The Colorado Senate has passed a pension reform bill that increases employee and employer contributions, reduces cost-of-living adjustments, and raises the retirement age for new employees, among other changes.
The bill modifies the hybrid defined benefit plan administered by Colorado’s Public Employees’ Retirement Association (PERA) with the goal of eliminating the unfunded liability of the state’s public pension plans within the next 30 years. The state’s retirement association said the bill incorporates many of the recommendations put forward by its board in September.
Currently, all public employee pension participants contribute 8% of their salary on a monthly basis, except for state troopers, who contribute 10%. Under the proposed legislation, the monthly member contribution would increase by 0.5% of their salary, and on July 1, 2019, and again on Jan. 1, 2020, the monthly member contribution would increase by 1% of salary. When the increases are fully implemented, the total contribution would be 11% of members’ salaries each month, while state troopers’ contribution would be 13% of their salary.
For members who begin employment in 2020, the bill would also increase the age and service requirements for full-service retirement benefits for most divisions to age 65, with a minimum of five years of service, or any age with a minimum of 40 years of service credit.
For state troopers who begin employment in 2020, the bill would raise the age and service requirements for full-service retirement benefits to 55 with a minimum of 25 years of service credit, or any age with a minimum of 35 years of service credit.
The bill would also modify the highest average salary calculation for all new members hired on or after Jan. 1, 2020, to be based on an average of the highest annual salaries associated with seven periods of 12 consecutive months of service with a base year, rather than the current three periods of 12 consecutive months of service.
The cost-of-living adjustment for all retirees, members, and inactive members would also change under the bill. Currently, the annual adjustment for benefit recipients who began membership prior to Jan. 1, 2007, is 2%. For 2018 and 2019, the bill reduces that to 0%, and for each year after, the bill changes the adjustment to 1.25%. The bill would also require benefit recipients whose effective date of retirement is on or after Jan. 1, 2011, and who have not received a cost-of-living adjustment on or before May 1, 2018, to receive benefits for at least 36 months following retirement before the benefit is adjusted.
Beginning in 2021, the bill would also require employer contribution rates to be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability.
The Colorado Senate has passed a pension reform bill that increases employee and employer contributions, reduces cost-of-living adjustments, and raises the retirement age for new employees, among other changes.
The bill modifies the hybrid defined benefit plan administered by Colorado’s Public Employees’ Retirement Association (PERA) with the goal of eliminating the unfunded liability of the state’s public pension plans within the next 30 years. The state’s retirement association said the bill incorporates many of the recommendations put forward by its board in September.
Currently, all public employee pension participants contribute 8% of their salary on a monthly basis, except for state troopers, who contribute 10%. Under the proposed legislation, the monthly member contribution would increase by 0.5% of their salary, and on July 1, 2019, and again on Jan. 1, 2020, the monthly member contribution would increase by 1% of salary. When the increases are fully implemented, the total contribution would be 11% of members’ salaries each month, while state troopers’ contribution would be 13% of their salary.
For members who begin employment in 2020, the bill would also increase the age and service requirements for full-service retirement benefits for most divisions to age 65, with a minimum of five years of service, or any age with a minimum of 40 years of service credit.
For state troopers who begin employment in 2020, the bill would raise the age and service requirements for full-service retirement benefits to 55 with a minimum of 25 years of service credit, or any age with a minimum of 35 years of service credit.
The bill would also modify the highest average salary calculation for all new members hired on or after Jan. 1, 2020, to be based on an average of the highest annual salaries associated with seven periods of 12 consecutive months of service with a base year, rather than the current three periods of 12 consecutive months of service.
The cost-of-living adjustment for all retirees, members, and inactive members would also change under the bill. Currently, the annual adjustment for benefit recipients who began membership prior to Jan. 1, 2007, is 2%. For 2018 and 2019, the bill reduces that to 0%, and for each year after, the bill changes the adjustment to 1.25%. The bill would also require benefit recipients whose effective date of retirement is on or after Jan. 1, 2011, and who have not received a cost-of-living adjustment on or before May 1, 2018, to receive benefits for at least 36 months following retirement before the benefit is adjusted.
Beginning in 2021, the bill would also require employer contribution rates to be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability.
However, the bill will likely have to undergo some changes from its current form if it’s going to proceed any further. It was passed along party lines in the Republican-held Senate, and would have to make its way through the state’s Democrat-held House, and then be signed by Governor John Hickenlooper, a democrat, before becoming law.
One of the main aspects of the bill likely to change is an increase in employee contributions that is unaccompanied by an increase in employer contributions. The retirement association had recommended a 2% increase in employer contributions effective in 2020, but that provision was not included in the senate’s final bill. It’s expected that house democrats will call for some amount of employer contribution increases to be included in a revised version of the bill.
Tags: Colorado, Defined Contribution, Pension Reform, PERA