Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Fordham Institute Gets it Wrong

Fordham Institute
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The Thomas B. Fordham Institute recently issued a report critical of many teacher retirement plans across the country. (The Fordham Institute, with offices in Ohio and Washington D.C., is an education reform policy think tank and should not be confused with Fordham University in New York.) You may have seen this report’s conclusions reported on as fact lately in the New York Times, and education reform-oriented bloggers have echoed the report’s findings.

The report gets a number of facts wrong when it comes to understanding how Colorado PERA works, and indicates that a Jeffco teacher would need to remain in the PERA system for 21 years to receive ANY return on retirement contributions.

But in fact, any teacher (or PERA member) leaving PERA-covered employment is eligible for:

  • a refund/rollover of their contributions plus interest at any point; or
  • a 50 percent on match on contributions plus interest after earning five years of service credit;* or
  • a 100 percent match on contributions plus interest or a lifetime monthly benefit once retirement eligible.

For PERA members, benefits paid out always exceed contributions put in, regardless of vesting status or years of service.

Public school teachers in Colorado PERA – including Jeffco teachers – participate in a hybrid defined benefit retirement plan, meaning that their plan includes features of both a traditional pension-type retirement plan and a 401(k) style plan. (We’ve written before about some advantages of hybrid defined benefit plans on PERA on the Issues.) One of these features is the option for any member to refund or rollover their contributions at any point after leaving PERA – whether that’s after one day of work or 10,000.

Members who have five years or more of service credit and choose to refund or rollover their account also receive a 50 percent match on their contributions plus interest. Members who are retirement eligible and choose to refund or rollover their accounts receive a 100 percent match on their contributions plus interest. And all members who leave PERA-covered employment but choose not to refund or rollover their contributions become eligible for a monthly PERA benefit at age 65.

A study commissioned by the Colorado General Assembly in 2015 showed that the PERA hybrid plan provides the most income replacement at retirement at the lowest cost compared to other types of retirement plans in use today, including 401(k)-type defined contribution plans. The study concluded that regardless of age or length of service, no plan “provides a more effective level of benefits than the PERA Hybrid plan.” (Read more about the independent Gabriel, Roeder, Smith & Company report on PERA on the Issues.)

*Refund and rollover provisions are somewhat different for DPS Division members who began membership prior to January 1, 2010. For details, see the Refund/Rollover Request: Terminating PERA-Covered Employment brochure.

Comments

  1. Letter to the Editor:
    This letter is meant to clarify the inaccurate interpretation above by Colorado PERA of Thomas B. Fordham’s report, (No) Money in the Bank: Which Retirement Systems Penalize New Teachers of which we are the author and publisher. The PERA blog authors in their post are unfortunately confusing a “refund” and a “return” on one’s investment. The purpose of our report was to estimate the point when teachers could leave a system with future pension payments worth more than what they put in. That is, it compares the value of the pension benefit at a point in time with the value of one’s own cumulative contributions. That is different than comparing a refund benefit with contributions.

    We acknowledge that Colorado’s plan is different than most plans with respect to refund benefits – the 50 percent match for teachers who leave before reaching retirement eligibility is a desirable feature lacking in most state plans. Colorado is one of the few states that credit any portion of the employer’s contributions to the teacher’s refund when she/he cashes out. Not including this fact was an unintentional omission.

    That said, its omission does not impact at all the findings for Jefferson County or the broader analysis and conclusions of the report. The fact remains that a new teacher in Jefferson Country must wait twenty-one years to reach the point where her lifetime expected pension wealth is finally worth more than the total of what she’s contributed to the system.

    Finally, another point merits clarification. It is unclear why the PERA blog post characterizes Colorado’s pension plan as a “hybrid.” The PERA site here https://www.copera.org/members clearly defines the plan as a “traditional pension plan”, with “options for additional financial security, by enrolling in our life insurance and PERAPlus 401(k).” Having the option to also enroll in a 401(k) account is not the same as having a hybrid, which typically includes a defined contribution component.

    Sincerely,
    Martin Lueken
    Director of Fiscal Policy and Analysis at EdChoice (formerly the Friedman Foundation for Educational Choice) and author of (No) Money in the Bank

    Amber M. Northern
    Senior Vice-President for Research
    Thomas B. Fordham Institute

  2. G M Santo says:

    Neither The Fordham Institute Or PERA Get It!

    Surely most PERA covered career civil servants can neither resolve the paltry pay and benefits of part-time teachers, nor sympathize with the intentions behind the report issued by the Thomas B. Fordham Institute (a described conservative leaning educational reform think tank). The reason for low teacher compensation is sadly financial, as it often the case, but the Fordham Institute’s criticism is probably merely political and misses the point, i.e., that a defined benefit (DB) plan is always more desirable than a defined contribution (DC) plan, despite the right wing mantra that individual investing and private financial advisers are better.

    Unfortunately, the Fordham Institute is correct that PERA really doesn’t know the difference between, “… a ‘refund’ and a ‘return’ on one’s investment.” Which is not very reassuring; along with PERA’s divided loyalty to DB plans, for future workers; much more disturbing is PERA’s failure to even honor the promises made to existing retirees (yes, many of us remember the 2010 legislation that lowered future DB benefits and eliminated a single prescribed COLA)!

    In closing, I don’t want a response from the PERA Blog editors, even IF they post my comments, because they really need to concentrate on more important matters than using this website as a public relations platform.

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