Under-Funded Colorado Retirement System Gets Some New Money

State will contribute $225 million extra annually, and both employer and employee contributions rise.

The struggling $44 billion Colorado Public Employees Retirement Association got help Monday as Gov. John Hickenlooper signed a new pension plan that offers it fresh money from the state, the beneficiaries, and their employers.

The state will give $225 million this year, and the same amount annually into the future, toward bolstering the system. Plus, the overhaul plan increases both employer and employee contributions to the system’s funds, which cover teachers, judges, and local government and state workers. Employer contributions are currently between 10% and 13% of an employees’ salary. They will rise by 0.25 percentage point of current pay. Employee contributions will increase to 10% from 8%.

The law will also lower cost-of-living increases to 1.5% from 2%, as well as raise the retirement age for new government workers to 64 from the current 58-60 (which depends on where they work). There will also be a two-year suspension on cost-of-living hikes. Pension disbursements will now be based on an employee’s top five years, rather the current top three.

Under the new law, the retirement system’s board can now make annual changes to the contribution rates. However, it may only increase and decrease the rates up to 0.5% percentage points

“We understand that these changes will not be easy, but we believe shared impact across the membership and with employers was absolutely necessary,” said Timothy M. O’Brien, the retirement association’s board chairman.

The retirement system is currently facing a $51 billion shortfall. Its average funded ratio across its seven divisions is 53%. Last fall, the S&P credit rating agency threatened to downgrade Colorado if the pension system’s long-term solvency wasn’t addressed, adding that reform could turn the state’s financial situation around.

In a May report, S&P credit analysts said that the state could see a “reduction in reported unfunded liabilities and higher-funded ratios” from this reform.

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