PERA plan.

The GOP candidate for governor wants benefits frozen until the system is dug out.

Colorado Treasurer Walker Stapleton, who is running for governor, offers his solutions for the pension plan.

Colorado Treasurer Walker Stapleton on Wednesday said pension benefits should be frozen and cost-of-living raises for public sector retirees eliminated until the state retirement system digs itself out of its deep financial hole.

The Republican gubernatorial candidate — who is building his campaign in part around the Public Employees’ Retirement Association’s second reform battle in a decade — also proposed raising the retirement age, giving all employees the option of choosing a 401(k)-style plan instead of a pension, and adopting significantly more conservative investment assumptions that would increase the pension’s unfunded liability by at least $18 billion.

The proposal is politically fraught, and unlikely to garner support from Democrats. And retiree advocates blasted the plan, saying it would cheat public-sector workers out of retirement benefits.

Stapleton unveiled his “reform principles” in a morning conference call with reporters, giving lawmakers a fourth set of recommendations to consider in the upcoming debate over how to address PERA’s growing financial troubles. The system provides and manages retirement benefits to 566,000 current and former public employees.

PERA’s board in September endorsed a model similar to the last round of reforms, in 2010, that would cut retirement benefits and increase contributions by employees and taxpayers to close the $32 billion gap within 30 years. In November, Gov. John Hickenlooper unveiled a plan of his own that would adopt most of PERA’s reforms but largely shield government agencies from additional contributions to the pension by cutting retirement benefits further.

The staff for the Joint Budget Committee, a six-lawmaker panel that writes the state budget, has also offered suggestions on the matter, noting with alarm that current employees are paying more for worse benefits than their predecessors.

If PERA’s pitch is that “shared sacrifice” is needed to shore up an underfunded pension, Stapleton’s proposal looks to recast the problem as one caused by overpromised benefits, arguing that the state and school districts can no longer afford annual increases in pension payments.

The plan lacks specifics — it would take an actuarial analysis (a robust sort of financial study that PERA outsources to a private firm) to determine how long retirees would have to forgo cost-ofliving raises to shore up the fund. But one thing is clear: If his suggestions were followed, it would

represent the most dramatic overhaul of PERA of any proposal to date.

Stapleton wants to lower PERA’s annual investment return assumptions from 7.25 percent to between 5 percent and 5.5 percent, a drop that would bring the system in line with the conservative accounting methods prescribed by the Governmental Accounting Standards Board.

In practice, no public pension system in the country has adopted a rate of return that low — and doing so here would increase the unfunded liability from $32 billion to more than $50 billion. But those accounting standards are the ones used by credit rating agencies such as S&P Global Ratings, which recently gave Colorado a negative credit outlook because of its pension problems.

“We are using the wrong math to solve the problem, which is going to result in more incrementalism this time around, just like Senate Bill 1,” Stapleton said, referring to the 2010 round of reforms that PERA officials said would fix the problem.

Seven years later, the pension isn’t projected to run out of money as it was after the Great Recession. But it hasn’t rebounded the way it was supposed to, either. The 58.1 percent funding ratio that PERA reported at the end of 2016 is even lower than the 64.7 percent it was in 2010, when the last reforms were adopted.

“I think that they either lied to 560,000 public workers or they’ve been so egregiously wrong that they should be fired,” Stapleton said.

The plan drew a swift rebuke from Lynea Hansen, executive director of Secure PERA, which represents public-sector retirees and workers. By setting the rate of return lower and eliminating the taxpayer contributions proposed by the PERA board, retirees and employees would be left to shoulder the bulk of the $50 billion load.

“We’re happy to see he finally has a proposal,” Hansen said. “Up until now, our rallying cry has always been ‘Tell us what you think should happen,’ and what he thinks should happen is employees and retirees should be screwed over.”

PERA’s cost-of-living adjustment, or COLA, has changed repeatedly over the years. From 1994 to 2000, retirees received a benefits increase of 3.5 percent or at the rate of inflation — whichever was less. In 2001, the inflation variable was removed, and the COLA was set at a fixed 3.5 percent. In 2010, it dropped to 2 percent annually.

Actual inflation in the Denver-Boulder-Greeley consumer price index averaged 2.4 percent from 2000 to 2009, and 2.3 percent since 2010. Social Security payments, which PERA members don’t receive, increase based on the nationwide consumer price index.

It’s not clear how long Stapleton’s freeze on raises would need to last to reach his 80 percent funding target, a provision also employed by Rhode Island in 2015 when it adopted reforms to its own pension.

But for context, PERA’s board proposal isn’t projected to reach 80 percent funding until 2040.

PERA’s board recommended a two-year freeze in cost-of-living raises followed by a reduction to 1.5 percent, while Hickenlooper proposed a further drop to 1.25 percent. Under Stapleton’s plan, annual raises would follow inflation after the freeze expires.

The average annual pension in 2016 was $37,000 for a school district retiree and $40,000 for a state retiree, according to PERA financial reports.