Some concerned about stability of Colorado's retirement system

Jan 6, 2017

Credit 50states.com

Colorado’s retirement system for the state’s employees is causing some to worry about its stability.

As The Denver Post reports, just six years after the Colorado Legislature approved changes aimed at shoring up the state pension fund, the stability of the public employment retirement account (PERA) is again under scrutiny.

Longer retiree lifespans and slower than expected investment growth, as well as lower investment assumptions. have converged to tip much of the state retirement system below recommended funding levels, with one division’s growing unfunded liability ringing an alarm that could result in more corrective measures being taken by the legislature.

PERA has dropped to 62.1 percent funded with a $26.8 billion unfunded liability as of its most recent financial reports at the end of 2015.

The latest projections indicate that the state and school divisions, PERA’s largest funds, won’t pay off their liabilities for 44 and 46 years, respectively, about 50 percent longer than the recommended 30 years.

The more immediate cause for concern, however, is the judicial division’s fund, which in November, dipped into orange, PERA’s color-coded “signal light” scale that indicates a period of more than 50 years for the payoff of debts and triggers the consideration of a corrective plan.

It is not clear, at this point, what if any impact this will have on state employees and taxpayers and PERA spokeswoman Katie Kaufmanis said it was too early to say what changes could be on the table.

Greg Smith, executive director of PERA, played down the severity of the problems at a Joint Budget Committee hearing in November, saying the situation was nowhere as dire as it was in 2009, when the stock market crash prompted the legislature to cut benefits and boost taxpayer contributions.

Smith said PERA was not running out of money, but acknowledged that it is behind schedule.

PERA officials blame the struggles on a number of factors, including a lackluster 2015 stock market.

PERA is the state’s smallest retirement division, with a combined 700 members, including active employees and retirees.  Because of its relatively small size, it is more susceptible to market fluctuations and to changes in the funding formula. Members also tend to live longer than the average state employee.

PERA’s color-coded scale considers green as debts that can be paid off within 40 years. Debts that can be paid off between 40 and 50 years get a yellow designation. Orange indicates an amortization period of greater than 50 years and red means a division is going to run out of money.

“This color coding was designed to raise alarm bells that should already be going on,” said state Treasurer Walker Stapleton, a PERA board member. “We’re already facing a five-alarm fire situation here in Colorado.”

This year, the stock market has risen to record highs following a sluggish 2015, but PERA’s performance won’t be released until its audited financial results are due in May or June, Kaufmanis said.

Smith said the outlook is much better than it was six years ago.

“We’re not in a position where the system is facing exhaustion,” Smith said.