Reality: Most public employees in Colorado are teachers. And according to the state’s assumptions, only a small minority will stay for an entire career, with half leaving within three years.
Colorado’s benefits structure penalizes the majority of PERA members, like teachers, who spend limited time with PERA-affiliated employers.
When public employees who leave the system after less than five years choose to withdraw their funds, their PERA retirement account is not credited with any employer contributions. Instead, these employees receive only a 3 percent interest credit on their contributions each year, and leave a significant amount of retirement savings on the table. For example, a Colorado teacher earning $40,000 a year would face a savings penalty of $1,232 if he or she left after one year and $6,606 if he or she left after four years. This money stays with the pension fund and can be used to supplement the pensions of the remaining teachers.
The workers who leave their funds in the system are eligible at age 65 to receive a pension benefit equal to their own contributions, an employer match of those contributions, plus 3 percent interest on their investment, and an annuity using the plan’s assumed rate of return. But because the state itself assumes it will earn a higher interest rate of 7.5 percent on its investments, the plan expects to earn a return 4.5 percent in excess of the interest rate employees receive. Given the low interest rate for employees, even with the employer match and the annuity, the pension benefit they stand to receive will be small