In the last year, PERA has benefitted from the release of three studies conducted by neutral, outside experts examining aspects of the benefit and funding structure for Colorado’s retirement plan for public employees. These studies are the result of legislation supported by the PERA Board of Trustees and enacted by the Colorado General Assembly in 2014 (Senate Bill 14-214).
Together, the Sensitivity Analysis from Pension Trustee Advisors, the Plan Design study from Gabriel, Roeder, Smith & Company, and the Retirement Benefits study by Milliman, provide a useful roadmap for the PERA Board of Trustees along with PERA members, Colorado policy makers, and taxpayers to work together for a sustainable public retirement system in the years and decades ahead.
Released on October 19 by the Colorado Office of the State Auditor and reviewed by the General Assembly’s Legislative Audit Committee, this analysis looks at the various components used in determining PERA’s financial health. The report’s findings demonstrate that the PERA Hybrid defined benefit Plan is on track to be fully funded, with all five of PERA’s trust funds projected to achieve fully funded status over time. The study also shows that actuarial assumptions PERA uses as it makes projections and manages the plan are reasonable.
A second, critical objective of the study was to develop an understandable format for communicating PERA’s progress toward becoming fully funded, meaning that the plan is moving toward accumulating assets equal to its accumulated obligations.
To fulfill this objective, the PTA analysis includes a signal light methodology designed to expand how PERA reports on its funded status as well as the likelihood of achieving its full funding objectives.
This methodology indicates that the four largest of PERA’s five division trust funds are sustainable and on a path to full funding, receiving a “green light.” The 600-member Judicial Division received a “yellow light.”
The report notes the significant impact of the shared sacrifice required of PERA retirees, members, and taxpayers as a result of bipartisan legislation enacted in 2010 (Senate Bill 10-001). If the signal light reporting method had been in place in 2009 during the Great Recession, it would have shown all Divisions in orange or red, meaning that PERA would be unable to pay benefits in fewer than 30 years.
Under the signal light methodology, changes from the reforms implemented as a result of that legislation moved the fund from red status to green.
Moving forward, PERA plans to incorporate the new and unique signal light methodology to enhance its reporting on funding progress.
Read the PTA report.
In July, the Colorado Office of the State Auditor released an independent evaluation of PERA comparing the costs and effectiveness of PERA’s defined benefit plan to alternative plans in the public and private sector.
Nationally recognized actuarial firm Gabriel, Roeder, Smith & Company (GRS) looked specifically at PERA’s Hybrid defined benefit Plan and compared it to alternative plans in the public and private sectors. Their evaluation came to the overall conclusion that “Colorado’s largest public employee pension system is the most efficient and effective a state could have,” as GRS officials told members of the Legislative Audit Committee.
In short, the PERA plan design costs less and provides more for nearly all types of public workers, regardless of the age when they start or leave public employment.
As the report to the audit committee notes, PERA’s hybrid plan is “more efficient and uses dollars more effectively than the other types of plans in use today.”
See the PERA on the Issues story.
Read the GRS report.
In January of this year, the Colorado Department of Personnel and Administration released the results of the 2015-2016 survey of state employee total compensation conducted actuarial firm Milliman.
The Colorado General Assembly had asked for this year’s salary survey to include the value of the PERA retirement benefit. Specifically, Senate Bill 14-214 required a comparison between the retirement package provided to state employees through PERA to retirement packages offered by both private companies and other states.
When compared to 19 other states and four private sector entities including the University of Denver and SCL Health System, the value of the PERA benefit is 1 percent above the median plan value of 14.7 percent.
As the Milliman report concludes, “The State’s offerings are generally consistent with market trends of survey participants.”
Read the Milliman report.
Looking to the Future
As a result of these studies, important conversations will be informed by the analysis of neutral experts familiar with the complex variables impacting a retirement plan with over 500,000 members and retirees.
These public employees include Colorado’s teachers, state troopers, and highway workers. Their work contributes to the quality of life in Colorado’s communities.
Independent, critical evaluations of PERA such as these studies provide will help ensure PERA is sustainable for the long term, providing an economic engine for Colorado and protecting a secure retirement for all public employees.