Will State Budget Cuts Hurt PERA?

As part of the unprecedented budget balancing efforts to address the drastic shortfall from the Corona virus pandemic, Colorado’s Joint Budget Committee (JBC) is weighing big decisions that will likely affect all areas of the state budget. This could include its obligations to PERA.

As you know, in 2018, the Colorado General Assembly passed significant reforms, SB18-200, to put PERA on the path for full funding for each of the divisions within 30 years. To do so, there were major concessions and changes for employers, employees and retirees. Employers and employees across each PERA division saw their contributions increase and their benefits – from their retirement dates to the way in which their benefits are calculated – change. The state was also directed to make a $225 million direct contribution to PERA to catch up from the state’s past under funding of the system. Further, it implemented the “auto-adjust” provision that increases or decreases contribution rates to keep the system on track to meet the 30-year fully funded timeline.

Now, the JBC staff (who work with the JBC and help them put together the state budget every year) has recommended several actions that would impact PERA:

  1. Suspend the FY20-21 payment of $225 million.
  2. Move the payment date for the $225 million from first day of each fiscal year (July 1) to the last day (June 30). Combined with the first action, this would mean PERA would not receive this payment until June 30, 2022.
  3. Delay the 2020 Auto Adjust for one year. The auto adjust feature is set to kick in July 2020 with a .5% increase for both employers and employees.
  4. Shift at least 2.5% and up to 5% of the state’s employer PERA costs onto state employees and delay the state employee PERA increases. This would result in a reduction in salary for employees of between 1.25% to 3.75%.

There are many concerns about the actions the JBC could take.

  • Should the state not make these contributions, the ability of PERA to meet the 30 year fully funded timeline will be significantly harder. While we are waiting for the 2019 CAFR report from PERA and anticipate a rate of return significantly higher than the assumed 7.25%, we know that at the end of 2018, the state division was on track to be fully funded in 28 years. This could change that.
  • Further, all retirees, employees and employers across all divisions could bear the brunt of this action. This is because of the auto adjust feature that automatically makes changes to contribution rates and retiree COLAs to keep the system on track to hit the 30 year timeline.
  • Finally, if you remember, one of the reasons we were told we needed the reforms from SB18-200 was because the unfunded liability hurt the state’s credit rating. In 2017, S&P downgraded the state’s credit rating due to several factors, which included the state not paying its share of their pension obligations. Increasing the unfunded liability by not paying the state’s obligations again could send the state’s credit rating down.

What’s Next?

As of May 8, the JBC has delayed taking action on any of the recommendations and is seeking more information. But decisions will soon be needed as the legislature is set to convene to on May 18.

There are several options on the table for the JBC to consider that would impact state employee’s compensation, including the recommendations for cost-shifting and delaying the auto-adjust. Colorado WINS, the state employee’s union and Secure PERA partner, is working closely with the JBC on those options and advocating for what’s best for employees. The Association of Colorado State Patrol Professionals, also a Secure PERA partner, is advocating for the State Troopers in these budget decisions.

Secure PERA also sent a letter to the JBC about the $225 million contribution and date shift. You can read that letter here.

What can you do?

  1. Attend your legislators’ townhall, virtually. Many are having online townhalls that you can join and raise this issue. You can use the points from this email/post to discuss why the state needs to maintain its commitment. Visit your legislator’s website, their Facebook or Twitter pages to get details on their next townhall. Find your legislator here.
  2. Share about what your pension means to you on your social media. Be sure to use the hashtag #coleg in your posts.
  3. Write a letter to the editor of your local newspaper about the positive impact your pension has in your community, especially if you are a retiree in a rural community. Check out this great graphic from PERA detailing the power of our pensions around the state.

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