SB 200 – Modifications to PERA

 

5/9/2018 Update: Visit our post on the final version of the bill for the final details.

5/1/2018 Update: The House passed SB 200 on 3rd reading 38-23-4. You can see the individual vote count here. Next, the Senate will vote to either agree to the changes made by the House or send the bill to a conference committee.

4/30/2018 Update: The House amended SB 200 on 2nd reading this evening. There were several technical amendments and one substantive amendment adding a sub-committee to the Legislative Oversight Committee that will include experts.

4/24/18 Update: The House hasn’t heard SB200 on 2nd reading yet but is expected to at 4pm tonight.

4/19/18 Update: House Appropriations advanced the bill to the House floor on a 9-4 vote. The House will now take the bill up on 2nd reading. The impacts of Senate Bill 200 on each type of employee, employer and retiree is now available below.

4/17/18 Update: The post below has been updated with the changes after the House Finance committee amendments in green. The House Finance Committee passed SB200 to House Appropriations on a bi-partisan 10-3 vote.

4/16/18 2:15pm Update: The House Finance hearing of SB 200 are about to begin, listen here.

4/11/18 Update: The House Finance Committee will hear Senate Bill 200 on Monday, April 16th at 1:30 pm in LSB A (Legislative Services Building, Room A) which is located across 14th Street from the Capitol.

4/4/18 Update: The House has assigned Senate bill 200 to the Finance and Appropriations Committees. The first hearing in House Finance has not yet been scheduled.

3/27/18 Update: The Senate passed SB200 on 3rd reading with a partisan 19-16 vote with Republicans and an Unaffiliated member voting yes and Democrats voting no. The bill now goes to the House. We are awaiting the committee assignment from the House. Click here to see the individual vote record.

3/26/18 Update: The Senate passed SB200 on 2nd reading with two amendments. The DC Expansion will start a year earlier in 2021 and the retirement age increase for active employees was removed. You can learn more about all of the amendments presented here. Next, the Senate will take up the bill on 3rd reading, likely on March 27th.

3/20/18 Update: Senate Finance passed SB200 as amended by Senate Finance on a partisan 4-3 vote. Next the bill will be heard on the Senate floor. Senate Finance amended the bill to remove employer contributions and to modify the membership of the Legislative Oversight Committee. They moved the bill to Senate Appropriations on a 4-1 vote. AMENDMENTS ARE IN ALL CAPS BELOW

Senate Bill 200 is sponsored by Senators Tate (Centennial – R), Priola (Adams County – R) & Jahn (Jefferson County – U) along with Representatives KC Becker (Boulder – D) and Pabon (Denver-D).

You can read the bill in its entirety here. The most recent version of the bill with House Finance committee amendments is available here.

Secure PERA is a coalition that operates by consensus. Most of the groups making up Secure PERA have taken individual positions on the bill, but Secure PERA as a coalition does not have a consensus position.

The PERA Board met on March 7th and did not take a position on the bill. They asked the PERA staff to continue working with the Legislators on the bill.

The current version of Senate Bill 200 does the following:

Contribution Increases:

The State will contribute $225 million directly to PERA in 2018-2019 and approx. 3% of payroll annually after that.

  • Increases member contributions by 3%, phased in 
  • Increases employer contributions by 2%, phased in

COLA Reductions:

  • Suspends the COLA (Cost of Living Adjustment) for 2018 & 2019
  • Lowers the COLA to 1.25%

Benefit Reductions:

  • Increases the Highest Average Salary (HAS) from 3 years to 7 years 5 years for non-vested and new employees.
  • Increases retirement age for existing employees younger than 46 as of 1/1/2020, increases 1 year for each 4 years employee is under 46 years of age THIS SECTION WAS AMENDED OUT OF THE BILL ON 2ND READING IN THE SENATE, RETIREMENT AGE WILL NOT BE INCREASED ON VESTED MEMBERS.
  • Increases retirement age of new employees to 65 and 5 years of service or 40 years of service  60 years for school and DPS employees (everyone else is already at 60 except State Patrol which will remain the same)
  • Changes the definition of PERA includable salary from net pay to gross pay for new employees only.
  • Changes the definition of full time FTEs (full time equivalent) THIS WAS REMOVED BY HOUSE FINANCE

Auto Adjust

  • The bill creates a provision that keeps PERA on 100% funding in 30 years. If the plan needs additional funding to stay on track employer and employee contributions will be increased up to .5% annually and the COLA reduced up to .25% annually. The COLA will not go below .5% and the contributions will not increase more than 2% total. THIS WAS AMENDED IN SENATE FINANCE TO EXCLUDE EMPLOYER INCREASES AND ONLY BE EMPLOYEE AND COLA CHANGES.  House Finance changed this back to include employers.

Other Pieces

Expands the Defined Contribution (DC) plan to all divisions. THE SENATE MOVED THE START DATE OF THIS EXPANSION TO 2021, ONE YEAR EARLIER. The expansion of the DC program is no longer in the bill.

New correctional officers and local public safety officials will move into the State Patrol plan where they will pay more in order to have an earlier retirement date.

Click here to view a chart comparing the PERA Board Proposal and Senate Bill 200 in its various forms.

Effects of the Changes in the Current SB 200

We have seen many victories in the amendments made to Senate Bill 200:

  • The expansion of the defined contribution option has been removed
  • The highest average salary was decreased from 7 years to 5 years
  • The retirement age wasn’t increased for current members and wasn’t increased for new members as drastically
  • Employers were added back into the auto adjust formula – look below for more explanation on what the auto adjust is
  • We no longer have an oversight committee that includes non-elected “experts” as voting members
  • Newly-hired corrections officer employees of the Department of Corrections and local law enforcement employees were moved into the State Patrol PERA plan – they will pay more but be able to retire earlier.
  • And, most importantly we have protected the defined benefit plan known as PERA for future generations.

Here is what the current bill means for you:

New Employees hired after 1/1/2020:

  • The highest average salary will be calculated from your highest 5 years instead of 3 years
  • The retirement age to receive a full benefit will be increased two years for school and DPS employees to 60 years of age and require 5 years of service. Other divisions are already at 60 years and State Patrol will remain at 50 (State Patrol pays more for their benefit for the earlier retirement age).
  • You will pay your 8% to PERA on your gross pay (current employees pay it on net pay)
  • When you retire you will have a three-year COLA freeze (one year from SB 1 and two years from SB200) and then your COLA (Cost of Living Adjustment) will be tied to inflation (CPI-W) with a maximum of 1.25% . The sum of the COLA paid to a division’s benefit recipients cannot exceed 10% of that division’s Annual Increase reserve.

Non-Vested Employees (Those who don’t have 5 years in PERA as of 1/1/2020):

  • The highest average salary will be calculated from your highest 5 years instead of 3 years
  • If hired after 7/1/2019 – You will pay your 8% to PERA on your gross pay (current employees pay it on net pay)
  • When you retire you will have a three-year COLA freeze (one year from SB 1 and two years from SB200) and then your COLA (Cost of Living Adjustment) will be tied to inflation (CPI-W) with a maximum of 1.25% . The sum of the COLA paid to a division’s benefit recipients cannot exceed 10% of that division’s Annual Increase reserve.

Current Vested Employees (Have 5 years in PERA):

  • When you retire you will have a three-year COLA freeze (one year from SB 1 and two years from SB200)
  • For employees who started before 12/31/2006 – your COLA will then be 1.25%
  • For employees who started after 1/1/2007 – your COLA (Cost of Living Adjustment) will be tied to inflation (CPI-W) with a maximum of 1.25% . The sum of the COLA paid to a division’s benefit recipients cannot exceed 10% of that division’s Annual Increase reserve.
New Employees Non-Vested Employees Vested Employees
Statutory Contribution Rate 8% (10% for State Patrol/ Corrections) 8% (10% for State Patrol) 8% (10% for State Patrol)
Highest Average Salary (HAS) 5 years 5 years 3 years (more details here)
Retirement Age 60 years (50 years for State Patrol/ Corrections) & 5 years of Service Rule of 90 (age plus years of service) or age 65 (State Patrol/ Corrections Rule of 75) Depends on date of employment

(see here for details)

COLA Suspension 3 years (1 from SB1) 3 years (1 from SB1) 3 years (1 from SB1)
COLA Rate (more details here) Tied to CPI-W (inflation) max of 1.25% Tied to CPI-W (inflation) max of 1.25% Start before 12/31/06 – 1.25%

Start after 1/1/07 – Lower of inflation or 1.25%

Definition of PERA Includable Salary Gross Salary Net Salary (more details here) Net Salary (more details here)

Retirees:

  • 2-year COLA suspension – 0% in July 2018 & 0% in July 2019
  • 1.25% COLA starting in July 2020

Employers/ State:

  • The State of Colorado will contribute $225 million directly to PERA in 2018-2019. In the following years the State will contribute approx. 3% of payroll (not including local government) directly to PERA. (This payment will be made directly to PERA instead of to the employers and then increasing their contribution rates to ensure 100% of the dollar go to PERA)
  • Employer contribution rates to PERA will remain unchanged, rates can be seen here.

All these changes have resulted in an approximate 1/3, 1/3, 1/3 cost split for the implementation of Senate Bill 200 between current and future employees (33%), retirees (28%), and employers/state (39%). It is important to remember that COLA changes affect current retirees and all the current and future employees as well.

The Auto Adjust Feature

Every year, employees and employers make contributions to PERA to pay for that employees’ benefit as well as the unfunded liability. Since 2001, those payments haven’t been enough and that has increased the unfunded liability even more. You have heard Secure PERA talk about the State underfunding PERA by $4.5 billion since 2001 – this is what we are talking about.

We want this underfunding of PERA to stop. Originally the AED and SAED were designed and then increased in 2010 to stop this underfunding but it hasn’t been enough.

Senate Bill 200 is intended to make PERA 100% funded in 30 years, the bill as currently amended does this. The auto adjust feature would then keep PERA on the path of 100% funding in 30 years and if PERA got off that path either to the positive or negative, the auto adjust feature would kick in and put them back on the path without legislative action.

The way it works is when the CAFR (Comprehensive Annual Financial Report) is finalized in June, PERA would include how they are doing on following the path laid out by SB200. PERA would look at the total contributions made and if they are 98% or less of the total required contributions than the auto adjust would increase employer and employee contribution amounts by up to .5% annually and decrease the COLA amount by up to .25% annually.

If the contributions made are 110% or more of the contributions required, then employer and employee contributions would go down up to .5% annually and the COLA would increase up to .25% annually. These adjustments could happen annually, but the contributions will never increase more than 2% total and the COLA can never go below .5%.

These adjustments would allow PERA to stay on the path to full funding with smaller changes rather than having to come back to the state legislature like we are this year and did in 2010 for big packages of changes. But, if we have another 2008 when PERA lost 26% of their portfolio, it would require a return to the state legislature.