Board members raised concerns that in hindsight have proved well-founded.

Opponents of the change cited political considerations as well as financial ones in making their decision.

“I just do not want to be complicit in what’s going to happen down the road if we pass this,” board member Carole Wright said at the November meeting. “We are going to be a target for the media. The politicians are going to feel that they were betrayed by what we stepped up to the plate and said we would do.”

The uncertainty over the longterm direction of the financial markets is why the three gubernatorial appointments to the PERA board — Turner, Susan Murphy and Howard Crane — sent lawmakers a letter warning them not to stray from the bill as it was proposed in January.

Instead, compromises were made to win over votes and interest groups. The retirement age for teachers and other school district employees stayed at 58 instead of rising to 60, as it did for other public employees. Retirees were spared a two-year freeze on costof-living raises, and lost a single year, instead.

The PERA board endorsed the bill as amended, with a lone dissenting vote from Turner. A market rebound in 2009 had given the pension some financial breathing room, and lawmakers used every bit of it. But by 2011, the market had swung back the other direction — and the 30-year fix was already several years off course.

Chronic underfunding

By 2013, reality had set in. The assumptions Senate Bill 1 was built on? PERA’S leaders no longer believed they were correct.

That year, the board reduced the assumed rate of investment return to 7.5 percent. That added $3.1 billion to PERA’S projected funding gap and extended the time PERA needed to pay it off to 2048 — a full 10 years later than the 28-year fix that was projected at the end of 2010.

But consistently, PERA’S message to lawmakers was unchanged: Wait for Senate Bill 1 to work before tinkering with the plan.

Trouble is, Senate Bill 1 itself had a glaring flaw. The government, even under the original assumptions, wasn’t contributing enough to cover the cost of benefits.

It’s a trend that dates to 2003. Each year, PERA’S financial advisers calculate what public agencies should contribute to afford the benefits they were promising their employees. And each year, the government had been underfunding it.

Back in 2000, PERA was actually overfunded. Then, state lawmakers and former Gov. Bill Owens, a Republican, boosted benefits and cut contributions.

When the dot-com bubble burst, PERA’S balance sheet cratered. Officials responded, but slowly. Instead of immediately paying the full amount the govchanges

PERA’S funded ratio PERA’S unfunded liability ernment owed to meet its funding goals, contribution hikes were phased in. Before the contributions caught up, the stock market crashed, wiping out 26 percent of PERA’S portfolio.

Senate Bill 1 was designed in much the same way. At the depths of the housing crisis in 2010, cashstrapped governments resisted the higher payments needed to shore up the fund. So the bill front-loaded the cuts to benefits, and backloaded the contribution hikes, phasing them in over the next eight years. That spared governments a cost they could ill afford in the midst of the Great Recession.

At board meeting after board meeting — even as trustees mulled reductions to the rate of return — they acknowledged the political reality. Such decisions would make PERA’S funding look worse, and they couldn’t count on the government to make up the difference. And just like in the 2000s, the chronic underfunding put PERA at greater risk when market and demographic conditions changed.

“(It’s the) same reason you should care if you get behind on your 30-year mortgage,” said Turner, a former chief accountant for the Securities and Exchange Commission. “The further you fall behind, the greater the pain trying to catch up, and the sooner you face foreclosure.”

A partisan divide

At the legislature, Democrats consistently agreed with PERA’S decision to wait for the 2010 reforms to ramp up. Republicans didn’t. And Gov. John Hickenlooper largely stayed out of it.

State Treasurer Walker Stapleton, who is now running as a Republican for governor, led the fight for reform, saying the board’s assumptions were akin to wishing for “lollipops and rainbows.” Year after year, he supported bills offered by Republican lawmakers to change the makeup of the board, raise the retirement age, cut benefits and freeze taxpayer contributions.

Many of the GOP proposals were deemed extreme and fiscally irresponsible by opponents — derided as political statements that ignored financial reality. But even moderate tweaks to benefits — some of which mirrored the board’s own suggestions in 2009 — were dismissed as unnecessary.

“It was always that everything was OK,” said Sen. Kevin Priola, R-henderson, who is in bipartisan talks to craft this year’s reform bill.

Sen. Daniel Kagan, a Democrat from Cherry Hills Village, was among those who supported Senate Bill 1 but opposed efforts to make changes afterward without PERA’S support.

“We have to be careful not to overburden taxpayers and not overburden employees and not overburden retirees — and it’s a (delicate) balance,” Kagan said.

Another warning

By 2015, it was clear that more were on the horizon.

In January, the board’s auditor, Milliman, passed along some sobering recommendations. The takeaway: PERA would have less money, yet owe more in benefits.

That fall, five board members pushed for a review of PERA’S investment assumptions. But a majority on the board voted to wait until 2016 to do so.

Nevertheless, PERA still had an opportunity to sound the alarm — a five-year progress report on Senate Bill 1 was due to the legislature by the end of 2015. But rather than stressing that PERA was projected to miss its 30-year goal, the report highlighted that Senate Bill 1 was arguably ahead of schedule — under more optimistic assumptions that its financial experts no longer believed.

“As a result of the innovated shared sacrifices and reforms made to PERA by SB 1, PERA is once again sustainable for the long term,” the report concluded.

“They would always point to the five-year report: Let’s not do anything until five years,” Priola said. “… But things were looking great for the five-year report.”

Ron Baker, PERA’S interim executive director, acknowledges there was a disconnect between the report’s positive message and what PERA knew was coming. He says the report was designed to be a look back instead of forward, and PERA didn’t yet know how dramatically the changes would affect the system’s funding.

“Yeah, we knew (that changes were coming) … but we were not ready yet to say ‘fire,’ without having some solution that would not have everybody in an uproar,” Baker said.

“Lessons learned”

Today, PERA views what transpired over the last 18 years as “lessons learned.”

The reform package the board recommended to state lawmakers this fall mimics Senate Bill 1 in substance, raising the retirement age and cutting benefits, while increasing contributions from public employees and taxpayers. But it diverges in its implementation. Higher contributions would take effect all at once, instead of ramping up over time. And it would automatically adjust contributions and benefits as needed if the system strays from its funding targets.

If adopted, that would sidestep the dilemma that has vexed PERA in the past. Fiscal prudence demands a swift response to changing market conditions. But convincing lawmakers and 566,000 members that changes are needed is a slow process.

“I think that we’ve been bitten by (our messaging) a little bit,” Baker said. “Because I think the perception of folks is ‘Well, you fixed it in 2010. You said it fixed it.’ And, well, we fixed it from running out of money — not that it was never to be adjusted again.”