The hardest part about pension reform is explaining it to the majority of public and private sector employees that are not guaranteed a specific retirement income in their retirement years. Trying to fulfill obligations of billions of dollars may not compute to those that sweat over their 401(k) or 401(a) performance, stress over whether they can kick in another percent or two to a 457 or IRA, and often wonder what they will have in their retirement years.
There is, however, one incontrovertible fact. Similar to a credit card, the balance due has to be paid to employees that enter retirement having faithfully participated in a pension plan and played by the rules in place. Unlike a credit card, bankruptcy for a public pension is not an option. Obligations have to be paid.
At this point, it matters less how the Public Employees Retirement Association (PERA) got to the point it is at now than it does how PERA moves forward on two fronts. One, how does PERA chip away and eliminate its unfunded liability? Two, what – if any – changes will be made going forward? The first question is the most urgent at this time because every day that goes by exacerbates the unfunded liability. Simply put, the grand reforms in 2005, 2006 and again in 2010 that were supposed to stem the losses were not enough.
If those unfamiliar with pensions were lost before, then trying to explain how each division of PERA is calculated separately might finish them off. People explaining that it would currently take as much as 78 years to fully fund the State and School Divisions of PERA rarely mention that the Local Government Division (LGD) timeframe is more like 45 years. Neither of these fall within PERA’s laudable goal to have all divisions fully funded in 30 years, but it illustrates that the LGD is in a much better situation than PERA’s other divisions.
Before the legislative session, both PERA and Gov. John Hickenlooper proposed plans to fully fund PERA in 30 years. While elements of the plans varied, the result for the LGD was full funding in 18 years under PERA’s plan and 19 years under Hickenlooper’s plan. The takeaway is that the LGD can be afforded a lighter touch than the other divisions and still meet the goal of full funding in 30 years.
There are 27 municipalities that are members of the PERA LGD – from Colorado Springs, Boulder, and Pueblo to Alma, Eckley, and Rico. Some of the municipalities are also in Social Security – an extra contribution required for the town and the employee. The impacts of increased contributions on both the employer and the employee are worthy of larger discussion, but they are significant. The League stands firm that if they can be minimized, then they should be minimized.
To that end, CML will advocate for proportional treatment of the Local Government Division in any legislation proposed this session:
- CML and PERA Member Municipalities support the goal of passing legislation in 2018 that will allow PERA to achieve 100% funded status in all divisions in 30 years or less with the following inclusions:
- Oppose any additional employer contribution in the Local Government Division.
- Support the governor’s proposal that employee contributions for new employees in the Local Government Division should be the same as current employees
- Support a reduction of the proposed additional employee contribution for employees in the Local Government Division
- CML and PERA Member Municipalities retain the discretion to oppose fixing in state statutes an automatic ratchet-up contribution mechanism that would:
- Unnecessarily create another automatic trigger affecting budget and revenue (i.e. TABOR, Amendment 21, Gallagher)
- Create budgetary impacts when local governments would be focused on reducing new costs in the budget to avoid layoffs or program cuts
- Bypass the legislative process that should rightfully be part of any potential increase in the expenditure of taxpayer dollars
Setting PERA on the path to good fiscal health is imperative to all Coloradans. Doing so in a fair and equitable manner to each current member and retiree is equally imperative, and applying the necessary prescription to heal the Local Government Division on its own merits is the only appropriate cure.