House Bill 12-1150 – Change How Highest Average Salary is Calculated

Update 4/12/12 – Senate Finance killed this bill.

Update 3/23/12 – This bill has been assigned to the Senate Finance committee – visit this page to email the committee.

Update 3/15: HB 1150 Passed the House on 3rd reading. Next it will be assigned to a Senate committee.

Update: This bill was amended on March 9th to only affect new hires.

HB 12-1150 is sponsored by Representative Kevin Priola (R-Henderson) and Senator Kent Lambert (R-Colorado Springs). The bill would change the Highest Average Salary (HAS) calculation from three years to seven years for members who are NOT eligible for a full or reduced service retirement on or after January 1, 2013.

CCRS opposes this bill as it violates the shared sacrifice compromise we came to under Senate Bill 2010-001.

You can read the bill in its entirety here.

  •  This bill is not needed. SB 10-01 addressed the long-term sustainability of the PERA funds by changing the benefit and contribution structure such that all of the liabilities of PERA will be funded in a reasonable 30-year time period as currently recommend by the Governmental Accounting Standards Board.
  • SB 10-01 addressed “salary spiking” and significantly limits the ability of a few members to turn a small salary into a large benefit. SB 10-01 limited the year-to-year increase in salaries used in the Highest Average Salary calculation to 8 percent. The “salary spiking” provisions currently contained in state law are some of the most restrictive in the country.
  • For the typical PERA member, the opportunity to “spike” one’s salary is just not possible. Therefore, the typical member is pre-funding their benefit at the appropriate level during their working career.
  • SB 10-01 addressed the non-typical member’s ability to increase their retirement benefit by placing a low year-to-year collar on salary that is included in the benefit calculation.
  • The bill raises constitutional contractual issues because the Trusts are currently sustainable. The court has ruled that benefit reductions could be made in SB 10-01 because the Trusts were going to be depleted in less than 30 years. Since PERA is now sustainable, further benefit reductions for existing members would not be constitutional and may invite a costly lawsuit.
  • During the SB 10-01 discussions, the issue of raising the number of years in the HAS calculation was considered and subsequently determined to be unnecessary. A retirement plan like PERA deals with liabilities that can be over a century long in nature. The ramifications of tinkering with benefit provisions could take decades before they are realized. Therefore, let’s give the comprehensive and equitable changes to benefits provisions in SB 10-01 some time to work.
  • The bill will lower the base benefit for the average future retiree between 6-11 percent.
  • The PERA Board, the entity created and entrusted by the Colorado General Assembly to safeguard the membership Trusts, opposes this bill due to contract impairment issues and the comprehensive nature of SB 10-01.
  • The bill will reduce future benefit payments making the lives of retirees more difficult and lowering the future economic impact of benefit payments made to retirees in Colorado, as well as decreasing tax revenue for the State and local governments.
  • SB 10-01 increased the retirement ages for 140,000 non-vested current PERA members to the Rule of 85 (minimum age of 55) and new State hires will eventually be under the Rule of 90 (minimum age of 60). Therefore, a member will have to have at least 30 full years of service and be at least 60 years old to retire.
  • SB 10-01 has significantly reduced the costs of the benefit structure for members hired since January 1, 2011. New hires have no guaranteed Cost of Living Adjustment (COLA) provisions. There is now a separate COLA fund to pay COLAs for new hires and these COLAs will be paid only when there is funding available. Reducing the base benefit (as this bill does) would also reduce the value of this new COLA even further.
  • The bill could have the opposite impact of its intent by providing members the incentive to purchase service and retire sooner than they had planned.
  • The bill does not reduce the contribution rates for employers and members and, therefore, provides no immediate fiscal relief to employers.
  • The minimal positive impacts identified in this bill on PERA’s funded status would not be realized for a very long period of time.