For the past several years, public pension reform has been a
hot topic as states and municipalities wrestle with how to keep their
retirement plans funded. As many Colorado PERA members and retirees know, 2018
saw the Colorado General Assembly pass a significant
reform bill, and numerous other states followed suit in 2019. Here’s a
sampling of the new efforts as of mid-year.
Arkansas
State Highway Employees’ Retirement System
March 2019
Increased employee contributions over two years, from 6.0
percent to 7.0 percent by July 2020. Increased employer contributions from 12.9
percent to 14.9 percent starting July 2019.
Kentucky
Pending as of June 2019
The Bluegrass State has been debating a variety of pension
reform options for about two years. In early June, the
state Supreme Court ruled against the governor’s attempts to keep a financial
analysis from public disclosure, and the
governor has indicated that a special session of the state legislature may
be necessary later this year to resolve various disputes.
New Mexico
April 2019
Comprehensive legislation changed the salary thresholds that
determine employee contribution rates; increased employer contribution rates
from 13.9 percent to 14.5 percent starting July 2019; changed years-of-service
multipliers and highest average salary (HAS) guidelines for new hires; increased
minimum retirement age for new hires; and changed return-to-work rules.
North Dakota
Public Employees Retirement
System
April 2019
Eliminated retiree health insurance credit for new hires
after January 2020; redirects employer contributions of 1.14 percent of salary
to the retirement plans; modified HAS calculations for retirees after January
2020; and reduced the HAS multiplier from 2 percent to 1.75 percent.
Oregon
Public
Employees Retirement System
May 2019
Extends
the fund’s minimum payment schedule by eight years; redirected a portion of
employee contributions (depending on hire date) into an account that supports
pension benefits; cut 30-year employees’ overall benefits by 1 to 2 percent for
those making more than $30,000 per year; mandated a one-time, $100 million
contribution to an “incentive fund” that will provide a 25 percent match to
extra employer contributions; gave employees more control over investment
allocations; removed certain limits on working after retirement; and directed
some proceeds from the Oregon Lottery to the employer incentive fund.
Other developments:
In March 2019,
California’s state
Supreme Court upheld 2012 reforms that curtailed the purchase of service
credits and raised employee health care contributions.
In June 2019, two
retired teachers sued the State Teachers Retirement System of Ohio over the indefinite elimination of
annual increases for retirees. The plaintiffs are seeking to certify their suit
as a class action.
In June 2019, Rhode
Island’s state
Supreme Court upheld the city of Cranston’s 2013 reforms that suspended
cost-of-living adjustments, increased retirement ages, and introduced a hybrid
DB/DC plan.
According to a 2018 report by the American Legislative Exchange Council (ALEC), ranking the 50 states (with #1 Best), Colorado ranks #33 in Unfunded Pension Liabilities per Capita ($18,615); #27 in Unfunded Liabilities as a Percentage of Gross State Product (30.45%); #34 in Funding Ratio (31.73%); and #25 in Percentage Change in Funding Ratio, 2013-2018 (3.20%). The report is available online: https://www.alec.org/app/uploads/2019/03/Unaccountable-and-Unaffordable-WEB.pdf
ALEC’s methodology is explained in the report and, while results may differ from PERA’s, it is applied consistently nationwide so that relative rankings among the states should be correct. Overall, Colorado is in the middle of the pack.
Suing because you think you are “entitled” to everything you thought you should have when retired, is short sighted and self serving. What good does that do if the pension cannot “afford” it and will ultimately lead to collapse or serious reductions in the plan?
Whatever it takes to keep the Plan sustainable, I am all for it!
I like your philosophy and good place to start would be Social Security which give annual cost of living raises while running a budget deficit.
Retirees in Colorado did the same thing years ago (suing because COLA was decreased from 3% to 2%.) They felt they had a contract that stated this was what they would get. The Supreme Court ruled with PERA. I agree that it is short-sighted to bring down the whole, but people also retired depending upon what they had been assured they would get. I understand both sides, and am happy PERA is doing what it takes to remain solvent.
Are you still going to be “all for it” when you are 80 years old, too old to work but no longer able to keep up with the true cost of living because our COLA is reduced and perhaps in the future eliminated all together? It seems to me PERA’s administrators need to be doing a better job of projecting and investing to meet the future needs of the Plan.
It seems obvious to me that you cannot rely on a pension when it is a trend in every system to continue to slash benefits, increase contributions, and play all sorts of tricks on people who aren’t vested on January 1 of this year, or July 1 of that year, over and over again.
PERA had one payout scheme from 1931 to 2005. In the 14 years since, there have been SEVEN changes to the PERA HAS tables. In that time the payout for a 50 year old retiree with 25 years of service credit has fallen from 43.8% to 28.8% – a reduction of over 1/3 in monthly benefits. And yet, we are being asked to contribute more than ever and withstand cuts to annual increases in retirement, eroding the value of that income over time.
In 14 years the monthly benefit has fallen by 1/3. A child in kindergarten would not have their bachelor’s degree by the time the potential of a robust pension income has been ripped away from them. This is not a long timeframe, and it is devastating to the confidence in the system that it has to be reduced roughly every other year.
This is just one of a million ways in which young working professionals have watched those who came just before them take away all of the benefits to being a hard worker and securing what is supposed to be a “cushy job”. It is, quite literally, an old boys club, and as George Carlin said…. you ain’t invited.
Without evidence, I believe that a part of the funding issues of the pensions are due to abuse by upper administrative PERA employees/retireees. Since the benefit calculation was based on the highest paid 3-years of service, how many administrators experienced large salary increases in their last 3 years before retirement. I know it sounds like a bit of a conspiracy theory, but I would sure like to know how much of a salary bump the highest paid PERA employees recieved for their last 3 year of service.
Dear Mr. Williams,
Thank you for your comment. PERA employees are members of the PERA DB plan and unless they were eligible for retirement on January 1, 2011, subject to the 8 percent year-over-year cap on salary used to determine Highest Average Salary, just like other PERA members. (A 15 percent year-over-year limit applies to PERA members eligible for retirement on January 1, 2011.) For more details on the sources of underfunding, please see this PERA on the Issues post: https://www.peraontheissues.com/index.php/2017/12/26/sources-of-peras-unfunded-liabilities/
You may also wish to review information on benefit payments here: https://www.copera.org/sites/default/files/documents/5-140.pdf
A previous poster astutely pointed out the following PERA phenomenon:
PERA had one payout scheme from 1931 to 2005. In the 14 years since, there have been SEVEN changes to the PERA HAS tables. In that time the payout for a 50 year old retiree with 25 years of service credit has fallen from 43.8% to 28.8% – a reduction of over 1/3 in monthly benefits. And yet, we are being asked to contribute more than ever and withstand cuts to annual increases in retirement, eroding the value of that income over time.
This is all true (and well-stated), but it is not complete. To complete the picture, we need to also examine how often has PERA *cut their administrative expenses*? As far I have seen, all of the adjustments to PERA have involved higher contributions and lower benefits. But I have yet to see where PERA administration has reduced administrative overhead as part of the solution. Furthermore, how can PERA rationalize the adjustments of recent years when the financial markets have been appreciating at historical levels? If you recognize the fiscal irresponsibility of PERA administration in recent years, just wait until the economy takes a significant downturn in the future…