Senate Bill 18-200 ensures PERA is on the path to full funding in 30 years
On March 7, 2018, SB 18-200 was introduced in the Colorado State Senate. The intent of the legislation is to improve PERA’s funded status and lower its overall risk. Sponsors include Sen. Jack Tate (R-Centennial), Sen. Kevin Priola (R-Henderson), Sen. Cheri Jahn (U-Wheat Ridge), House Majority Leader KC Becker (D-Boulder), and Rep. Dan Pabon (D-Denver). SB 18-200 has been assigned to the Senate Finance Committee, and a hearing is expected to be scheduled soon.
The PERA Board held a special meeting on Wednesday, March 7, and directed staff to continue engagement on reform legislation. Bill sponsor Senator Tate had a letter read at the Board meeting thanking the PERA Board for their significant contributions to the development of this legislation. In September 2017, the PERA Board approved a package of recommendations to the General Assembly that would restore the fund’s resilience.
If passed by the Legislature and signed into law by Gov. Hickenlooper, the bill upholds the PERA Board’s goal of bringing all five of PERA’s Trust Funds to 100 percent funding within 30 years. The bill incorporates many of the PERA Board’s recommendations that would impact retirement benefits and contribution levels of all current and future PERA members and retirees. In addition, the legislation includes the Board’s recommended increase in contributions for PERA-affiliated employers. Certain provisions of the legislation would go into effect as soon as this year, while others would be phased-in over the next few years.
The bill includes a set of automatic adjustment provisions that would go into effect to ensure that PERA remains on the path to full funding in 30 years. These provisions would modify employee and employer contributions and the annual increase paid to retirees to offset any deviation from the 30-year timeframe. The bill would also require PERA to report to an interim legislative committee to ensure progress is being made toward full funding. This committee would also have the power to consider and recommend legislation regarding PERA to the full General Assembly.
The legislation would also allow new hires from all divisions the option to choose between the PERA Defined Contribution (DC) plan and PERA’s Hybrid Defined Benefit Plan. Currently, only employees in the State Division have this option.
Below are additional details on how the bill would affect retirees, current members, future members, and employers.
The only provisions affecting retirees (who are not working after retirement) are related to the annual increase. For current retirees, there would be a two-year suspension of the annual increase in 2018 and 2019, followed by a reduction in the cap of the annual increase paid each year thereafter to 1.25 percent from the current 2.0 percent.
The immediate impact for current members would be a phased-in 3 percent contribution increase from the current 8 percent to 11 percent of pay, starting in July 2018.
Like retirees, current members would have a lower cap on the potential annual increase paid. In addition to a reduction in the annual increase, the waiting period would increase to three years from the current one year.
Current members would also see a change to the definition of PERA-includable salary that would include certain pre-tax benefit programs under Sections 125 and 132 of the Internal Revenue Code.
Finally, as currently written, the bill would change the retirement eligibility age for all members who are age 46 or younger as of January 1, 2020, by adding one year to full service retirement eligibility for every four years less than age 46, not to exceed 65 years of age. A similar requirement would apply for reduced service retirement, not to exceed 60 years of age.
In addition to the changes listed above, nonvested members (those with fewer than five years of service credit) would see a change in the length of time used to determine Highest Average Salary (HAS). Currently, HAS is determined by using the three highest years of salary while this proposed legislation would increase the number of years to seven.
New members on or after January 1, 2020
All of the above changes would apply to new members, except for the retirement age eligibility modifications for current members described above. For new hires, eligibility requirements (age and service) for full service retirement benefits would increase to age 65 for most members with a minimum of five years of service and age 55 with 25 years of service for a reduced service retirement (for certain employees, mainly State Troopers, full service retirement benefits will require recipients be age 55).
New hires would earn service credit based on the full-time equivalency of their position.
New hires in all divisions would also be able to choose between the PERA Hybrid Defined Benefit Plan and the PERA DC Plan.
For all PERA employers, there would be a phased-in contribution increase of 2 percent of pay beginning July 1, 2018.
Additionally, employers would be required to calculate contributions on PERA-includable salary to include employee participation in certain benefit programs outlined above starting in January 2020.
Finally, for certain Local Government Division employers who choose to disaffiliate from PERA, the discount rate used to determine liabilities will be modified.
To learn more about how the introduced bill compares to the PERA Board’s recommended package from September 2017, please refer to this fact sheet. To stay up-to-date on all PERA-related legislation, please subscribe to the PERA on the Issues newsletter by signing up here.
Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments. Defined contributionA voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.