2009 Legislative Session
None of the legislation enacted in this session was detrimental to PERA. The following bills were passed:
SB282 signed by Gov. Ritter on May 21, 2009, adds Denver Public Schools as a separate division within PERA, and creates a separate health care trust fund for DPS retirees who will participate in PERACare. PERA worked to avoid any detrimental affect on PERA trust funds as DPS joins the Association on January 1, 2010.
SB56 allows for the transfer of the Trinidad State Nursing Home to a nonprofit corporation. Current employees would continue to be PERA members.
SB66 transfers management of the state-operated Defined Contribution Plan for some elected and appointed officials and the state-operated employee voluntary 457 defined contribution plan to PERA on July 1, 2009.
SB157 authorizes new CU employees who are members of PERA to choose to continue their PERA membership or join the University’s Defined Contribution plan.
Details on these bills can be found at www.copera.org or www.leg.state.co.us.
Joint House/Senate Education Committee Meeting on 03/25/2009:
The hearing was educational in nature with no public comment allowed although the Chair did invite PERA's CEO to make comment on the presentation by Dr. Michael Mannino, an associate professor at the UCD Business School, on his study: "Deferred Retirement Compensation for K-12 Employees: Understanding the Need for Pension Reform", which was published in the January 2009 issue of the Journal of Pension Economics & Finance.
He said his report was related to deferred compensation as associated with defined benefit plans and that he conducted two studies: one of 278 University retirees with 25 years or more of service and another with 846 DPSRS retirees. He said that some principles he wanted to measure were:
- Are these risk adjusted benefits, i.e. does the taxpayer assume all the risk?
How stable are the benefits, i.e. they should not be paid on the performance of the stock market.
- Are they comparable to the private sector? He said not many private plans are like DPSRS & PERA but he wanted to know what it would cost to purchase these benefits in the private sector.
- What was the amount of replacement earnings including inflation adjustment.
He stated:
- The contribution rate of private employers to retirement averaged 11.85% (FICA & retirement) while employer contribution to the PERA plan was about 11.35%. (Not surprisingly, he did not mention that CU contribution to pensions for faculty is 16.2% via Social Security & a defined contribution plan. Nor did he use the US Chamber of Commerce private employer retirement contribution average rate of 14.25%.)
- The contribution rate is not a reasonable way to look at retirement. (Why not? Don't we need to ask what it costs the taxpayer?)
- Public employees should not have better benefits than private employees.
- The pay structure for K-12 and University staff is poorly designed which results in loss of employees in peak years and pension spiking, although this activity is a "rational" action.
- Using an employer contribution is a poor measure.
- His study does not reflect current state of the PERA portfolio.
He then talked about some other areas, e.g. discount rate, account balance, and the difference between present value and the account balance, lump sum deferred compensation, supplemental contribution rates, pension value, mortality tables, and what would it cost to purchase an annuity with and without inflation built in. Finally, he presented some recommendations:
- The choice of DB vs. DC plan should be given to all employees.
- School administrators need to be moved to a DC plan because they cost more than other employees and are able to arrange pension spiking more easily.
- Retirement benefits should be restructured so as to reduce the retirement subsidy of one group to the next, e.g. Early retirement should be deleted.
- Pension spiking should be looked at.
Only three questions were asked by the Committee of the presenter. Then, Meredith Williams, PERA CEO and a member of the editorial board of the Journal of Government Financial Management, was invited to come forward and comment. He said:
- The PERA economist will review the report and make formal written comments to the Committee.
- The report seemed to contained a lot of "unsubstantiated opinions" and that the report's "logic fails me." He said, "I tried to go from A to B to C to D and I can't get there."
- We should remember that the University faculty and the private sector has Social Security as a foundation while PERA members do not.
- He has been around the pension industry for many years and had never heard some of the terms used by Dr. Mannino such as Lump Sum Deferred Compensation and Extra Value.
- In private industry, pension benefits include Social Security, defined benefit plans, 401k plan, profit sharing, stock options and ESOPs.
- A single premium annuity is a risky venture..."just ask those with annuities in Long Term Capital Management and AIG".
He added that the Board and staff will take a comprehensive review of the PERA program and may have to propose difficult changes for next year. He said that the issue of employers having all the investment risk is certainly one that may have to be reviewed and changed.
Other Action During the Legislative Session
Dr. Barry Poulson, a CU economics professor, authored What Now For PERA? Déjà vu All Over Again? and UCD professor Michael Mannino, authored Understanding the Need for Pension Reform for K-12 Employees. Both reports are published by the Independence Institute. Both reports basically say that Colorado public employees should be moved to defined contribution plans and the defined benefit plan eliminated.
