Retirement insights from a Colorado PERA perspective

Issues & Perspectives

How Furloughs Impact PERA Benefits

Photo credit: George-Doyle-Stockbyte-Thinkstock

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.

Comments

  1. David Balint says:

    Can I contribute to my account to get my account up to snuff. I have 29+ years in service! I know it is not much but it would help over the long term

  2. Ryan Christy, CFA says:

    Are Colorado PERA (the entity) employees impacted by furlough days? The CIO, executive director, etc?

    • PERA On The Issues says:

      The furlough days instituted by Governor Polis only affect State employees. PERA members who work for non-State employers (schools, local governments, PERA employees, etc.) are not affected by this order.

      • Ryan Christy, CFA says:

        Can he expand the order to Colorado PERA (the entity)? From the people I’ve spoken to, I hear PERA (the entity) employees are just sitting at home anyways. Is it time for them to help their own ship? This is a $30bln and growing issue. Let’s put a plug in it.

  3. Ryan Christy, CFA says:

    How does this impact the funded status of the plan? That’s what new teachers need to know.

  4. David S Prok says:

    How do increased furloughs or a decrease in earnings affect retirees on a fixed income from Pera. Also, if less income is received into Pera (strikes, economy shut-downs, disasters, etc.) over time, doesn’t that effect retirees?

  5. Deb McKee says:

    I believe everyone who is working in a PERA facility should share in the temporary (hopefully) reduction in paychecks – it should not fall on only a segment of workers. Administrators, judges, fire and police – everyone contributing to PERA should share in this equitably.

  6. Gerald Reece says:

    Will this affect retirees?

  7. Heidi Chambers says:

    Will this affect retiree’s monthly benefits?

  8. Christopher Richards says:

    Why not all PERA employees? Is it correct to assume that the PERA board members are not state employees? If so, why are they not? The “above 50k” sliding scale part seems fair enough, but the “state employee only” part reeks of politics and self-servitude. Why not set an example and stand in solidarity with the state employees via including the PERA board members?

    • PERA On The Issues says:

      Hi Christopher,

      PERA provides benefits for more than 500 employers throughout Colorado. Not all of these employers are part of state government. For example, PERA employers include schools, cities, libraries, sanitation districts, local governments, and other entities that fall outside of state employment. The furlough order only affects the entities that Governor Polis is in charge of–state agencies. Other entities might also receive furlough orders, but that decision would come from the executive or group that controls those types of employment decisions.

      In other words, while the decision to order furloughs can affect the PERA members who work for the state, it was not an order about PERA members as a whole.

      • Ryan Christy, CFA says:

        If the Board, or those in charge have enough power to give unprecedented raises to the Colorado PERA entity, while cutting benefits and asking more from members, I think they have the power to do the right thing, too!

        Their power has extended too far.

        Someone needs to take responsibility. Someone needs to do the right thing.

  9. G W Esquibel says:

    As time goes on I’m sure that the Budget issues for all PERA contributors and employers will continue for at least the next couple of years or more, so in this case would it not be a benefit to employees as well as employers to negotiate a early retirement package, like a 3 years of age & 3 years of service credit or buy out, instead of hiring freeze, laying offs, and more furloughs days? And if not should that conversation start?

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