We didn’t hear any trumpets sounding this week from Denver when Gov. John Hickenlooper signed a bill to rescue the Public Employees’ Retirement Association from its potentially unsustainable financial path.
Indeed, the announcements of the measure to clear the unfunded balance of $50 billion, as cited in the bill, in 30 years were rather guarded.
Perhaps that’s because in February 2010, then-Gov. Bill Ritter signed another set of PERA reforms designed to do exactly the same thing: clear the unfunded balance in 30 years.
So here we are, eight years into those reforms, and things have gotten worse.
In 2009, the funded ratio was nearly 70 percent – meaning the state had about 70 percent of the money it had promised to pay out to state workers, including teachers, judicial workers and Colorado State Patrol troopers. In December 2016, PERA reported that it was just over 56 percent funded, but under Governmental Accounting Standards Board calculations, the figure was 46 percent.
That put Colorado among the worst-performing public pension plans in the nation, and led to a credit downgrade for the state last November from Standard & Poors Global Ratings – from stable to negative.
Plenty has been written about why this all occurred, and how the state failed to properly fund its pension plan. And there have been equal number of arguments in the last decade over ways to fix the problem.
But let’s look at just one small group of people impacted by this mess: new teachers, which the state desperately needs to staff its classrooms.
Within two years, they will pay 10 percent of their meager salaries into PERA, while the promise of benefits to them have been reduced and the retirement age raised. Perhaps, some would argue, that puts them more in line with what’s happened in the private sector, where defined benefit plans such as PERA’s have nearly vanished. They’ve been replaced with defined contribution plans that puts the burden on the employee to contribute and manage money.
Colorado teachers don’t have that choice, and the Colorado Education Association doesn’t want it because it wouldn’t help stabilize the fund. Teachers can’t opt to pay into Social Security or a 401K plan, or stuff those savings under their mattresses. They must pay into PERA.
Colorado’s average starting teacher salary is $32,980 a year; in the Montezuma-Cortez School District, it is $29,250. Nationally, that figure is $38,617.
Take off state and federal taxes, 10 percent for PERA, a chunk for health care coverage, and there’s not a lot left to cover those bills a new teacher is likely to have: student loan payments, car payments, rent, utilities, food and so on. Plus, they worry about whether PERA will survive until they retire about 40 years from now. Doesn’t make the career field so enticing.
Young teachers, of course, aren’t the only ones footing this bill. About 20 percent of payroll expenses of their employers, taxpayer-funded school districts, go into PERA, leaving less in budgets for classroom spending, raises and other expenses.
Under the latest measure, the state will kick in $225 million a year indefinitely – until PERA is 100 percent funded. Also, cost of living increases will be delayed and reduced, and the retirement age for teachers will rise from 58 to 64.
There are no easy solutions to this quagmire, but it’s a case study of what happens when promises are made (now to some 560,000 Colorado workers) and chronic issues are ignored. We hope the compromises made in this bill will stabilize the fund and allow the state to keep its promises.