Put PERA on a path to­ward sol­vency»

The Denver Post - - NEWS -

The fis­cal health of Colorado’s Pub­lic Em­ploy­ees’ Re­tire­ment As­so­ci­a­tion is now so alarm­ing that even the pen­sion’s man­age­ment has dis­carded its rose-col­ored glasses and is firmly fac­ing re­al­ity.

Ac­cord­ing to re­cently re­leased pro­jec­tions, PERA’s school divi­sion ac­tu­ally has a greater chance of plung­ing into in­sol­vency over the next few decades (a shock­ing 44 per­cent like­li­hood) than it does of achiev­ing fully funded sta­tus. And the state divi­sion, PERA’s sec­ond largest af­ter schools, is in only marginally bet­ter shape, with a 38 per­cent chance of a death spi­ral.

The cri­sis may not be as dire as in 2010, when the leg­is­la­ture re­sponded, but it’s se­ri­ous and de­mands that PERA get on with the busi­ness of rec­om­mend­ing an­other set of re­forms to law­mak­ers. This time the changes must set PERA on a cer­tain path to sol­vency.

Just one year ago, PERA of­fi­cials down­played con­cerns about the pen­sion fund, with Ex­ec­u­tive Di­rec­tor Greg Smith con­fi­dently ob­serv­ing, “We un­der­stand there are ebbs and flows to the mar­ket and are built to with­stand them.” Smith’s pub­lic mood be­gan to shift late last year af­ter PERA’s board low­ered the ex­pected rate of re­turn from 7.5 per­cent to 7.25 per­cent and adopted new mor­tal­ity ta­bles to re­flect grow­ing longevity. Now, with the re­lease of PERA’s an­nual re­port doc­u­ment­ing the fund’s de­te­ri­o­rat­ing po­si­tion across the board, Smith seems to have dropped the last ves­tiges of happy talk. At least we hope so.

Ac­cord­ing to Se­cure Fu­tures Colorado, which closely tracks pen­sion is­sues, Smith told the PERA board last month the trend was un­ac­cept­able. “We have to move that line,” he said. “That’s the game. That’s the ob­jec­tive. That’s what has to hap­pen. We’re al­ready bad enough. Ac­tion needs to be taken.”

Yes, it does. Ac­tion is needed to pro­tect, first and fore­most, the re­tire­ment ben­e­fits of pub­lic em­ploy­ees but also the fis­cal in­tegrity and credit of the state. It’s also just plain wrong to kick a $32 bil­lion li­a­bil­ity down the road when you know there is a good chance it will only grow larger and thus bur­den gen­er­a­tions to come.

Ex­pect, how­ever, a rough-and­tum­ble strug­gle over how to shore up the sys­tem. Should law­mak­ers tap em­ploy­ees, their tax-funded gov­ern­ment em­ploy­ers, or both for the in­evitable sac­ri­fice? As we noted in Jan­uary, the em­ployer con­tri­bu­tion has shot up in the past decade to the point that it is clos­ing in on 20 per­cent of pay­roll. That’s a pun­ish­ing bur­den for school dis­tricts and other en­ti­ties that al­ready face sig­nif­i­cant bud­get pres­sure. And un­der the Tax­payer’s Bill of Rights, they can­not sim­ply raise taxes to off­set fur­ther hikes in their con­tri­bu­tion. They would have to take the rev­enue out of pro­grams.

Mean­while, most em­ploy­ees’ con­tri­bu­tion has been sta­ble at 8 per­cent. It is clearly time for this to be in­creased by a mod­est amount. In ad­di­tion, al­though the re­forms of 2010 made head­way in re­duc­ing the gap in re­tire­ment age be­tween PERA and So­cial Se­cu­rity, the next set of re­forms should seek to shrink the di­vide still fur­ther, es­pe­cially given grow­ing longevity.

PERA of­fi­cials de­serve credit for the straight talk of re­cent weeks, but it’s es­sen­tial their can­dor con­tinue as the board and then leg­is­la­ture grap­ple with re­form. “I think many of us have been con­cerned that we have been paint­ing a pic­ture that is less crit­i­cal than the sit­u­a­tion is, in our mes­sag­ing to tax­pay­ers and to our ben­e­fi­cia­ries,” board mem­ber Su­san Mur­phy told her col­leagues at last month’s meet­ing.

PERA of­fi­cials shouldn’t over­hype the present dan­ger, ei­ther, but they shouldn’t have to. A 44 per­cent chance of go­ing belly up should be spur enough for re­form.

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