In 2014, the Urban Institute graded public pensions around the country on a series of criteria including financial health. Colorado received a D In the funding ratio category.
This grade comes after the Colorado Legislature enacted a package of pension reforms in 2010—commonly referred to as Senate Bill 1—that many hoped would solve PERA’s funding woes.
According to the latest data, Colorado has underfunded PERA to the tune of $25.8 billion. That means there’s a roughly $26 billion difference between PERA’s assets and what it owes to current and future retirees. That gap is larger than the entire annual state budget.
The 2010 legislative reforms in Senate Bill 1 improved PERA’s financial outlook. The changes in Senate Bill 1 included:
Reducing the automatic cost of living adjustment (COLA) for PERA members from 3.5% to 2% or inflation (whichever is lower)
Raising the retirement age by 3-5 years for employees hired in 2011 or later
Eliminating the ability of those who have worked for a public entity for fewer than five years to retain a 50% match from their public employer if they choose to cash out their PERA account prior to reaching retirement status
Increasing mandatory contributions to the plan by employers and employees by 4.5% and 5.5% of salary respectively
Unfortunately, these changes might not be enough to provide a secure and sustainable retirement to PERA members.
Senate Bill 1 also left in place the current formula that leads to back-loaded retirement benefits. As a result, many public servants still risk their retirement security if they take time off to care for family or move between the private and public sectors or between states over the course of their careers.
Faye worked hard for four years at a tough school and she made a positive impact but now she’s going to work for her family’s farm. When she leaves PERA, she will get only the money she contributed and none of the school district’s contributions, putting her behind the curve in saving for retirement.
Visit our PERA Member Profiles page to read more about these illustrations.
Years teaching in Colorado classrooms: 4
Faye’s lifetime benefit under the current structure: $2,927
Faye’s lifetime benefit with a smooth accrual plan: $21,595
Faye earns $18,669 less under the current PERA structure