Retirement insights from a Colorado PERA perspective

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Contributions to Colorado pensions lower than average

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As percentage of government spending, employer contributions to Colorado’s public pensions remain low.

Contributions to Colorado’s
public pensions from government employers remain low as a percentage of direct
general spending, according to information recently released from NASRA, the National Association of State Retirement
Administrators.

For Fiscal Year 2016,
contributions made by state and local governments to pension trust funds
accounted for 4.7 percent of all direct state and local government spending. In
Colorado, that percentage was lower: 3.6 percent of all direct state and local
government spending was pension contributions, NASRA found.

State and local government
spending on pensions varies widely among states, from 1.9 percent of spending
to nearly 10 percent. There are a number of reasons for this variation,
including levels of benefits, conservative assumed investment returns, and
historic underfunding, thus requiring governments to increase contributions if
they are making a good-faith effort to pay the necessary level of funding to
pay benefits.

Additionally, states like
Colorado that don’t participate in Social Security tend to have higher pension benefit
levels and, therefore, higher costs. If not for the pension plan, those
employers and employees would be contributing 12.4 percent of payroll to Social
Security.

Colorado’s 3.6 percent was
also lower than the median (half higher/half lower) of the 10 other non-Social
Security states and the District of Columbia, or 3.9 percent of direct
government funding, according to NASRA.

The research also found that,
since 1988, investment earnings have accounted for 62 percent of public pension
revenue. Employer contributions have made up another 26 percent, and employee
contributions the remaining 12 percent.

While employer and employee
contribution rates to Colorado PERA will increase
on July 1, 2019, as required by provisions of SB 200, the state will still
enjoy relatively low pension contributions as a fraction of government spending,
particularly considering that PERA is a replacement for Social Security.

Trust fundA fund in which money and/or other assets are held and managed by trustees on behalf of plan participants. PERA maintains trust funds for each of its Defined Benefit Plan divisions (State, Local Government, School, Denver Public Schools, and Judicial).

Comments

  1. Paul says:

    In light of Colorado’s comparatively low rate of contribution to Colorado pensions, perhaps PERA could recommend to the legislature that the state take on more responsibility for absorbing the pain (costs) attributable to future problems with the long term solvency of the fund. While this article celebrates Colorado’s comparatively low rate of contribution to pensions, Colorado PERA pensioners are getting hammered by cost of living increases in Colorado for apartments, housing, etc. Those increased costs of living exceed what pensioners in most other states are experiencing.

    All I ask of PERA is for it to make recommendations to the legislature that proactively support its pensioners abilities to keep up with the cost of living instead of continuing the PERA practice of recommending suspensions to annual increases (COLA) and recommending reductions to the cap on annual increases already capped at a level that will not allow pensioners to keep up with the cost of living.

  2. Barry Thorpe says:

    Here is PRECISELY why the “shared sacrifice “ of drastically reducing, then taking annual increase from fully vested retirees was disingenuous.
    Employers pay below average contribution, while retirees lost an earned benefit after meeting all criteria for having earned the conditions in place when retirement decisions were made. Retirees now bear a disproportionate share of the burden.

  3. Kathryn Williams says:

    Paul and Barry, you are absolutely right! Our decision to retire when we did was based upon the information we had at the time trusting that would be what we could count on. It just doesn’t seem right that they can take it away with no regard to how it affects us.

    • Barry Thorpe says:

      That’s correct. PERA could argue that they needed to make adjustments GOING FORWARD in order to be able to fund the liabilities. It is pretty radical to actually simply defund a contractual liability in order to ostensibly help fund a liability!
      Perhaps I will adjust my home budget so that, in order to pay all my bills, I will simply default on a bill.
      Try THAT at home…

  4. Erroll Giddings says:

    Is it possible for Colorado State employees to contribute to both PERA and Social Security? I understand many Colorado University employees contribute to both PERA and Social Security. Does Colorado University match these employee contributions to both PERA and Social Security?

    • Colorado PERA says:

      Mr. Giddings,

      Some PERA employers participate in both PERA and Social Security. There are some higher education employers that have established optional retirement plans (typically defined contribution plans like 401(k)s) and they may also contribute to Social Security.

  5. John Paton says:

    Well I will echo Mr. Giddings question with the same question IF you will answer it. Is it possible for Colorado State Employee’s to contribute to both PERA and Social Security. Since I am retired I am the “victim” of WEP and the Social Security Administration was not very nice to me when they determined my “earned” Social Security benefit amount reduction is based upon my pension from the state.Only saving grace was my military service which helped a little bit. Sure would make things a lot more equal after working all the years and qualifying for both a state pension and getting “docked” on my Social Security monies.

    • Colorado PERA says:

      Dear Mr. Paton,

      Allowing for PERA members (and their employers) to contribute to PERA and to Social Security would require the Colorado General Assembly to enact such a change and for employees and their employers to pay the additional amount in contributions. You may wish to review this article that compares the PERA benefit to Social Security: https://www.peraontheissues.com/index.php/2019/05/13/pera-and-social-security/

      Elimination or changes to the WEP calculation would require the US Congress to act.

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