PIed: HB 14-1201 Changing the Highest Average Salary Calculation

Update: This bill was killed in committee

Update: This bill is scheduled to be heard in House Finance February 20th upon adjournment.

HB 14-1201 is sponsored by Representative Kevin Priola (R-Henderson) he sponsored a nearly identical concept last year in HB 13-1040. This bill would change the Highest Average Salary (HAS) calculation from three years to five years for members who were not a member, inactive member, or retiree of PERA as of December 31, 2014.

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.

Below are some speaking points about the bill:

  • 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.
  • 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.
  • 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 minimal positive impacts identified in this bill on PERA’s funded status would not be realized for a very long period of time.