The State of Colorado announced last week that all state employees who make more than $50,000 annually will face furlough days on a graduated scale—the higher the salary, the more furlough days they must take.
“Colorado is facing one of the most challenging economic crises in our history, and public agencies are facing difficult budget constraints,” Governor Jared Polis said in a press release. “Just as the private sector is tightening its belt, so too must the government.
That announcement, which affects more than 30,000 employees, only applies to state employees. But thousands of other public employees also face furlough days—school workers, local employees, and more.
Some PERA members have asked, “will furlough days affect my PERA benefit?”
Furlough days can affect a PERA member’s highest average salary and service credit. But for many members, this won’t be the case. Read on to learn more.
The Furlough Effect on PERA Highest Average Salary
PERA members build a retirement benefit based on their highest average salary (HAS). For most members, this amount is the average of their top three years of earnings. (Some members use a five-year HAS and others have a one-year HAS.)
A furlough day reduces an employee’s salary for that pay period. Because PERA contributions are a percentage of pay, a member on furlough would send a smaller sum to their PERA account that during pay period.
As a result, a member who checks their PERA account online in the month in which they were furloughed will see a lower salary recorded than they had in previous months.
Should PERA Members be Concerned?
Despite a lower salary in the month of the furlough day(s), most members won’t see an effect on their retirement benefit. Why? The HAS uses a member’s highest one, three, or five years of earnings. All other years of earnings do not come into play.
Members who expect to continue working for a number of years beyond 2020 still have those highest-earning years ahead of them. Any furlough-related salary reductions this year won’t end up as part of their final HAS.
Members who are in their highest years of earning, however, would see an impact. The size of the impact depends on the number of furlough days they face.
Furloughs and Service Credit
Although furloughs result in fewer work hours in a month, PERA service credit is not based on hours worked. Instead, it is a measure of contributions.
If a member makes PERA contributions on at least $580 of earnings in one month, they receive one month of service credit, regardless of how many days or hours they spent working. So, if a PERA member is on furlough for any number of days in one month but still earns and makes PERA contributions on at least $580, then he or she will still receive a full month of PERA service credit.
It’s possible that some PERA members who work part time earn just above $580 each month. In these cases, a furlough day could drop their paycheck below $580. They will still receive service credit—it will just be prorated. For example, if they earned $500 in a month, they would receive 0.862 months of service credit (500 divided by 580).
In other words furloughs won’t affect service credit, even for those in their final years of employment, unless monthly earnings are less than $580.