PERA compromise wins panel support
The proposed Public Employees’ Retirement Association rescue plan passed the Senate Finance Committee 5-2 Tuesday after members approved key changes of interest to school districts, to teachers and classified employees and to retirees.
The committee vote was the first formal test of Senate Bill 10-001, although the bill has gone through plenty of informal tests during intensive negotiations between lawmakers, PERA officials and a coalition of employee and retiree groups.
Witnesses and spectators packed a Capitol hearing room Jan. 26 for a hearing on the PERA rescue plan.
Tuesday’s hearing consumed more than five hours in a packed Old Supreme Court Chambers, the Capitol’s largest meeting room.
The hearing provided an interesting contrast in views, with established public employee groups testifying in favor of the plan while many individual retirees opposed it. (More than 40 witnesses signed up to testify.)
• One key change would set 58 as the retirement age for school employees with 30 years of service. Under the terms of the bill, the retirement age for other PERA members would rise to 60 starting in 2017.
• Retired school employees – and all other PERA retirees – would receive no cost of living increase in 2010, and the COLA would become 2 percent in 2011.
• Direct school district contributions to PERA would grow at a smaller rate over the next several years than originally proposed. However, contributions from a second fund would increase, and total increased contributions would remain the same. (The second fund, known is PERA-speak as the SAED, is supposed to be paid from funds that otherwise would have gone to employee salaries.)
• School districts and colleges could rehire a certain number of retired employees for longer periods of time than is allowed now.
Representatives of major education interest groups – the Colorado Education Association, Douglas County Federation, Colorado Association of School Executives and the Colorado Association of School Boards, plus a group of retired educators – all expressed support for the amended bill during the hearing.
The education groups and other employee organizations have been working together as the Colorado Coalition for Retirement Security, which was a key player in negotiations on the bill.
But, those organized employee and retiree voices weren’t the only ones heard by the committee. Other witnesses – most speaking for themselves – vigorously protested the bill even in its amended form, arguing especially that the legislature shouldn’t – or can’t – reduce the current, 3.5 percent annual COLA paid to retirees.
At the center of the COLA argument is the phrase “actuarial necessity,” a legal requirement for the legislature to make benefit changes.
PERA officials argue that the need to make changes so that the system can become solvent again in 30 years constitute actuarial necessity, and the current 3.5 percent annual increase for retirees can be reduced. The retirement system was battered by the 2008 stock market decline but also has been weakened by past legislative decisions that reduced contributions but increased benefits.
Several witnesses vociferously argued against the PERA view, saying the 3.5 percent is a contract that can’t be broken.
The committee defeated several amendments proposed by Sen. Keith King, R-Colorado Springs, who made it clear he’s skeptical of the rescue plan and doesn’t think it’s sustainable. “This plan will last two or three years. It’s too rich,” King said.
King unsuccessfully proposed amendments to allow all PERA members to choose a defined contribution plan, change the mix of employer and employee contributions, ban member purchase of extra years of eligibility, alter PERA’s investment assumptions and change the salary base for calculating benefits. His only committee supporter for those ideas was Sen. Mark Scheffel, R-Parker.
A number of conservative Republicans share King’s concerns about the rescue plan.
Those views seem to be crystalized in another bill, House Bill 10-1207, introduced Tuesday by King and Rep. Kent Lambert, R-Colorado Springs. The bill would change the calculation of retirement benefits, define actuarial necessity, require more state treasurer oversight of PERA, require PERA to use a different rate of estimated return, require employees to contribute 10 percent of salary, eliminate the SAED and AED, require annual legislative review of contributions, ban purchase of service credits, lower the COLA and offer defined contributions plans to all employees.
While that measure likely has little chance, it will offer PERA skeptics a platform for airing their views.
The main PERA bill, SB 10-001, has bipartisan support. Senate Minority Leader Josh Penry, R-Grand Junction, has teamed with Senate President Brandon Shaffer, D-Boulder to push the bill. And, Sen. Greg Brophy, R-Wray, sided with Finance Committee Democrats in Tuesdays votes. All 21 Democratic senators are bill cosponsors.
Shaffer is pushing hard to have the issue decided before March 1, when the annual PERA 3.5 percent COLA is due to be paid out for 2010.
PERA’s net assets available for benefits dropped from $43.1 billion at the end of 2007 to $30.8 billion at the end of 2008, a loss of more than 25 percent. The system pays about $3.1 billion in benefits a year and receives about $1.7 billion in contributions from covered employees and their employers. PERA overall is about 70 percent funded. Without changes, the system is projected to go bankrupt in 16 years.
The plan has four divisions with separate trust funds – school, state (including some higher ed employees), local government and judicial. DPS employees are in a separate, fifth division. PERA-covered employees aren’t eligible for Social Security.
Overall, the system has 190,684 active members, 81,248 benefit recipients and 143,619 inactive members (people with eligibility but no longer working in PERA-covered jobs.)
While often thought of as the state pension system, PERA membership is dominated by employees of schools and colleges. Of PERA’s 190,684 active members, 118,547 are in the school division, which includes all districts in the state except Denver. Some 44,806 people receive benefits from the school division.
In 2008 employers paid more than $430 million into the school division trust fund while employees contributed about $304 million. There were about $1.4 billion in benefit payments. Because of the hit taken in PERA’s investments, in 2008 the net assets of the school division trust fund dropped from about $23 billion at the beginning of the year to about $16 billion at year’s end.
The state division includes employees of 28 colleges, universities and other education agencies, with 11,679 members (about 20 percent) accounted for just by the University of Colorado, Colorado State, Metro State and Front Range Community College. Some higher ed employees have access to other retirement plans.
Use the Education Bill Tracker for links to bill texts and status information.
INFORMING THE PERA DEBATE – BREACHING RETIREE CONTRACTS IS A BIG JOKE TO THE HOUSE
Well, the SB 1 freight train pulled by the dozen or so PERA lobbyists is still running down the track toward its eventual legal wreck. The bill has now passed the Senate, House Finance, and House second reading.
Apparently, the cavalier Colorado House believes that the theft of hundreds of thousands of dollars from each PERA retiree is a big joke. There was laughter and joking on the floor of the House as the members passed SB 1 on second reading. Watch the archived video of the debate on 2-12 on the Colorado Channel website. The members appeared to be unaware that PERA’s trust funds grew by “north of 15 percent” in 2009 according to PERA’s general counsel. This increased the portfolio value by more than $5 billion. This information was provided at the Wednesday House Finance hearing on the bill. Incorrect figures were routinely cited during the House Floor discussion. The recovery of PERA’s funded status in 2009 makes it clear that an actuarial necessity does not exist. Members of the House warned of the coming litigation. Members voted down an amendment to require a study of the issue by an interim committee.
Here are some of the comments that I thought were significant:
Rep. Lambert: “I have heard from my constituents, as many of you have, that this proposal will breach retiree’s contracts.”
Rep. Swalm: “We’re breaking new territory in this state by trying to reduce the COLA.” “We’re probably going to get a lawsuit out of that.” “If we cut the 3.5 percent COLA there will be a lawsuit.”
Rep. J. Kerr: “There’s nothing irresponsible about gathering more information.”
INFORMING THE PERA DEBATE – “BECAUSE THAT’S WHERE THE MONEY IS.”
Here is a summary of the debate in the House Finance Committee on Senate Bill 1 on February 10.
Greg Smith testified that PERA’s return on its trust funds for 2009 “will be well north of 15 percent.” So, how is it then that they still claim that there is an actuarial necessity? At this point PERA is clearly back into its historical funded range, which has averaged 77 percent for the last 40 years. It was around 70 percent even before last year’s 15 percent gain, which I expect to be quite a bit higher when the final number comes out in June. In 2009 the S&P was up 22 percent.
Greg Smith again testified that the pension is a protected contract. Everyone in the world agrees that this is the case, PERA officials, opponents of SB 1, and proponents of SB 1. However, Smith again argued that he believes the COLA can be changed because it is not part of the contract. He refuses to see that the COLA (annual benefit increase) is set forth in Colorado law with the same force, status and weight as is the base benefit. Only tortured legal reasoning, and wishful thinking, has lead him to his conclusion.
Colorado’s COLA (and those of 36 other states) are “automatic COLAs” as opposed to “ad hoc COLAs” (which exist in about a dozen states and can be periodically altered.) Colorado’s COLA of 3.5 percent is guaranteed in statute in an identical fashion to the base retirement benefit itself. PERA has put it in writing over the years that the COLA “is guaranteed”. These documents will go to the lawyers.
Greg Smith does not seem to understand that actuarial necessity (even if it existed) does not permit the alteration of retiree benefits. With the 15 percent + returns in 2009 there is no doubt now that actuarial necessity does not exist. Why has PERA not updated its charts to reflect this new information? Do they expect the Legislature to act in ignorance? Apparently, that is their hope.
Again, PERA refused to release its claimed legal opinion permitting it to break the retiree contract. The committee did not request the legal opinion, nor did they state a desire to have an interrogatory from the Supreme Court prior to moving the bill forward. It’s “damn the torpedoes” out here in the West!
The committee did not conduct due diligence. They acted without legal advice and without an independent or current assessment of the status of the PERA trust funds. PERA will not reveal the current funded level of the trust funds.
Greg Smith said that they cannot “fix” PERA without taking the retiree’s COLA. Well then, how is it that every other state in the nation is able to address their pension problem without breaking contracts and seizing retiree COLAs? Why are we so special here in Colorado?
Greg Smith should accept that states cannot legislate away a debt for work that was completed in the past. He should accept that states cannot avoid their contractual obligations simply because they prefer to spend resources on alternative public services or obligations.
One opponent of the bill even read Greg Smith’s own words back to him from a 2008 Denver Post article saying that a COLA seizure would be illegal. No reaction.
Dr. Paulson noted that it is nonsense for the Legislature to believe that there is only one solution to improving PERA’s funded status. On numerous occasions now the Legislature has received a menu of pension reform options that are being studied and implemented by dozens of other states. These options can be viewed at this link on the Vermont Treasurer’s website:
http://www.vermonttreasurer.gov/sites/treasurer/files/pdf/retirement-ll/GRS_Pesnio__Insight2009_10.pdf
It was revealing that the Chairman of the House Finance Committee concluded the hearing by saying that the Legislature is forced to try and illegally seize retiree COLAs, “because that’s where the money is.” Pathetic.
Rep. Swalm noted that PERA and Colorado are the first in the nation to attempt to break retiree pension contracts. He called it “blazing new ground.”
Rep. Gerou asked the committee why there has been no interim study committee of the PERA issue as there was with the Pinnacol insurance company. This would have been due dilligence.
Rep. Kagan noted that high inflation in the future will tremendously burden retirees without the COLA.
Meredith Williams again lied to the committee by telling them that the Colorado Legislature is the only one in the country addressing pension reform. He said this to a committee that just a few weeks ago had a briefing from a national pension expert on reform efforts that are occurring in at least half of the states. Incredible.
Meredith Williams said that PERA “looked at every option” in pension reform. How do we know that? Much of the PERA Board’s discussions occurred in executive session. Did they look at PCOPs? Did they consider the myriad of reforms that are being enacted in other states? Should we just trust him? Rep. Kagan seemed to believe that these reform efforts are not occurring across the nation. It seems he has not read the NCSL summary of 2009 state pension reform legislation.
Rep. Gerou said that it is a disservice to the state to rush a bill through when the committee knows that it will go to litigation, and said “what we are doing to the retirees is wrong.”
Rep. Delgroso said that it is “tough for him to tell people that he is going to break their contract.”
The money that PERA has spent on lobbyists is paying off for them. Apparently, if you spend enough money on lobbyists you can force the General Assembly to act irresponsibly, to enact an unconstitutional bill, to abandon morality in the pursuit of more money.
For more information on this topic visit saveperacola.com, e-mail SavePERACOLA@gmail.com or punch “”Informing the PERA Debate” into Google.
The eloquence of the Colorado Supreme Court:
Denver Police Pension and Relief Board, Colorado Supreme Court, 1961
When conditions are satisfied for retirement . . . . “at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it has ripened into a full contractual obligation.” “Whether it be in the field of sports or in the halls of the legislature it is not consonant with American traditions of fairness and justice to change the ground rules in the middle of the game.”
Once again Colorado State employees/retirees are thought of as step-children.
AND PERA doesn’t produce current records (just those of 2 yrs. ago?)
Maybe the French were on to something “Off with their heads”