PERA’S path forward requires fortitude
In recent weeks, there has been much to say about Colorado’s Public Employees’ Retirement Association, the retirement plan for more than 560,000 Coloradans who work or have worked in public service.
As chairman of the PERA Board of Trustees, I am compelled to make sure our members and retirees, as well as the taxpayers, have accurate information about PERA’S current funded status and path forward, as recommended by the PERA board by a consensus vote of 15-1. Here are five things to keep in mind:
1. The messenger may have changed, but the message has not. Last month, the executive director of PERA, Greg Smith, passed away. In losing Smith, we lost a powerful advocate for PERA, its financial strength, and its members. But we have not lost sight of the responsibility the board bears as the fiduciary for PERA members. The board’s resolve to effect changes that will ensure a sustainable, dignified retirement for these public servants has not wavered. We will continue to work with thoughtful policy makers to establish a broad understanding of why changes are needed, and what those changes should be.
2. The time to act is now. Over the last year, PERA embarked on a statewide education and outreach effort called the Peratour. As part of that initiative, we held telephone town hall calls as well as community meetings in cities across the state. More than 80 percent of those who attended one of these events said that the time to address PERA’S funded status is now, before a crisis. Despite the political landscape and personal loss we are experiencing, this issue cannot wait. Each year there is a delay, the amount of the unfunded liability increases — which, in turn, raises the cost of the solution.
3. Shared responsibility is a sound principle, not a slogan. Readers of The Denver Post may have read recently that they should be wary of slogans touting shared responsibility across employers and employees. Let the record be clear on a critical point in this regard: A majority of PERA’S unfunded liability of $32 billion is directly attributable to the fact that the state has not paid its share for many years. Each year, PERA reports on the “actuarially required contribution” (or ARC), the required amount of money the state owes the pension system to keep it on sound financial footing. Had the state upheld its obligations by paying the ARC, PERA would not find itself in the situation it is in today.
4. Don’t be fooled by easy f ixes. Given the complexity of PERA’S retirement structure, it is only natural to look for the easiest path forward. One of those seemingly “easy fixes” is to cut the costof-living adjustment (or COLA) for current and future retirees. State Treasurer Walker Stapleton, who also holds a seat on the PERA board, proposed eliminating the COLA until the plan has reached 80 percent funding (using a reduced assumed rate of return of 5.5 percent or 5 percent). Given these new assumptions, it would take approximately 38 years to reach 80 percent funding.
Without a COLA provision, PERA retirees would see a loss of about 32 percent of their anticipated retirement income. It is not just this loss of income that concerns the PERA board, but also the decline in retirees’ purchasing power, or their ability to purchase products with current monetary values. The value of any currency changes as inflation changes. Without the inflation protection a COLA provides, retirees would experience a 58 percent reduction in purchasing power over the 38-year period. The PERA board believes strongly that we cannot make such drastic cuts to our public servants’ retirement.
5. The fertile ground lies in fortitude. The changes proposed by the PERA board are not easy, nor did we take lightly the making of these recommendations. It is incumbent upon every policy maker, taxpayer and PERA member to understand the issues, and be willing to make hard choices. We have started this very difficult work and now turn to the community at large to help ensure retirement security for all those who serve our state.
Timothy M. O’brien is chairman of the Board of Trustees for the Public Employees’ Retirement Association. He is also Denver’s city auditor.