Should the state keep PERA pension?

YES: Retirements for 10 percent of Coloradans should be secured

For the past 40 years, our nation has done a lousy job planning for its retirement future. As Colorado considers various approaches to stabilizing its largest source of retirement security outside of Social Security, it would be a grave mistake to do to the Public Employees’ Retirement Association what we’ve done to our larger retirement system.

In 1978, America made the first step in a giant leap of faith. That’s when Congress created the 401(k) as a tax shelter option for highly compensated executives. Within a few years, it morphed into a popular alternative to the definedbenefit plans — known as pensions — that were prevalent among benefit systems at that time.

Before the explosion of 401(k) retirement plans, retirement was rooted in a concrete algebra. Employers enrolled their employees, adjusted and matched contributions based on actuarial projections and guaranteed a fixed benefit for each employee. So long as employers lived up to their end of the bargain, little was left to chance. That commitment began

to waver as private-sector pensions went from covering 38 percent of workers in 1979 to just 13 percent today. Now we pray that Americans, many of whom struggle to pay their dayto-day bills, are doing what they should to save for their retirement.

What have we gotten for our prayers? The average American nearing retirement has just $12,000 in the bank. The average retirement savings across all age groups is just $5,000.

While Social Security is only intended to replace 40 percent of our working income, retired Coloradans are relying on it for 64 percent of their retirement. Making matters worse, 45 percent of Coloradans currently working have no access to employer-sponsored retirement plans.

Given these dismal figures, we should be deeply skeptical of politicians and groups trying to pin PERA’S future to the same hope and prayer that has been “guiding” our larger retirement future. Many of these voices argue that we should convert PERA into privatized 401(k)-style plans.

The costs of such a conversion would be staggering. A 2015 study commissioned by Colorado’s state auditor estimated the cost of converting PERA to a 401(k)-like cash-balance plan to be an additional $800 million per year for the first 10 years. These costs more than dwarf the additional increases being contemplated to stabilize PERA as it exists today.

The challenges facing PERA are complicated and frustrating. The costs of the plan have inflated over the years in large part because of irrational choices made in the tumultuous early 2000s when years counting toward retirement were sold at discount prices. The state fell behind on the rising actuarial costs when the recession hit soon thereafter. The 2008 crash was a setback. People are living longer, and uneven market returns have put new wrinkles into the assumptions underlying the reforms approved in 2010.

It’s also worth calling attention to the fact that all of this is harder to manage in Colorado. Here, our public entities struggle to cope with the chronic underfunding that results from the Taxpayer’s Bill of Rights. This creates a unique and unnecessary handicap when employees and employers have to chip in a little bit more to stabilize the fund. It’s no coincidence that the very same forces that zealously argue for an underfunded public sector are often the same ones arguing for such a radical alteration of our retirement system.

Yet, in spite of these challenges, PERA remains a salvageable linchpin in our state’s retirement landscape and Colorado’s overall economic health. PERA is designed as a substitute for Social Security that covers one out of 10 Coloradans with the goal of replacing 75 percent of their working income. Factor in the families of those beneficiaries, and securing PERA takes care of an extremely significant portion of our larger retirement crisis.

Resolving PERA’S prob- lems alone is not the answer. We need to turn Colorado’s entire retirement future around. We should follow the example of other states that have begun to create low-fee auto-enroll options for workers who lack access to low-fee workplace plans.

If we continue to leave Coloradans’ retirement security to chance, it will cost us all dearly. A recent study in Utah demonstrated that if just one-third of the retiring population saved an additional 10 percent of their net worth, it would save that state $194 million per year in public assistance costs. Consider the reverse of that for a state like ours.

When it comes to retirement, there is too much at stake to not be intentional. We have learned lessons the hardest way. It’s time to put science ahead of blind faith.