 2.1% of HAS for each year of service instead of 2.5%; a five-year Highest Average Salary (HAS) formula instead of the current three years; no guaranteed COLA increase in benefits; a 7% employee contribution rate instead of the current 8%; employer and employee contribution rates that rise and fall in tandem depending on funding instead of adjusting only the employer contribution as is done now.

    PERA also proposes to accelerate the increases in the employer contribution. This is already being done by current law, but PERA wants to get to a 14.05% employer contribution by 2013 because the School Division is underfunded to a higher degree than the rest of PERA.

    The PERA proposal does not affect current retirees. But it does affect current active employees by limiting "spiking" of HAS by putting all Section 125 deductions into salary subject to PERA contributions. For members under age 45 on January 1, 2007, the proposal limits the subsidy PERA pays toward PERACare health insurance premiums.

    This bill is assigned to the Senate State, Veterans and Military Affairs Committee.

    Read SB 174

    Proposed November 2006 Ballot Initiative -- Initiative #106 - CEA OPPOSES

    The proponents introduced Initiative #81 in February. Then they substituted #93 for their original proposal and it was titled April 5. The proponents then submitted initiative #106 with one change from the previous versions– changing PERA from an administrative body subject to administrative direction from the State Office of Planning & Budget to a special purpose authority with oversight by the State Office of Planning & Budget. This oversight would include, but not be limited to, requiring an annual report to the Legislature and Governor on PERA’s performance and how it is implementing the changes outlined in the initiative, and an annual presentation of the PERA budget to the Legislature’s Joint Budget Committee.

    All versions of the PERA initiative are authored by CU professor Barry Poulson and backed by the Independence Institute. Poulson served on State Treasurer Mark Hillman's PERA Commission and thought the commission's criticisms of PERA fell short. So the Independence Institute and Poulson are proposing a November 2006 ballot issue that would define the conditions under which benefits for current PERA members could be cut; abolish the PERA Board and turn the pension plan over to the State Office of Budget and Management; and put all new employees into a DC plan. The ballot proposal is also backed by an anti-pension organization, Fix PERA.

    The actual language of the Ballot Proposal

    Our Summary of the Proposal:

    The initiative proposes changes in state law, not a change in the state constitution. It would take effect January 1, 2007, if the voters approve it. The initiative would:

    • Abolish the current PERA Board of Trustees and reconstitute it with nine trustees: State Treasurer; State Auditor; three people appointed by the Governor (an actuary, a CPA, and an attorney with experience in pension plans); and four trustees elected by employees (two from the Defined Benefit plan and two from the Defined Contribution plan) - The Governor could replace any trustee with notice. The trustees would be responsible for determining PERA’s investment objectives and policies. The Attorney General would be the advisor to the trustees and could not give anyone else this job.

    • Abolish PERA’s independence and put it under the administrative oversight of the State Office of Planning & Budgeting (the initiative does not speak to what happens to current employees of PERA), requiring at a minimum reports to the Legislature, Governor, and Joint Budget Committee

    • Change the amortization period from 40 to 30 years -- The trustees would be required to give the Legislature an assessment of PERA and recommendations for change within 120 days from the time the new law takes effect. The trustees would be required to contract for an independent audit every two years in addition to an audit by the State Auditor every two years. The Legislature would have to an actuarial study before it increases benefits for current employees or retirees. The Legislature can require a private actuarial study of PERA (assumably at any time).

    • Keep the Defined Benefit Plan, but the Legislature can change the ER contribution and the EE contribution and all benefits when the DB plan is not actuarially sound. Employees hired before January 2007 who are under age 40 and not vested will have higher age and service requirements to be eligible for retirement. EE contributions in this plan will be increased by 0.5% of salary every year until the EE contribution equals the ER contribution (current ER contribution is 10.65%, current EE contribution is 8% in the School Division). The measure repeals the repurchase of forfeited service credit.

    • Abolish the current Defined Contribution Plan for State Division employees; create a new DC plan; force all new employees after January 2007 into this plan; allow DB plan employees to move into DC plan (irrevocable decision); require an ER contribution of 8% to DC plan members.

    • Use the difference in dollars between the ER contribution in the DC plan and the ER contribution in the DB plan to pay off the DB plan’s unfunded liabilities; when these liabilities are eliminated and the DB plan is fully funded at 100% over 30 years, the ER contribution for the DB plan will be lowered.

    DEFEATED - HB 1083 -- Sponsored by Representative Joe Stengel (R-Littleton), CEA Opposed

  • Gives direct oversight of PERA to the State Treasurer;
  • Abolishes the PERA Board of Trustees;
  • Creates a new board composed of the State Auditor, State Treasurer, and seven gubernatorial appointees with credentials in investment management;
  • Keeps the current Defined Benefit (DB) plan;
  • Eliminates the current state employee-only defined contribution (DC) plan and creates a new DC plan that would cover every new hire (new employees could not choose to be in the current DB plan).

    The House Business Affairs & Labor Committee killed the first of three PERA Privatization bills on February 8. HB 1083 died on an 11-2 vote.

    Voting to kill the bill were Reps. Rosemary Marshall (D-Denver), Mike Cerbo (D-Denver), David Balmer (R-Centennial), Alice Borodkin (D-Denver), Dorothy Butcher (D-Pueblo), Morgan Carroll (D-Aurora), Fran Coleman (D-Denver), Bob McCluskey (R-Ft. Collins), Angie Paccione (D-Ft. Collins), and Josh Penry (R-Grand Junction). Voting to keep the bill alive were Reps. Larry Liston (R-Colorado Springs) and Jim Welker (R-Loveland).