Impact of the 2020 Legislative Session on PERA

This week, Secure PERA and our coalition partner, CSPERA, hosted a webinar with over a 100 PERA retirees from across the state.

Rep. Julie McCluskie, who serves on the powerful Joint Budget Committee and represents House District 61 covering Delta, Lake, Gunnison, Pitkin and Summit Counties, joined us to discuss the 2020 budget and what it meant for PERA.

Ron Baker, Executive Director of PERA, provided an update on the status of the pension system and how the market changes and the loss of the $225 million contribution from the state could impact retiree benefits going forward.

You can watch a recording of the webinar here.  Presentations from the webinar can be found here.

PERA’s 2019 Returns – Good News in Tough Times

At the end of June, PERA released its annual CAFR report, which reviews PERA’s investment performance for the previous year and funded status of the plan. PERA reported their second highest return in the past 20 years! In 2019, their investments grew by 20.3%, far exceeding the assumed 7.25% annual return.

This is good news as it means that at the end of 2019, the plan’s unfunded liability was reduced and the number of years that it would take to get to “full funding” improved. SB18-200 set the goal of full funding within 30 years. The chart below, from PERA’s 2019 CAFR report, tracks the changes from 2018 valuation results to 2019 results, including the state budget impacts.

However, PERA also warned that the quick downturn of the markets this year due the impact of the pandemic, which caused an 11% drop in investments so far, plus the actions by the state legislature to balance the state budget will hurt that unfunded liability. Further, depending on the how the markets play out over the rest of the year will determine if there will be more adjustments needed to keep the plan on track. Fortunately, the investment returns from 2019 provide a strong starting point.

State Budget Cuts Impact PERA

The Colorado Legislature is in the final stages of passing the 2020-2021 state budget. Facing an unprecedented revenue loss and the constitutional requirement for a balanced budget, the legislature had to cut $3.3 billion from the state budget.

As we shared earlier, there were several proposals recommend reducing the state’s payments to PERA including:

  • Suspend the FY20-21 payment of $225 million.
  • 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.
  • 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.
  • 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%.

In the end, the Legislature limited its actions to just two:

  • Suspend the FY20-21 payment of $225 million. This is a one-time suspension and any future suspensions would require additional legislative action.
  • For the Judicial Division only, they decreased the employer contribution rate for employers by 5% and increases the member contribution rate for employees by 5% for two years. This resulted in a cost savings of $2.7 million for each year.

There is no doubt that these actions, plus the additional cuts to state employees and educators, will have a significant impact on PERA. In fact, PERA testified in opposition to the bills that carried out these cuts: HB20-1379 and HB20-1394. You can read their testimony here and here. PERA also previously provided data and projections to the JBC on the impact of the proposed cuts, which you can read here.

As you can see from PERA’s projections to the JBC, they are estimating a rate of return 20% for 2019, which is substantially higher than the estimated 7.25% annual assumed rate of return. (PERA will officially release its CAFR later this month, which will provide the 2019 rate of return and other updates on the health of the system.) This is welcome news as we are looking at significant declines in the market over the past few months plus these state budget cuts. However, we fully expect the events to trigger calls from anti-pension advocates who will once more try to undermine the system.

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.

Secure PERA endorses David Hall for PERA Board of Trustees

Election season is underway for PERA Board of Trustees. PERA members in the State Division will soon get the chance to vote for a member to represent them on the PERA Board. Members have until May 31, 2020 to cast their vote.

Secure PERA is supporting David Hall, who has served on the PERA Board since 2016. He is a trooper with the Colorado State Patrol and has been vested in PERA for 14 years.

In his role on the PERA Board, David has demonstrated strong leadership and commitment to ensuring the stability and longevity of the defined benefit system. He also has been an effective representative of state employees. We are proud to support David Hall as he seeks reelection to this important role.

Learn more about David Hall here.

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

Corporate Tax Giveaways Harm State Revenues

According to a recently released report by Good Jobs First, “for Colorado, reducing corporate subsidies can go a long way to salvage the revenue needed to meet its yearly public pension obligations and reduce the burden on both employees and employers.”

The report, Putting State Pension Costs in Context, looked at 12 states where public employee pensions are being debated and found that those states continue to give high tax breaks and other subsidies to corporations. Such subsidies often exceed the amount a state owes to maintain its pension obligations.

In Colorado report, Good Jobs First found corporate giveaways were double the cost of pension obligations:

  • 2018 Colorado Public Employee Pension Obligations $378,203,901
  • 2018 Cost of Colorado Subsidies and Corporate Tax Breaks $757,983,403

The report includes the full list of these corporate giveaways. As the state is balancing its budget and plugging the hole caused by the COVID-19 crisis, its time for lawmakers to seriously look at this list.

2020 Legislative Session is Underway!

With the new year, a new legislative session has started and will continue until May 6, 2020. Secure PERA monitors all PERA related legislation and takes positions on critical bills.

We already have a handful bills introduced (see SB20-057 and  HB20-1127) and expect more on the horizon including potential legislation related to divestment. Sign up for Secure PERA emails, and we will keep you updated on these issues and future legislation.