State pension plan reform passes Senate
By Marianne Goodland
Senate Bill 1, the top priority of Senate President Brandon Shaffer, received final approval from the Senate on Monday and will be heard in the House next Wednesday.
SB 1 modifies the Public Employees’ Retirement Association (PERA) pension plan to help it reach solvency in less than 30 years. Currently, PERA’s board of trustees project the fund will be out of money in as little as 26 years. Supporters of SB 1 also point to a “death spiral,” which they say will happen in as little as four years — PERA would have to start selling assets in order to pay its benefits obligations. Lawmakers, such as Sen. Keith King, R-Colorado Springs, say the bill doesn’t go far enough and that PERA should be converted to a defined contribution plan. King offered a number of amendments to change SB 1, including one on the defined contribution plan, during second reading debate on Friday, but none were successful.
SB 1 was amended by the Senate Finance Committee to shift an additional 0.5 percent of contributions to employees in the school division, in exchange for allowing current employees to retire at age 58 with 30 years of service rather than age 60 with 30 years of service. Their additional contribution would be 2.5 percent; the employers in the school division would then have an additional contribution of 1.5 percent. Employees in the other divisions of PERA (state, judicial and local government) would see an additional 2 percent contribution; employers would have the same additional contribution. Those contributions go into effect in 2013, after current supplemental contributions end.
The Senate vote on SB 1 on Monday was 25-10, with four Republicans voting in favor along with the Senate’s 21 Democrats. The four Republicans were Senate Minority Leader Josh Penry, R-Grand Junction, the bill’s co-sponsor; Assistant Minority Leader Greg Brophy, R-Wray, also a co-sponsor; Sen. Ken Kester, R-Animas, a co-sponsor; and Sen. Al White, R-Hayden.
The bill has a deadline of reaching Gov. Bill Ritter’s desk before March 1, when PERA must make its annual cost of living adjustment. If SB 1 is signed by March 1, the COLA would be zero for 2010 and capped at 2 percent beginning in 2011. If the bill is not signed by March 1, the COLA would be 3.5 percent and would go to the 2 percent cap in 2011.
SB 1 is expected to be heard by the House Finance Committee on Wednesday, Feb. 10.
Opponents of the bill gathered at a Denver restaurant Wednesday night to discuss options for suing PERA over the legislation. Jeremiah Attridge, an employee with the Department of Labor and Employment, said about 30 to 40 people are currently involved in those discussions. The group is informal, Attridge said, mainly distributing flyers to state employees involved.
“We’re hoping saner heads will prevail in the House,” he said Thursday, calling SB 1 “an ill-thought piece of legislation.” He blasted the PERA board for losing $11 billion and then going after pension benefits for retirees. Attridge said his group is loosely affiliated with the HandsOffMyPera group, which also is looking at whether to take legal action against the pension plan.
In the meantime, two more bills dealing with the PERA situation have been introduced, although their Republican sponsors acknowledge their chances of passage are remote.
House Bill 1207 is a comprehensive bill dealing with many aspects of PERA. It is sponsored by Rep. Kent Lambert and Sen. Keith King, Republicans from Colorado Springs. The bill contains many of the ideas put forth by King on SB 1 during that bill’s passage through the Senate. It has been assigned to the House State, Veterans and Military Affairs Committee, which is often a place where the House majority sends bills that may have a poor chance of passage.
HB 1207 proposes to change the calculation of benefits from one based on three-year highest-average-salary to five years. The bill also addresses the issue of actuarial necessity, pointing out that current statutes do not define what constitutes an actuarial necessity. HB 1207 says an actuarial necessity exists when the defined benefit plan is not actuarially sound and that in those situations the legislature can modify benefits.
HB 1207 would also modify how PERA’s estimated rate of return is calculated. Currently, that is a decision of the board of trustees. They voted in October to lower their annual estimated rate of return from 8.5 percent to 8 percent. HB 1207 would say the rate of return should be the average of the actual rate of return for the previous three calendar years.
The employer and employee contribution would also change under HB 1207 to a flat 10 percent of the employee’s salary; currently contribution rates vary from 8 to 12 percent depending on the employee’s hire date and what division the employer is in. The bill also would eliminate the supplemental amortization equalization disbursement (SAED) and amortization equalization disbursement (AED); additional contributions paid by the employee and employer, respectively, since 2007 and were due to sunset in 2012.
Employees would no longer be able to purchase service credit if HB 1207 were to pass, as of Jan. 1, 2011. Service credit purchases in the early 2000s are responsible for part of PERA’s unfunded liability.
HB 1207 also would create a rule of 95. Current members who do not have five years of service on the effective date of the bill would have to be 65 years of age with 30 years of service to receive full benefits at retirement.
But the bill’s most striking provision is its plan to end all new enrollments in PERA’s defined benefit plan. PERA does offer a defined contribution plan, with about 5,000 members. Under HB 1207, that plan would be eliminated and a new one created. All members in the current defined contribution plan would become members of the new plan, and any employee hired on or after Jan. 1, 2011 would become a member of the defined contribution plan and would not have the option of becoming a member of the defined benefit plan. PERA retirees who come back to work for a PERA employer also would have to become members of the defined contribution plan.
PERA spokeswoman Katie Kaufmanis said PERA has not yet completed a fiscal analysis of HB 1207 and could not comment on the bill’s financial impact on PERA.
House Bill 1153 would change the composition of the PERA board of trustees and is sponsored by Rep. Jim Kerr, R-Littleton. The bill is scheduled for the State, Veterans and Military Affairs Committee on Feb. 11. Under HB 1153, the number of gubernatorial appointees and who are not PERA members would change from three to eight. In order to keep the same number of trustees at 15, HB 1153 would change the number of members from the school division from four to two, reduce from three to one the number of members representing the state division, and change the number of retiree members from two to one. The bill requires that the elected member from the state division be a state trooper.