Retirement insights from a Colorado PERA perspective

Legislation & Governance

Senate Bill 200’s automatic adjustment keeps PERA full funding on track

retirement planning

As regular readers of PERA on the Issues know, Senate Bill 18-200 (SB 200) was passed by the General Assembly and signed by Governor Hickenlooper earlier this year. Changes resulting from this legislation will put PERA on a path to full funding in approximately 30 years and give PERA’s members and retirees, as well as Colorado taxpayers, a stronger, more stable retirement fund.

Included in SB 200 is an innovative mechanism that automatically adjusts both contributions to and distributions from the PERA trust funds in order to keep the plan on track to that goal of full funding.

The provision requires automatic changes to four components of PERA funding: member contributions, employer contributions, the State’s direct distribution and the annual increase (AI) paid to retirees. Prior to SB 200, the only way that contribution rates or annual increase percentages could change was by passing legislation.

If PERA’s period to reach full funding falls behind the funding goal, contributions and the direct distribution would increase while the AI would decrease. If the funding period moves ahead of the goal, contributions and the direct distribution would decrease, and the AI would increase. There are limitations on increases or decreases in a single year.

Through implementation of the automatic adjustment, PERA’s funding will continue to make progress toward full funding within 30 years of SB 200.

A fact sheet on the automatic adjustment can be found here, and a video explaining the provision can be viewed here.

Comments

  1. Sharon ward says:

    Thanks a million to all those in the pera organization who worked diligently over this last session to give pera retirees a happy decision.

  2. Jack Ford says:

    PERA used to be a protection from inflation. Now it doesn’t even provide protection from health care increases. I should have withdrawn my money when I could have and invested in an IRA. At least I would have been in charge of my future, not some self-serving politicians who change assumptions when it suits them.

    • Peggy Burress says:

      I did take advantage of the opportunity to withdraw from ING-managed 401 when offered. I moved my funds to ING – now Voya – and have been much happier with my return. I’m going to need that money sooner than later since the legislature – without much resistance from PERA – keeps reducing the retiree annual increase. By the time I see the 1.5% AI in 2020, the REAL cost of living will be at least five times more than the increase. PERA and the legislature should be ashamed of the current-retiree portion of SB200. Perhaps PERA should reduce the cost of insurance by 1.5%!

  3. Robin Lowry says:

    Why is the AI capped at 2%? I have been around long enough to have seen long periods of 8-12% interest rates and coast of living increases way beyond 2% a yr. Why isn’t it tied to an inflation index? In 15 years, I’ll be living on so much less!!!

    • Colorado PERA says:

      Dear Ms. Lowry,

      The Annual Increase (AI) was never intended to be a true cost of living adjustment designed to offset the impact of inflation. The AI was first enacted in 1969, and for decades had both a base (non-compounded) and supplemental (one-time) component. In March 1994, the General Assembly changed the AI to the LESSER of 3.5 percent compounded annually, or the Consumer Price Index percentage for the prior year. It wasn’t until 2000 that the General Assembly changed the AI to make it a compounding 3.5 percent. The changes in both SB 10-001 and SB 18-200 continue to retain the compounding nature of the AI.

  4. Gary A. Crumb says:

    It’s nice that the people that fulfilled their contract with PERA and were promised a 3% cola are now get kicked in the butt by not having any cola for 2 more years and down graded their cola to1.5%.Why is it that you can break a contract but we are unable to? Most of us cannot draw SS because of the way the law was written. Is it true that the State of Colorado has not payed in to their share of PERA for several years.

    • Colorado PERA says:

      Dear Mr. Crumb,

      After the global financial crisis of 2008 and the passage of Colorado SB 10-001, the issue of whether the Annual Increase of Cost of Living Adjustment (COLA) could be changed was tested in the Colorado Courts. The Colorado Supreme Court determined that the reduction in the COLA was legal. The Court stated that there is no contract right to the specific COLA formula in place at the time of retirement or when becoming eligible to retire. In making its decision, one of the factors the Court looked at was that the COLA formula had been changed numerous times during the working career of a retiree.

      In summary, the COLA was first enacted in 1969, and for decades had both a base (non-compounded) and supplemental (one-time) component. From 1970 to March 1, 1994, the non-compounded COLA usually ranged from 1.5 percent to 3 percent. In March 1994, the General Assembly changed the COLA to the lesser of 3.5 percent compounded annually, or the Consumer Price Index percentage for the prior year. It wasn’t until 2000 that the General Assembly changed the COLA to make it a compounding 3.5 percent. It is important to note that from 1970 through March 1994 the COLA changed several times and each COLA was non-compounding. From 1994 forward, the General Assembly changed the COLA to be compounding. The changes in both SB 10-001 and SB 18-200 continue to retain the compounding nature of the COLA.

      PERA believes that the reduction in the COLA from 2.0 percent to 1.5 percent is legal in light of the decision by the Colorado Supreme Court in 2014. All the recommendations by the PERA Board to the General Assembly for this legislative session were made with the legality of the changes in mind.

      PERA-affiliated employers, including the State of Colorado, have contributed what is required by state law. For details on the sources of PERA’s underfunding, please see this PERA on the Issues post: https://peraontheissues.com/index.php/2017/12/26/sources-of-peras-unfunded-liabilities/

      Just to clarify, Social Security is a federal program and concerns about it should be voiced to your U.S. Congressional representatives.

      • James lynch says:

        Why give retirees a cola of any kind !!!.you and the co Supreme Court say that there is no set rate you have to follow.you give us as little as possible because you can and don’t do away with it because you now it’s morally wrong .no it’s wrong even if you have legal precedents to do so .like always when times are good you keep more money,when times are bad you take more money.what we need less of is people in government political positions telling people how they should tighten up there belts and live on a budget what would any body in politics know about how to live on s budget

  5. Kathryn Tobo says:

    I understand the AI adjustment of reducing retirements by .25% annually, but what is meant by the floor of of .5% ?

    • Colorado PERA says:

      Dear Ms. Tobo,

      The “floor” for the Annual Increase of 0.5% means that with the automatic adjustment mechanism, the AI can go no lower than that.

  6. Steve McCulloch says:

    Does this mean the fixed goal post for full funding will be 2048? Also how many years ahead or behind the goal post would trigger an adjustment?

    • Colorado PERA says:

      Dear Mr. McCulloch,

      The adjustments are based on factors that go into determining whether PERA is on track to be fully funded (not the years ahead of or behind the goal). For PERA to stay on track to the 30-year funding period, a certain amount of contributions are needed each year and this amount is called the Actuarially Determined Employer Contribution (ADEC). When contributions into the system are 98% of the ADEC, the AI will be reduced, and the contributions will increase. When the contributions are 120% of the ADEC, then the opposite adjustments will be made – the AI will increase and the contributions will decrease.

  7. Edrie Womack says:

    Inflation is increasing. And why do I care about 30 years from now=I will be dead! I need to take care of myself NOW! But PERA an especially he Legislature does not care two hoots!

  8. Mark McPherson says:

    Worst run retirement plan ever. The stock market is making record breaking returns and PERA’s investment advisors are failing to scrape out even a meager return. Time to vote these failures out of PERA’s management and put someone in ther who knows what they are doing.

  9. Barry Northrop says:

    Hopefully, SB 200 will give PERA the flexibility it needs to adjust to future fiscal realities. However, I have misgivings that PERA management possesses the smarts to pull it off (i.e., full funding in 30 years). Their track record is abysmal. Thirty years of all manner of risk lie ahead so my Carnac the Magnificent prediction for the next 30 years: increased employee/employer/state contributions and decreased retiree benefits. Shocker, right?

  10. Herbert Clevenger says:

    When and how will the 4.5 billion dollar plus investment return loss that the government owes PERA be paid back? Why wasn’t this issue addressed first before expecting retirees to take further reductions to their annual increases? PERA spent all of 2017 formulating recommendations that became the basis of SB 200. It appears PERA put a lot of work in to that, but how much time and effort has PERA given to recovering the 4.5 billion plus investment return loss? It appears that the General Assembly did what Ken Salazar said that they could do with annual increases from 1969 until SB 10-001. They did exactly how PERA explained that they could do with annual increases at your annual meetings that you had across the state. Can you explain how we can have our annual increases froze if the AI can go no lower then .5%? Can they decide to freeze them at 0% for twenty years? I thought that SB 200 had a provision in it where we could get less then 2% if PERA had a negative year? Maybe it wasn’t meant to be a true cost of living adjustment, but PERA and the State Legislature is taking this way too far. The idea of any reduction to the annual increase is wrong without the Government paying the 4.5 billion plus investment loss!

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