Rescuing the Public Employees Retirement Association (PERA) is nothing new for state lawmakers. Twice in the last decade, legislators have thrown PERA a lifeline, forcing the state, school districts, local governments and finally even workers to chip in hundreds of millions of dollars to keep the plan afloat.
As recently as four years ago, PERA and many employee groups refused to acknowledge the plan’s peril, despite assets falling from 105 percent of the amount needed to pay benefits to just 70 percent from 2000 to 2004.
In 2008, PERA’s funding ratio tumbled to below 52 cents for every dollar of promised benefits — a $30 billion deficit. After almost a year of cautioning lawmakers against acting hastily, even PERA’s directors finally asked for help — a third rescue plan in just seven years.
PERA had little choice. Its $30 billion unfunded liability is enormous. For comparison, state government is expected to collect about $27 billion in taxes and “fees” over the next three years. Shutting down state government for three years in order to bail out PERA isn’t exactly a viable option.
PERA’s fix asks for more money from employers (taxpayers) and asks current employees to forego up to 5 percent of future wage increases.
More significantly, PERA abandoned its long-held legal argument that benefits once promised to its members can never be scaled back, no matter how unaffordable they become. PERA proposes an immediate reduction of cost-of-living adjustments from the current 3.5 percent per year to no more than 2 percent.
The current plan, Senate Bill 1, is criticized from the right for not doing enough to control the costs of PERA’s generous benefit structure and from the left because — at long last — it requires PERA beneficiaries to shoulder a significant portion of the bailout’s cost.
However, the cost of PERA will soon become too large to ignore, even for those hoping to retire on PERA. If this year’s “fix” is approved —the alternatives aren’t any easier — then the total cost of employing a PERA member will be more than 28 percent of that employee’s wages:
- 8 percent deducted directly from an employee’s paycheck.
- 15.15 percent contributed by employers, including a 5-percent bailout payment.
- a 5-percent bailout payment from employees, which is, at least in theory, subtracted from wage increases.
Many scoff than these “foregone wage increases” are merely a ruse to create the appearance of employee contributions while still ultimately sticking it to taxpayers.
Those suspicions aren’t unfounded, but the reality for most school districts, local governments and, even, the state is that they have nowhere else to find the money, given that personnel costs account for a large share of their budgets.
When the current economic crunch subsides, union leaders will most certainly lobby elected officials to fund both the PERA bailout and standard wage increases. If lawmakers, city councilors or school board members give in, then voters should throw them out.
Either way, the cost of funding PERA will soon become a tremendous, inescapable burden for government and for employees covered by PERA.
A PERA member whose job pays $50,000 will have $4,000 deducted and credited to his or her PERA account. The employer will send PERA an additional $5,075 as its employer contribution and another $5,000 for the PERA bailout.
Whether or not some of that money comes from foregone wages, year after year the employer is paying PERA $5,000 that otherwise could have been spent elsewhere. And because personnel costs are the largest part of most government budgets, employees would have undoubtedly received a share of that money if it wasn’t bailing out PERA.
For current retirees, the bailout isn’t so bad; aside from the reduced COLA, they aren’t paying for it. But working PERA members will soon ask if the money their employer is sending to PERA will fix it once and for all — or if they’re trading reduced wages today for more promises that PERA can’t keep and more costly fixes in the future.
8 Thoughts on “Workers can’t ignore cost of PERA ‘fix’”
I am a PERA retiree. I retired in 2006 at the age of 65. Prior to state employment I worked 29 years in private industry covered by social security. When I retired from the state I had accrued 21 years of PERA service time. I took advantage of “time purchase” at a cost to me of over $60,000. I planned my retirement so that I would not be dependent on just one monthly check. While in the state’s employ I was appointed to the Govenor’s Advisory Council to the Department of Personnel and Administration for 2 years. Briefly, I was there to imput the concerns and issues pertaining to employees of the Dept. of Corrections. I often suggested that many of the employees I talked with were more than willing to “contribute” 10% as their share to PERA as they considered it as their money being put aside for retirement. I was repeatedly told that it was not possible because the LEGISLATURE controlled PERA and only they could approve changes. That being said , I often wondered how and why it was possible to retire at the age of 50-55 with, in many cases, 25-3o years of employment entitleling you to as much as 75% of your 3 years of your highest average salary. I understand a deal is a deal but even if you “earned” your retirement benefit it shouldn’t be payable until 65 years of age, just like everyone else. I also thought that the maximum entitlement should be capped at 75% not 100% of your HAS. If you stay in state employment for 40 or more years it should be your responsibility to put aside your own money to supplement your retirement. A PERA savings account, IRA or something similar, without further state contributions should be made available in such cases There are many ways to assure the future health of PERA , all mean sacrifice on all concerned, but “sacrifice” really isn’t the proper word, to me it is taking “responsibility” of your own future.
I would suggest that ALL legislators stop “BUYING VOTES” at the expense of PERA’s solvency as well as the states budget.
I am a current state employee and have a long time to go till I reach retirement. First off PERA is no big sweetheart deal for the working guy. Back when PERA first came in guys could buy years into PERA and most of them had alreaady retired from another company, so now they all have two retirements coming in, and all the low guys with entry level jobs footing the bills. PERA retirment is the main reason guys come into state jobs, the private sector has way better pay scales, but the state offers the safe jobs, which family guys look for. The health care plans are basically catastrophic plans and you pay out of pocket for everything. If the state cant keep its hands out of the state workers pockets then they will have trouble not only retaining employees but finding new guys to replace all the retirees. Not to mention the furlough days, and loss of wages that are currently happening. For instance, these pay raises are non existant, the legislature gives themselves raises, but the state employee is overlooked. Out of the past ten years most guys say they got one cost of living increase and one pay for performance increase. The Romer years looked out for the employee, but the last two guys could care less. The state budget should not be balanced on the back of the worker, it just wont work. As far as PERA is concerned, with these mythical pay raises banked out of our checks, what it really means is a pay decrease from dwindling paychecks over the next three years. After that PERA will be worse off, so will the state, the recession is nowhere close to ending, look in the stores at prices, seen any coming down lately? Paying less for basic needs, how about gas prices, or insurance costs? If wages dont increase with the inflation then the money is worth less anyways, so the state to help itself to the workers checks anymore, we shall see workers quiting, and those jobs not being filled back up, nobody can afford to lose pay when everything costs more for to long before they just have to throw in the towel. As PERA changes guys are looking at retiring before the new rules take effect, and these guys positions wont be refilled, putting more workload on the guys at the bottom. Eventually the guy on the bottom gets crushed under the weight of the beaurocracy, which tears apart families, causes more forclosures, more loan defaults, and continues the downward spiral. The retiree gets the guarantee of the cost of living increase, the guy working in the field gets less of his take home every month and no guarantee of future raises, which means a guarantee of more money of of our checks and no pay raises for the next decade. Not much incentive to keep the state worker in place, and during a recession the state is the last entity to bounce back. Always has been three years behind. Like the services you enjoy currently, give it a couple years and see the condition of the schools, roads and social services. We have seen nothing yet, plus I am not only a state employee, I am also a tax payer same as anyone else.
I have been a “small business” employer for most all of my adult life. Real business, as compared to “government business” can only afford to fund retirement if it can cover those expenses. If I made wrong decisions then no one bales me out.
I am really tired of the wining of PERA people . I am really tired of paying for their unbelieveable “retirement” benefits too. I am tired of insuring their future at the expense of the entire people of this state.
Here’s how I see it.
When social security finally stops (coming soon to a “retirement village” near you) so too will stop the ludicrous PERA retirement benefit plans that are bankrupting our state government. When the “retirment benefits” of the government of Colorado bankrupt the State of Colorado then PERA recipients will receive what the employees of any other bankrupt private sector company receive. You can not squeeze blood out of dried up turnip. Wake up! The time is past for HOPE in imaginary pots of gold. The reality is that we, the people of the State of Colorado, can no longer keep our “public servants” like they would like to be kept. We the People of the State of Colorado are tired of serving those who have been hired to serve us.
While it is easy to blame PERA and employee groups for the current funding problems facing PERA, according to a report by “The PEW Center On The States” titled “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform” the state is also a party to the problem. In fact the article has a special section that focuses on Colorado. In that section it states the three reasons for the current PERA funding issues are 1. Increased benefits, 2. Missed contributions, and 3. Investment losses. The missed contributions are contributions from the state. From the article:
“Missed contributions. Up until 2002, the state paid its contributions regularly. But thedot-com bust and investment losses in the early part of this decade led to a jump in required contributions that the state could not meet. Over the past six years, the state paid only between 50 percent and 70 percent of its actuarially required contribution, for a total of $2.4 billion in payments that were skipped.95 These missed payments are added to future payments with the result that the contribution requirement goes up. The required contribution was more than 11 percent of payroll in 2004 and had grown to about 17.9 percent of payroll in 2008. While the plans paid $2.8 billion in actual benefits to retirees in 2008, contributions that came in from employers and employees amounted to only $1.6 billion.96”
So, the PERA problem has been simmering since 2002. Colorado is not alone with this problem. In fact only 4 states have fully funded public pensions.
I’ve read about the Pew study, but haven’t read it directly, so I’m relying on WageSlave’s summary of it. That said, Pew is incorrect if it asserts that the state missed any of its scheduled PERA payments. The state has suspended payments to other pension plans, but not to PERA. Pew assumes, however, that when there’s a shortfall in the plan’s amortization schedule — whether due to increased benefits or investment losses — that the state should pay more to make up for that. Some pension plans actually impose these contribution increases on state budgets automatically. Colorado law requires legislation to change contribution levels. Since 2004, the state’s contribution to PERA has been increased from 10.15 percent to 16.15 percent — or to 20.15 if this year’s PERA “fix” is passed.
There is no way possible that PERA earns 8% return into infinity and beyond. It just ain’t going to happen. This is a Depression folks, the economy is being propped up with FED funny money. Pull the curtain back and anyone can see how screwed we really are.
@Mark and WageSlave
Myself and a colleague recently dissected the PEW study. The key phrase is “actuarially required”. What happened is the State did not pass legislation to increase contribution levels into PERA for several years after benefits were increased during the dot-com bubble. Thus PERA became more underfunded with each passing year. The State legislature and perhaps employee lobbyists squarely take the blame for the current PERA debacle.
I have been a state employee for years, we see no raises year after year and now, they can just reach into our pockets to help shore up PERA. I don’t understand how we have no say in our own destiny – it’s like being robbed and having to like it. I work hard everyday and I’m sick and tired of everyone saying how lazy state workers are. What we truely are is the pawns of the state of Colorado, they do what they want with us and we have no voice. I agree with the gentleman earlier, the state is going to really be in trouble when the economy comes back – we are all planning on jumping ship in droves the way they have treated us. Who would want this job anyway? Not me, as soon as this economy is uprighted, I’m outta here, they can keep their stinkin PERA!
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