Republican Rep. Chris Holbert of Parker shocked observers on Thursday when he asked the House Finance Committee to kill his own bill. Critics said it would have reduced employer contributions to the Public Employees’ Retirement Association health care fund in such a way that health care subsidies provided to retirees would have been eliminated.
Holbert had come under fire from more than 1,200 PERA members over House Bill 1250 and he told the Committee that he could not move forward with the legislation.
“In the past few days and weeks since the bill was introduced, I also heard not only from people out in the district and around the state, but members of the Assembly and some members of the committee who are specifically concerned about this bill,” Holbert told the Finance Committee. “I am not running legislation to make it harder for any of you, I am running legislation because I think we have a tremendous long-term problem with PERA…”
Holbert continued to defend his motivations for introducing the legislation in the first place, saying, “At some point we must step in and make change or we are continuing to hold this liability over the heads of the people of Colorado.”
The liability Holbert is referring to stems from a sharp decline in PERA’s assets over the past several years that have left the retirement fund in deep financial trouble, facing over $21 billion in unfunded liabilities. Pension plans are supposed to keep enough cash on hand with projected income to pay obligations over a 30-year period. Fears over PERA’s solvency began in 2003 and got worse with the recession in 2008.
But Rep. John Kefalas, D-Fort Collins, said shifting payments away from PERA’s health care fund is not the way to address the retirement system’s crippled financial situation. Despite Holbert asking the committee to kill his own legislation — which members did by unanimous vote — Kefalas found it necessary to raise concerns about HB 1250, perhaps foreshadowing similar controversies in the years ahead.
“This bill could have potentially eliminated coverage to 42,000 retired public employees and their dependents, and I think that is something we should be very cautious about doing,” said Kefalas.
Holbert countered that the number of PERA members who would have been affected was likely being exaggerated.
“I do question whether the bill would have or would eliminate coverage. The question is, who would pay for it?” Holbert asked, before the chair of the committee, Rep. Brian DelGrosso, R-Loveland, sought to stop debate since Holbert had already asked to kill his own legislation.
Legislative Council estimated that HB 1250 would have reduced the number of individuals receiving PERA health care benefits by 37,000 retirees and 5,000 dependents.
Under current law, just over 1 percent of the employer contribution to PERA is allocated to the state’s health care trust fund, including PERA Health Care and the DPS Health Care Trust Fund. The legislation would have required that the employer contribution be shifted to the overall PERA fund that pays out monthly pensions, not be paid directly to the health care funds. It would have most affected retirees who are not eligible for Medicare benefits. Currently, those members are permitted to apply for subsidies of up to $230 per month to purchase health care coverage. Retirees who are eligible for Medicare could receive a subsidy of up to $115.
Critics were concerned that the shift in how employers pay into the system would have reduced contributions to the health care funds and placed the premium subsidy burden on PERA members themselves.
“It was such a poorly worded bill that it does in fact kick those of us with full Medicare, it does in fact kick us off of PERACare,” said John MacPherson, a retired Denver Public Schools teacher.
He pointed out that by Holbert’s own admission, HB 1250 had been developed under the guidance of the Independence Institute, a local libertarian-leaning think tank.
“[Holbert] evidently didn’t read the bill once the Independence Institute wrote the bill and passed it by him,” said MacPherson.
Jon Caldara, president of the Independence Institute, said his organization did not write the bill, and only brought the idea forward after a so-called “Citizens’ Budget” project in which the think tank identified fiscal issues that the legislature should address. He said there were no unintended consequences that forced Holbert to kill the legislation, only a fear of not having the votes needed to pass the legislation through committee.
“We all know how this game is played. The bill was PId [postponed indefinitely] because there weren’t the votes there,” said Caldara.
“I’m really disappointed … all we’re doing is kicking a can down the road, and this was one minor adjustment to PERA that should have been heard and debated,” he continued.
Spiking pensions add undue burden
The debate over PERA did not end Thursday with the demise of HB 1250. The House Finance Committee heard two other Republican bills — House Bills 1150 and 1179 — which are also aimed at reforming the state’s pension system. Both were laid over after concerns were raised. DelGrosso suggested that sponsors should work further with stakeholders to find compromise.
HB 1150, sponsored by Rep. Kevin Priola, R-Henderson, would modify how to calculate a PERA member’s benefit amount. Rather than calculate the amount based on the average of a retiree’s three highest annual salaries — as the system works now — benefit amounts would be calculated based on a member’s seven highest salaries.
The idea is to close a loophole that allows public employees to spike their pension payments by moving into a higher salary bracket for only a few years at the end of their career, when in reality they had paid into the system at a much lower rate for the majority of their career.
“It adds an undue burden on the PERA trust fund,” said Priola. “There’s already an unfunded liability …”
The issue was thrust into the spotlight when former Gov. Bill Ritter, a Democrat, left his $90,000-per-year salary as governor in 2011 for a position at Colorado State University as the director of the newly created Center for the New Energy Economy with a $300,000-a-year paycheck. In five years, when Ritter turns 60, he could be eligible to retire and receive benefits equal to 50 percent of his current salary, or about $150,000 a year.
Some of the controversy lies in the fact that the program Ritter is heading is privately funded. But even though his salary comes from private funds, he is still eligible for PERA benefits because he is working for a state university. He also had 11-plus years of PERA credit from serving as the district attorney of Denver, and four years for serving as governor.
Former Gov. Bill Owens, a Republican, experienced a similar issue when in 1999 he took office and hired 11 former lawmakers who had only been paying into the PERA system based on salaries of $17,000 a year, which was the state salary for lawmakers at the time. But six of the former lawmakers Owens hired took salaries starting at more than $114,000 per year, drastically raising their PERA payouts.
Critics of HB 1150 say salary spiking is far from widespread, noting that 75 percent of the pension system’s 93,586 retirees see pensions of less than $50,000 in annual benefits, and that high-paying public jobs are hard to come by for the majority of public employees, such as teachers and maintenance workers.
“I don’t see a lot of snowplow drivers who move into higher education administration,” joked Meredith Williams, PERA’s executive director. “I occasionally see like a school paraprofessional who gets her credentials and finishes out their career in a classroom and gets a substantial raise, but not major six figures.”
Rep. Dan Pabon, D-Denver, questioned who the legislation targets, agreeing that there is not a large pool of public employees even capable of salary spiking.
“Who are the people that are gaming the system?” he asked. “Is it a particular area or division? I want to get a sense of who these wrongdoers or gamers are.”
Priola was cautious in firing back, “I do not have a blacklist of folks to go through, but it is my understanding and it is common knowledge in the public employee world that this is an area to maximize the last few years of your current salary,” he said.
Many members of the Finance Committee pointed to the work that was done on Senate Bill 1 in 2010 when a compromise was reached with PERA stakeholders requiring an increase in the employer and employee contribution rates, as well as a limit on the annual cost of living increase.
Critics of additional reforms to PERA said lawmakers should wait to see the results of SB 1, which did not take effect until last year.
DelGrosso said he couldn’t even vote for SB 1 at the time because he was afraid of the impact to retirees, which is why he asked Priola to take another look at HB 1150.
“I voted against SB 1, not because I didn’t think we needed to fix PERA, I agreed with that part of it, but I voted against Senate Bill 1 because it did adjust some of the COLAs, and it did adjust that for folks that were already retired and people that were about ready to retire,” said DelGrosso. “And to me, I felt like that was violating the contract that those people got into.”
Board composition gets a hearing
Rep. Jim Kerr, R-Littleton, took the approach of PERA reform from a different angle with HB 1179. The legislation would change the composition of the PERA Board of Trustees to include fewer bureaucrats and to include more outside influences, such as financial advisers.
His legislation would eliminate one elected member trustee position from the state division, two elected member trustee positions from the school division and one elected retiree trustee position. The bill would also require at least one elected member from both the state and school divisions to be at least 15 years from retirement eligibility. HB 1179 would also add four more trustees appointed by the governor who are experts in fields related to PERA functions.
Kerr had attempted similar legislation last year — House Bill 1008 — but it failed in the House Finance Committee.
“I want to try to change the makeup of the board where we get some other people looking over the shoulder of those people in the bureaucracy of PERA and analyzing the decisions they’re making without having any kind of prejudice,” Kerr said during remarks.
But Democratic lawmakers questioned the value in having such professionals as financial advisers on the board, pointing out that these experts aren’t always the best advisers. Pabon reminded his colleagues that when the recession hit in 2008, few financial advisers had the right input when it came to protecting retirement funds.
“By simply bringing someone in from the outside as you characterized it, I’m not sure that is going to bring some better solvency to the fund,” he said. “I’m having a hard time wrapping my head around it and the reason being is in 2008, a lot of us had 401k investments and other types of retirement investments. And I think we all were thinking that our financial advisers were looking out for us and were exercising their fiduciary duties, but I lost money, and I’m pretty sure all of us lost money.”
Defined contribution bill laid over
There was one final bill that the Finance Committee was supposed to hear on Thursday, but it was laid over without debate because the committee ran out of time.
House Bill 1142, sponsored by DelGrosso, would allow all state employees to participate in PERA’s defined contribution plan. The legislation is expected to be heard when the House Finance Committee next meets this Wednesday or Thursday.