GUEST COLUMN: PERA and their misguided solution for solvency
It is time for an assessment of the proposal that the Public Employees Retirement Association (PERA) thinks is the answer to its insolvency. While PERA is providing retirement benefits to over 440,000 people, it is doing so at the expense of over 400 public sector employers and all the employees who are forced to be in the system. The plan is insolvent because it is has guaranteed benefits that are beyond the ability of the investments and contributions of PERA employers and employees to sustain. Their proposal to fix that problem is not viable. Here’s why:
The PERA proposal will cost employees pay raises — PERA retirees are supported, by and large, from the taxes levied on employees and employers still in the work force. In Colorado, the total between employees and employers if PERA’s proposal is implemented will be a retirement contribution of 28.55 percent — almost double that of social security, which is 15.30 percent.
- Older employees will stagnate at existing salary levels and new employees will flee to the private sector or to other states.
- What good does a high retirement payout get you when you have to pay for it throughout your career in wages?
The proposal will probably over-adjust PERA over the next 30 years with no option to re-adjust. There needs to be a mechanism to decrease the contribution levels should the plan eventually return to sustainability. The proposed 110 percent solvency funding benchmark is too high and places an unfair burden on PERA employers and employees. This is poor fiscal policy. What will they ask for with the next economic downturn?
PERA has the distinction of having one of the highest levels of unfunded liabilities per capita in the country — PERA cannot meet GASB standards, or Colorado statutes, requiring that unfunded liabilities be paid off over a thirty year amortization period. This solvency funding benchmark is unmet in their proposal.
The solution: PERA must allow a defined-contribution plan, an employee directed plan, to replace the obsolete defined benefit pension plan.
After all, what kind of salaries will new employees receive with the burden of supporting the retirees?
The benefits received in the defined-benefit plan are biased toward older employees, especially when younger employees leave their jobs. If younger employees leave their jobs before they have been employed for five years, they lose all of the employer contribution toward their retirement. If they leave before reaching retirement age, they stand to lose half or more of the benefits they have accumulated in their pension plan, the value of which is in effect transferred to older employees.
This makes it very difficult to recruit and retain new employees. Colorado needs to follow Alaska and Michigan and allow all new employees to choose a defined- contribution plan.
As it stands, PERA’s proposal does not solve its solvency crisis. It will only make matters worse by postponing the real reform that could create long-term solvency for all of the system’s retirees, employees and employers.
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Keith King is the state Senator from Colorado’s Senate District 12. You can email King at keith@keithking.org.
