CEA SUPPORTS SB 235

SB 235 meets our overall goals for PERA changes:

• It is not a two-tier plan.
• It does not expand the state’s DC plan.
• It does not give the Governor control over PERA.
• It puts PERA on a plan for financial solvency for the future.
• It helps us achieve our goal of retirement security for all PERA members.

MAJOR ELEMENTS OF SB 235 (approved by both Senate and House)

1. PERA Board of Trustees – 15 Trustees: State Treasurer, four (4) School Division, three (3) State Division, one (1) Local Government Division, one (1) Judicial Division, two (2) Retirees, three gubernatorial appointees with experience in investment management, banking, pension administration, etc. (Bill was changed in the House to 15 trustees.)

2. Employer Contribution – A couple of years ago, the Legislature decided to increase the Employer Contribution by 3% in small increments over six years, 2006-2012. SB 235 requires an additional 3% increase during the period of 2008-2013.

   The Employer Contribution increase is intended to reduce the unfunded liability of the Defined Benefit plan and bring the plan’s amortization period in line with a 30-year period, rather than the current 40-year period. These supplemental increases are temporary and unless the Legislature takes action in the future to change them, they will be completed in 2013.

   SB 235 says the State Division Employer Contribution increase will be paid for by diverting 0.5% of annual state employee salary increases into PERA. For the other PERA divisions, including School and Local Government, salaries are obviously determined differently; but the Legislature intends that the additional Employer Contribution come from funds designated for salaries. The reason the Legislature wrote SB 235 like this is to make it clear that the money is not coming from general tax revenue or Referendum C and thus it is not “a taxpayer funded PERA bail-out.” Rather, it is employees helping to ensure their retirement security by diverting some salary dollars into PERA.

   The proposed Employer Contribution increases would have been much larger were it not for CEA members and others in the Colorado Coalition for Retirement Security persuading legislators to make small, incremental changes in PERA – not radical reforms. Legislators were prepared to implement larger increases over just three years. Spreading the smaller increases over six years will ease the negative impact on salaries and school district budgets.

   Last winter CEA’s research revealed facts about states like Colorado where public employees are not covered by Social Security. The 13 non-Social Security states (12 states plus the District of Columbia) range from Alaska at the top with a 16% Employee contribution/8.65% Employee contribution to California at the bottom with 8.25% and 8%, respectively. Colorado ranks eighth among the 13 with a current contribution rate of 10.65% Employer/8% Employee in the School Division.

   The increase of 6% over eight years will take the Employer Contribution to 16.65%, leaving the Employee Contribution at 8% (the initial incremental increase began in 2006; the new one starts in 2008, is added to the initial increase, and goes through 2013).

3. Highest Average Salary Calculation - HAS calculations under SB 235 continue to be based on a member’s three highest salary years, rather than five years as proposed in other bills. Earlier provisions to include IRS 125 reductions (pre-tax contributions for medical or dependent care expenses) as PERA-includable salary were eliminated, preserving the value of such plans for members.

   For new PERA members hired on/after January 1, 2007, the current anti-spiking limit of 15% salary increases being included in a HAS year will be reduced to 8%. For all current PERA members who retire after January 1, 2009, the current 15% limit on salary increases in the second and third HAS years will now apply to the first HAS year as well.

4. Benefit Accrual Rates - All PERA members will continue to accrue benefits at 2.5% of HAS for each year of service. There is no two-tiered benefit plan in SB 235.

5. Retirement Age - There is no change to retirement age requirements for current members. New PERA members hired on/after January 1, 2007, who retire at any age from 55 to 64 will have to meet a Rule of 85, rather than the Rule of 80, to qualify for an unreduced retirement benefit. That is, their age and years of service at the time of retirement must equal 85 or higher. They may still retire without meeting the Rule of 85, but with a reduced benefit.

6. Retiree Cost of Living Adjustments (COLAs) - The rules for current members receiving COLAs after retirement are unchanged. New PERA members hired on/after January 1, 2007, will receive COLAs under a new provision that establishes a separate COLA reserve account funded with a set-aside of 1% of Employer Contributions for these yet-to-be-hired members. Future COLAs for these members will be paid from the reserve account on an annual basis at the same rate as required under 2004 legislation: the lesser of 3% or the state Consumer Price Index (CPI) increase.

   This bill contains two other limitations on future COLA payments to these new members. The maximum expenditure from the COLA reserve fund in any one year cannot exceed 10% of the fund. Any members who retire early and take a reduced retirement benefit will not be eligible for a COLA increase until they reach age 60 or meet the Rule of 85. This second limitation does not affect anyone receiving an unreduced retirement benefit, or a survivor or disability benefit.

7. PERACare Retiree Health Care Premium Subsidies - Unlike earlier legislative proposals, SB 235 makes no changes to current PERACare subsidies.