Senate Bill 1

WHAT WAS SENATE BILL 1?

In 2009, Secure PERA began meeting with PERA and state legislators to talk about this groundbreaking legislation that would help correct the downward trajectory of PERA’s fiscal stability. Our approach was to make sure that no sacrifices were taken unnecessarily and that the sacrifices were shared between the employer, employees, and retirees.

Senate Bill 1 (SB1) reforms had a significant impact on PERA’s sustainability; it went from projected to run out of money within 30-35 years to on track to reach 100% funded.

In a nutshell, SB1 did the following:

  • Increased employee contributions by 2% via SAED* increases
  • Increased employer contributions 2% via AED** increases
  • Retiree COLA***  annual increase was reduced to 2%, and there was a 1-year holiday
  • And some additional benefit reductions

*SAED = Supplemental Amortization Equalization Disbursement. The SAED is an amount contributed by employers and is, to the extent permitted by law, to be funded by moneys otherwise available for employee wage increases. The SAED also has gradual increases.
**AED = Amortization Equalization Disbursement. The AED is an additional amount contributed by PERA employers that has gradual increases.
***COLA = Cost of Living Adjustment. This is the amount a retiree’s payment is increased each year to account for things like inflation.


WHAT DID THESE CHANGES MEAN FOR PERA MEMBERS?

Employees and retirees contributed $14.9 billion in reductions. When all was complete, 90% of the “cost” of making PERA secure came on the backs of retirees and employees.

Retirees who already retired by 2010 took a one year COLA holiday, and all current and future retirees sustained an annual reduction in COLA from 3.5% to 2% (unless PERA’s market returns are negative, in which case the COLA will be indexed to CPI-W).

Employees added an additional 2% in contributions through SAED.  These additional contributions were paid for using funds that would have otherwise been used for raises. Many employees also extended the length of their careers with the increased Rules of 85 & 88, thereby decreasing their overall benefit.  An employee that starts work today will have a benefit worth 1/3 less over the life of their benefit.

Employers committed to contributing an additional 2% through AED contributions. This amounted to $125 million.


HOW DID SB1 IMPACT THE FUND?

Senate Bill 1 worked. It was designed to get PERA back on a path towards 100% funding  in the wake of the disastrous 2008 stock market crash – and it was successful. Today, PERA is paying out benefits and is not predicted to run out of money.

SB1 was designed with a 30-year expected rate of return of 8%.  Contrary to common belief, we are hitting that mark.  Since the passage of SB1, the average rate of return has been 8.62%.