In an attempt to reach full funding faster, the Colorado Public Employees Retirement Association’s (PERA) board of trustees voted in favor of a raft of changes that would reduce retirement benefits and require public employees and taxpayers to contribute more.
The recommended changes, which are intended to reduce the overall risk profile of the plan and improve its funded status, include benefit reductions for current and future members and retirees, as well as contribution increases for members and employers.
“The recommendations from the PERA Board reflect our commitment to ensuring the long-term health of the fund,” said Timothy O’Brien, board chairman of the PERA. “We understand that these recommended changes will not be easy, but we believe shared impact across the membership and with employers are absolutely necessary.”
The package of changes, which must be approved by the Colorado general assembly, includes recommendations that will significantly alter the benefit provisions and contribution structure of the plan. The proposal incorporates three major changes:
1) Benefits Reduction:
The number of years used to calculate the highest average salary would be raised to five years from three for most participants. For new hires starting in 2020, and for members with less than five years of service credit as of January 1, 2020, more years of salary will be considered to calculate an average salary used to determine the total retirement benefit.
The proposal would also reduce the cost of living adjustments (COLA). The 2% annual increase for most current retirees would be lowered to 1.5%. For members who joined after 2006, the annual increase, which is based on the CPI, would be cut to 1.5% from 2%. It also suggests suspending the annual increase for two years for current benefit recipients, while future retirees would have a three-year waiting period before their annual increase begins.
Additionally, the new rules would change the age of eligibility for full-service retirement benefits to 65 for new hires starting in 2020. For state troopers, the minimum age for full-service retirement eligibility would be raised to 55.
2) Increase Contributions into the Fund:
The changes also call for an increase in employee contributions for members hired before Jan. 1, 2020, by an additional 3% above current contribution rates. They also seek to increase employee contributions for members hired on or after Jan. 1, 2020, by an additional 2% percent, and raise employer contributions by an additional 2%.
3) Ensure the Equitable Alignment of “Input” and “Output:”
The package would change the definition of PERA-includable salary so that PERA contributions would be made on gross pay rather than net pay. It would also change the definition of full-time service accrual. Under the Board’s proposal, PERA future members will earn service credit for part-time work based on the percentage of full-time employment they are actually working.
The board also suggested instituting an automatic mechanism by which employer and employee contributions, as well as annual increase amounts, will adjust based on the financial condition of the fund.
“PERA will be working with members of the general assembly to ensure the board’s proposal receives serious consideration in the 2018 legislative session,” said PERA Executive Director Gregory Smith. “These changes impact every member, whether they are still working or retired, and will require difficult sacrifices.”