On May 20, the Joint Budget Committee (JBC) moved forward draft legislation that would suspend the State’s $225 million direct distribution to PERA for one year. The direct distribution is not related to retiree benefit payments, including those made using direct deposit. (Learn more about what the direct distribution is here.)
The bill was introduced as the General Assembly reconvened on May 26. To become law, it needs approval from the House, Senate, and the Governor.
The State’s Budget Situation: A Recap
A few weeks ago, PERA On The Issues outlined the budget challenges Colorado’s legislature faces. Billions of dollars they had planned on receiving in tax revenue is now suddenly off the table as the economy slammed on its brakes.
The JBC, a six-person bipartisan committee made up of members of both the House of Representatives and the Senate, is charged with leading the State’s initial response.
PERA and the State Budget: Important Distinctions
PERA has a unique position in the state budgeting process. Retiree benefits, for example, are not paid via the state budget and are not affected by this bill. These payments are made from the investment funds PERA manages. Recent market volatility has affected investors around the world, including PERA. The Fund had $45 billion in assets at the end of 2018, however, and is designed to withstand the ups and down of the market.
In addition to investment returns, the Fund receives contributions from employees, employers, and the State. These various elements work together to maintain the health of the fund for the long term.
JBC Deliberation and Introduction in the House
On May 11, PERA Executive Director Ron Baker, Chief Investment Officer Amy McGarrity, and Board of Trustees’ Chairman Tim O’Brien presented to the JBC. They gave a brief presentation that outlined the costs of the proposals the JBC was considering and answered questions from committee members.
In the following days, the JBC decided to pursue one of the JBC staff proposals: withholding the direct distribution to PERA for one year. This $225 million payment was first implemented upon the passage of SB 18-200. It is scheduled to resume in 2021.
The bill was introduced in the House on May 26.
The Impact to PERA
The suspension of the direct distribution has a negative impact on reducing PERA’s unfunded liabilities. PERA projects that the long-term cost of suspending the direct distribution to be nearly $1 billion over the time frame to reach 100% funding in all divisions.
This does not mean that PERA is cutting a check for $1 billion today. Instead, that figure is calculated by determining what the value of that $225 million would be if PERA invested it and realized its assumed rate of return.
The PERA Board, as fiduciaries and pursuant to their funding policy, opposes reductions in contributions to PERA while PERA has unfunded liabilities. The Board has also acknowledged the unprecedented nature of the budget deficit.
PERA On The Issues will continue posting updates on this, and all PERA-related legislation, as it moves through the legislative process.
Editor’s note: This story was edited on 5/29 for clarity.