Innovative strategies for responding to changing
demographics and market conditions are keeping public retirement plans
sustainable, and Colorado PERA is a leading example, according to a new report
from the Center for State and Local
(SLGE) and AARP.
the recession in 2008, many retirement systems have struggled with changing
demographics and reduced expectations for their investment returns, resulting
in lower funded ratios for their pension plans. In many cases, making changes
to address these challenges and maintain plan stability required legislative
In response, some plans have created formulas that
give plans the flexibility to make adjustments to their benefits and/or
contributions to maintain long-term stability that do not require unpredictable
or time-consuming legislative changes.
notes that such formulas “enable all stakeholders to understand how, when, and
to what extent contributions or benefits might be subject to formula-based
changes, and as a result, enable them to plan for the long term.”
Legislation passed in 2018 included this type of
provision for PERA, called the automatic
adjustment. Every June, PERA reviews progress toward its funding
goal. If PERA is behind schedule, member and employer contributions will increase,
and the annual increase decreases. If PERA is ahead of schedule, the annual
increase will rise and contributions will decrease.
Prior to that legislation, making any changes to
PERA’s contributions or benefits required legislation. Over the previous 15
years, annual contribution deficiencies resulted in a funding
deficit of $4.6 billion.
The report highlighted PERA’s lengthy research and stakeholder
engagement process. The resulting legislation, Senate Bill 18-200
affected employers, employees and retirees. Together with adjustable
contributions and rate of annual increase, “PERA may be better able to meet its
fiduciary responsibility to ensure all members will receive their earned
pension benefit both in the short and long term.”
The report notes that while the economy has
stabilized since the 2008 recession and many public pension plans have
maintained or improved their funding rates, “relatively stable economic
conditions are not guaranteed to prevail.” However, these variable funding
structures may help pension plans in responding to shifting conditions.