Strong Returns for 2020, but Auto-Adjust Still Triggered

This month, PERA released its 2020 Comprehensive Annual Financial Report, also known as the “CAFR”. The CAFR provides a full summary of how PERA and its investments performed each year and the overall funded status of the pension plan. It is released every June.

Despite the tumultuous year, PERA’s rate of return for 2020 was 17.4%. This is significantly higher than the 7.25% assumed rate of return that PERA uses for its benchmarking and future planning.

Even with this high rate of return, employee and employer contributions rates will increase and retirees’ annual increase will drop again starting in July 2022. That’s because last November, PERA adjusted some of their main assumptions, namely that PERA participants are living longer than expect and the workforce has not increased as previously assumed. These changes have such an impact on the long-term costs of PERA that last year’s rate of 17.4% could not offset them. Therefore, the auto-adjust provision will get triggered to put PERA’s funded status back on track.

According to PERA’s CAFR, the number of years, or projected amortization period, that it will take until each division is fully funded increased from where it was in 2019. With the implementation of an auto-adjust provision, the amortization period improves as detailed in this chart.

Division 2018 2019 2020 2020 (with AA)
State 28 22 23 20
School 34 24 26 22
Local Government 29 14 11 8
Judicial 21 12 8 7
Denver Public Schools 17 11 8 7

Starting in July 2022, employee and employer rates will increase by 0.5% and the annual increase for retirees will decrease by .25%. The following chart from PERA’s 2020 CAFR details the changes.

The continued auto-adjustments, particularly after two years of double-digit rates of returns, highlight the challenges that continue to face PERA – primarily past years of government underfunding the pension. The state legislature’s decision to not make its 2020 contribution of $225 million is the most recent example. PERA’s actuaries noted that the loss of this contribution meant a $990 million long-term loss to the pension overall due to not having the investment returns or compounding interests that the $225 million would have generated over time. The Colorado Sun covered the board meeting and issue here.

State Legislature Renews its Commitment to PERA

The Governor will soon sign the 2021-2022 state budget. Last week, the Colorado Legislature finalized its work on the $34.1 billion budget, which funds many of the programs that were cut last year, sets aside additional funds for next year, and renews the state’s commitment to the long-term viability of PERA.

This means the state will make its $225 million obligation on July 1, 2021 and already has the money set aside to pay it next year as well. These actions are being done through two bills – the “Long Bill”, SB21-205, and a companion bill, SB21-228.

Thank you to the Secure PERA members who advocated with JBC members and legislators and sent more than 2,600 emails to make this happen. Your efforts had a big impact!

Secure PERA announces its PERA Board of Trustee endorsements

Secure PERA is proud to endorse four candidates this year for the PERA Board of Trustees. PERA is managed by a 15-member Board of Trustees. Eleven of the trustees are elected by PERA participants. The others are appointed by the Governor, except for the State Treasurer, who serves on the board as part of their elected position.

Beginning May 3, PERA will send out ballots to all PERA participants who are in divisions with elections. This year, there are elections in the State, School and Retiree divisions. PERA members have until May 31 to vote.

The following candidates measured up on Secure PERA’s values and beliefs on public pensions. You can read their official PERA bios here (as well as the bios of all candidates running).

State Division
  • Brian Tapley
School Division
  • Tina Mueh
  • Marcus Pennell
Retiree Division
  • Julie Friedemann

What does the PERA Board of Trustees do? Read more about it here.

Focusing on the State’s Direct Contribution to PERA

The Colorado Legislature is hard at work this year. A top priority for Secure PERA is to ensure the state funds its $225 million direct contribution to PERA this year. This annual contribution was agreed to as part of SB18-200 to make up for the state’s past underfunding of PERA. Last year, while facing a $3.3 billion deficit, the Legislature cut the 2020 contribution.

In November, the Governor released his 2021-2022 budget request and included the $225 million direct contribution. Since then, the powerful Joint Budget Committee has been working to prepare the state budget and, thanks to the advocacy of our Secure PERA members, has pledged to include the contribution for the 2021-2022 budget.

Next up, the Joint Budget Committee will receive an updated revenue forecast for the state before finalizing the budget. After that, they will introduce the “Long Bill”, which is another name for the state budget. This year, the “Long Bill” will start in the Senate before proceeding to the House.

We will keep watch throughout the process to ensure the direct contribution is maintained. In the meantime, we encourage you to attend your legislators’ (virtual) town hall meetings and continue to ask about their support for PERA and the $225 million direct constibution. The best way to know about these events is to sign up for their newsletters. You can google your legislators to find their campaign websites and then sign up for their emails.

Colorado’s Pension Review Subcommittee

As part of SB18-200, the Legislature created the Pension Review Subcommittee to be another set of eyes on PERA. While it has no authority over PERA, it does serve to review PERA’s progress and make recommendations to the PERA Board of Trustees and to the Legislature.

The Pension Review Subcommittee is under the Pension Review Commission, which was previously called the Police Officers’ and Firefighters’ Pension Reform Commission. SB18-200 expanded the scope of the commission from overseeing just the Fire and Police Pension Association (FPPA) to also overseeing PERA and established the subcommittee.

The subcommittee is comprised of four legislators, who also serve on the commission, and ten members with external expertise. These ten members are appointed as follows:

  • The Governor appoints one member,
  • The Treasurer appoints one member,
  • The Senate President appoints two members,
  • The Senate Minority Leader appoints two members,
  • The Speaker of the House appoints two members, and
  • The House Minority Leader appoints two members.

These members must have “experience or knowledge of investment management, corporate or public finance, compensation and benefit systems, economics, accounting, pension administration, or actuarial analysis.”

What is their charge?

The Pension Review Subcommittee is tasked with reviewing PERA’s overall financial health, their actuarial assumptions and progress to reaching full funding by 2048. They can make recommendations to the commission or PERA about their analysis and ways to improve the system.

The subcommittee began its work in 2019 and then paused in 2020 due to the pandemic when all interim committees were halted for the year. In 2021, the subcommittee is taking on the task of conducting an analysis of PERA’s efforts to reach full funding by 2048. It recently contracted with GRS, a national actuarial and benefits consulting firm, to do this analysis. Work on this project is just getting started.

In December of last year, PERA released its 2020 “Experience Study”. This study is done every four years and is used to set the actuarial assumptions, which are the underlying factors that affect PERA’s projections. The subcommittee’s review will include an analysis of this study, PERA’s overall assumptions and their projections.

You can learn more about the Pension Review Subcommittee on the Colorado Legislature’s website, including who serves on the Subcommittee now and their meeting information.