Colorado’s public pension board earlier this month agreed to a 20% increase in the Public Employees’ Retirement Association’s budget in order to hire dozens of new staff and begin a yearslong update of the antiquated computer systems it uses to manage retiree benefits.
PERA’s staff insist the large budget increase, which calls for an eye-popping 70 new employees, is badly needed and long overdue. Most of the new workers will help begin modernizing the pension’s administration system, which manages the payroll, benefits and personal data of its 700,000 members.
But the spending surge comes at a difficult time for public sector finances in Colorado. Lawmakers are looking to make $1 billion in spending cuts to the state budget, ushering in a new era of government austerity after years of growth that could have wide-ranging consequences for the public and private sector entities that provide state-funded services.
The computer system PERA uses to track and pay out benefits is 40 years old – the oldest still in use by any public pension in the U.S., said Andrew Roth, PERA’s executive director. The system is so ancient, PERA has a hard time finding workers who know how to use it; those who do are nearing retirement, and younger workers are no longer taught it in school or in training with other employers.
“We have the oldest system in the United States – that’s a risk,” Roth told The Colorado Sun in an interview. “That’s a pretty serious risk.”
If the technology fails, Roth said PERA could find itself in the position of needing to cut over 140,000 paper checks by hand each pay period. PERA’s monthly payroll sends out more than $330 million in benefit payments.
The board approved the large increases unanimously, even as some acknowledged the reality of where the money would come from: the members themselves. Every dollar PERA spends on administrative expenses is a dollar taken out of the pension’s investment funds, which pay for retiree benefits.
“This is a critical investment that we absolutely have to make,” Dave Young, the Colorado state treasurer, said at last week’s meeting, adding that the alternative to doing so could be “a catastrophe down the road.”
The 20% budget increase – up $22 million from this year – will bring PERA’s operating budget to $132 million next year. That represents $185 in administrative costs per PERA member, up from $155.
Ahead of the Nov. 15 vote, a number of public workers criticized the board during the public comment period, complaining that the large budget increase comes at a time when PERA’s members are sacrificing financially to bring the pension’s finances back on track. Some also chastised PERA for what they said was a lack of transparency.
“PERA consistently fails to meet basic expectations,” said Jana Schleusner, the chief financial officer for the Douglas County School District. “Agendas appear at the last minute and materials are not provided in advance, leaving us ill-equipped to understand and respond to your proposals. This lack of transparency erodes trust and undermines our ability to collaborate effectively.”
Friday morning, a week after the meeting, the proposed budget and other board materials still hadn’t been posted to PERA’s website. A notice on the page said the documents would be made publicly available some time today.
“To say I am shocked and appalled about adding 70 (full-time employees) when our funded status is declining would be an understatement,” Scott Smith, a former PERA board trustee, said during the public comments at last week’s meeting. Smith resigned in September after being elected president of the Colorado Association of School Executives. “The imbalance between the spending habits here at PERA and the austerity measures imposed on our members is striking.”
The uncomfortable timing of the spending jump was not lost on the pension’s leaders. The state faces $1 billion in budget cuts next year that are expected to result in cuts to other PERA-covered employers, as well, such as K-12 school districts, colleges and universities.
Those agencies, in turn, are already contributing more than they ever have to the pension – and additional contribution rate increases are possible in the coming years. PERA is expected to complete its periodic review of its demographic assumptions early next year – an exercise that led to benefit cuts and contribution hikes each of the last two times it was completed in the last eight years.
PERA retirees, meanwhile, have seen their annual cost of living adjustments fall to just 1% – less than half the rate of inflation.
“A budget like this in a time of the state facing a deficit and our retirees experiencing a 1% COLA – we absolutely understand the optics of making this kind of request,” Roth said. “We wouldn’t do it unless we felt it was absolutely necessary.”
Roth, who previously worked for teachers’ pensions in Texas and California, told The Sun PERA began studying whether to update the system over a year before he was hired in May 2024.
“When’s a good time to make a major investment in our organizational capacity, in our pension administration system? I think an ideal time really would have been years ago,” Roth said. “I wasn’t here. The system wasn’t ready.”
Most of the 70 new employees will work exclusively on the modernization effort; positions include project managers, data specialists and new hires to help with member services during the transition.
The modernization costs won’t end with the added staff. Expect PERA to spend millions more in the coming years on the software itself. The process won’t be quick, either. Roth said it has taken other large pensions as long as five or 10 years to complete the transition.
PERA will also expand its executive staff, its investment team and other administrative positions like human resources and accountants. The budget calls for a new chief technology officer, a deputy executive director and a liaison to the board.
PERA’s board approved a $400,000 increase – a 3% bump – to its $13.1 million budget for employee performance bonuses, which investment staff qualify for if they hit their annual benchmarks. PERA tends to hit its investment benchmarks more often than not, according to staff reports, even as the pension’s path to full funding remains tenuous.
The hiring spree marks a shift for an agency that has long prided itself on limiting administrative costs, touting in public presentations that it spends less than its peers on staff.
Roth said he came from a pension system in Texas that operated the same way. The downside to that approach, he said, is that an organization the size of PERA can only delay major investments in its operations for so long.
“PERA prided itself on running lean, did a great job of running lean, and now we’re at a period of time where we can no longer run as lean as we have,” he said.
