Inside Colorado PERA

Just the Facts: Important Features of Colorado’s Largest Retirement Plan

POSTED 3371 DAYS AGO

As the state’s largest retirement plan, Colorado PERA sees its fair share of news headlines. Some are positive, others are negative, and many fall somewhere in between. But to make sense of the issues affecting PERA, it’s often important to go beyond the headlines and understand how PERA works for its members and retirees, as well as the employers who contribute to the plan and Colorado taxpayers.

PERA is the retirement plan of choice for Colorado’s public workers. At its core, PERA acts on behalf of its 500-plus employers who offer their public employees a hybrid defined benefit retirement plan rather than Social Security. For most members, PERA also takes the place of other common retirement plan structures, such as a defined contribution, 401(k) type plan or cash balance plan. All members contribute at least 8 percent of every paycheck toward their PERA retirement savings, in addition to their employers’ contributions.

PERA is highly portable. PERA provides a way for Colorado’s public employees to save for retirement – whether they work for a school district as a teacher or as an employee of a state agency or local government. Public employees in Colorado can and do work for a variety of public employers over their careers and they can continue to contribute to the same retirement account even if they change public employers. That means public employees can be a teacher in one school district, switch to another school district, and then leave teaching all together to work for a state agency – and they will keep building the same retirement account.

PERA offers a monthly benefit, for life, at retirement. A common misconception is that at least five years of time in PERA is required before a public worker earns eligibility for a monthly retirement benefit. That is not the case. Participants in the PERA hybrid defined benefit (DB) Plan are eligible for a monthly retirement benefit once they reach age 65, regardless of how long they worked for a PERA employer. For example, a 25-year old teacher who works for a year can leave his or her account at PERA until turning 65, and then receive a guaranteed monthly lifetime benefit. Contrast this with a 401(k) plan participant who could withdraw from an account until there is no balance remaining. With a DB plan, a monthly benefit will be paid for life.

PERA provides retirement savings even for those who leave public employment. Hybrid DB Plan participants who leave a PERA employer may take a lump-sum refund of an account as cash (after taxes) or opt for a rollover to another retirement plan where the account will retain tax-deferred status. Member accounts left at PERA after a public employee leaves covered employment earn a risk-free guaranteed rate of return. Today, more than 200,000 former public employees are earning 3 percent on accounts left at PERA, and these accounts are growing without any risk of loss at an attractive rate not currently available from a financial institution.

PERA benefits go beyond a traditional pension payment. PERA is much more than a hybrid DB plan. Members are encouraged to contribute additional savings toward retirement using the low-cost PERAPlus options such as the PERAPlus 401(k) and 457 Plans. PERAPlus participants may defer up to the IRS allowable amounts each year while selecting from a world class array of investment options that include target date retirement funds and a brokerage window. Another great benefit of being a PERA retiree is access to PERACare, PERA’s health benefits program. Even as the Colorado and U.S. health care markets evolve, this benefit allows access to group insurance rates for a variety of health care plans offered by recognized providers. The cost of premiums in PERACare is offset based on the number of years a member worked for a PERA employer.

Hybrid defined benefitPERA’s Defined Benefit (DB) Plan is “hybrid” in that it combines features of a traditional DB plan with some of the features of defined contribution (DC) plans, such as portability.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.