In 2010, Colorado led the nation in creating a bi-partisan solution to stabilize the funding of our public employee pension plan. In 2015, we are proposing, along with the Governor and PERA, an innovative plan to securitize PERA contributions and lock in the changes made under Senate Bill 1 in 2010.

You can read the bill in its entirety by clicking here.

Over the last year we, as Secure PERA, have been meeting with PERA, the Governor’s office, legislators and the Treasurer’s office to discuss issuing bonds that would allow us to take advantage of the current low interest rates (somewhere in the neighborhood of 4%) as well as PERA’s great record of investment returns (currently expected to be 7.5% over 30 years).

Many other states have issued pension obligation bonds or POBs unsuccessfully so we wanted to take a very cautious approach. We believe our SCORE Act puts together a deal that will work. As always, when you are dealing with the market there is some risk. But, we believe getting the income from the bonds upfront and then allowing PERA to wisely invest it along with the security of the AED/ SAED and base contribution rates being locked in provides us with greater security.

We learned from other states that POBs can’t be a solution to fixing broken pension systems but, if you make sure your system is secure first – like we did with Senate Bill 1 – and then you make sure all of the money from the bonds comes into your pension system and you top that off by making sure no one can take a payment holiday or reduce payments into the pension system you end up with what we believe will be a good bill for Colorado and for PERA employees!

The SCORE Act

Bonds are a very common financial instrument for all levels of government in Colorado and across the country. They are used for a variety of purposes and there are many types of bond financing structures that are intended to serve different financial goals.

In Colorado, Representatives from the Governor’s Office, the Treasurer’s Office, the Attorney General’s Office, the Colorado Coalition for Retirement Security, and PERA have spent almost a year in a collaborative effort studying potential bond proposals that could be used to take advantage of the spread between the low interest rates required to pay for the bonds and the potential for higher long-term returns received from investing the proceeds. Under a draft proposal, current employer and employee contributions into PERA would be used to pay for the bonds issued at a lower fixed interest rate. All income and the contributions above the amount needed to repay the bonds would flow to the PERA Trust Funds to be applied to continue shrinking the unfunded portion of the pension liabilities at no new cost to taxpayers, the state, employers, employees or retirees.

Goals of Proposed Bonds:

• Strengthen SB 1
  • Issuance of the bonds would improve PERA’s funded status and could reduce the amortization period on unfunded liabilities resulting in potential long-term future savings for employers and employees.
  • Bonds will provide for contribution security by ensuring the necessary contributions are maintained to reach full funding.
  • Issuing the bonds would not incur any new cost to taxpayers, the state, employers, employees or retirees.

• Ensure Fiscal Discipline
  • As proposed, the bonds could reduce the amortization period by as much as five years, saving employers $4.5 billion in today’s inflation-adjusted dollars.
  • Without bonds, employers would have to pay approximately an additional 2 – 3 percent in contribution rate increases today in order to similarly reduce the amortization period.
• Provide Transparency
  • Bonds will only be issued upon successful completion of a legal Validation Proceeding, providing for a final, non-appealable Court Order.
  • The debt service to pay for the bonds will be known at the time of issuance because only fixed-rate bonds are permitted.
  • Proceeds will be managed by PERA investment professionals with the oversight of the PERA Board of Trustees only for the benefit of its members.

 How This Proposal Differs From Other Bond Issuance:

• Other States
  • Unlike in many other states, these bonds would not cost anyone any new money, nor would they free-up money to pay for other short-term state budget priorities.
  • These bonds do not provide for a contribution “holiday.” Under the proposal, an issuance of bonds secures the bond payments through an explicit bond covenant designed to maintain the existing employer and employee contribution rates into PERA.

 Additional Information:

• Colorado PERA is sustainable today and into the future as a result of the reforms passed in SB 1. As proposed, the issuance of bonds could improve the funded ratio and shorten the timeframe for PERA to become fully funded by taking advantage of low interest rates and PERA’s investment program.
• As proposed, the issuance of bonds is intended to result in a funded status of approximately 70-80 percent in the State and School Divisions, and ensures PERA will remain one of Colorado’s best investments.
• The bonds would be issued by the Colorado Housing and Finance Authority (CHFA), under the direction of the Governor and State Treasurer.
• Colorado PERA would invest the funds as it does today – in a globally diversified portfolio with an investment time horizon that matches the fiscal discipline of the bond issuance.

Sponsors: Representatives Buckner and Pettersen and Senators Steadman and Todd

Read the bill in its entirety by clicking here.

What the bill does: The Colorado Retirement Task Force bill creates a task force comprised of experts that will study the factors affecting Coloradans ability to save for retirement, make recommendations for increasing the number of Coloradans working in the private sector saving for their retirement and assess the feasibility of creating a Secure Savings Program.

Why we need this bill: For decades, Americans have built their retirement with traditional pensions, Social Security and personal savings. Saving through a workplace retirement plan is the easiest and best way for most workers to save, yet almost half of Colorado private sectors workers currently do not have any type of retirement savings plan at work.

Consider the facts:

• 45% of Colorado’s private-sector workers or 765,717 Coloradans have no retirement savings plan at work.
• Younger workers are disproportionately affected. 53% of Colorado workers aged 25 -29 and 47% of those aged 30-34 have no retirement savings plan at work.
• About 8 out 10 Coloradans working in small businesses have no workplace retirement plan – 75% of those in businesses with less than 50 employees and 81% of workers in firms with less than 11 employees have no workplace plan.
• 74% of Colorado’s lowest paid workers have no retirement plan at work.
• 58% of Hispanic, 47% of African American and 46% of female workers in Colorado have no retirement plan at work.

Coloradans need to save more for their retirements. Adequate savings can mean the difference between making ends meet in retirement or living in poverty and depending on public assistance.

How a Secure Savings Plan works:

• Workers can save a portion of their wages through a simple, opt-out payroll deduction
• Savings plan is portable – can be taken from job to job in Colorado
• Investments are professionally managed and fees are capped
• Helps small business owners provide their employees with access to a retirement savings plan
• Makes it saving easier for Coloradans who are self-employed, on contract or working multiple jobs

How the bill works:

It creates, bi-partisan appointed task force comprised of 15 experts directed to accomplish two tasks:

1. Study and report on the factors that affect Coloradan’s ability to save for a financially secure retirement. It shall consider: the barriers people face in saving for retirement, access to and types of employer sponsored retirement plans, how much Colorado would save on public assistance if more Coloradans have adequate retirement savings, estimates of the amount of retirement savings Coloradans currently have and the amounts needed for a financially secure retirement.

2. Study and report on the feasibility of creating a Secure Savings Plan for private sector employees. A public private effort that would: pool all employee contributions, hold them in trust and invest them; provide for professional management of the investments; be portable between jobs in Colorado; include options to disburse retirement benefits through a lifetime annuity and shield the state and employers from any financial obligation or liability.

The task force will begin its work by August 1, 2055, report on the factors affecting Coloradans’ ability to save for retirement by March 1, 2016 and report on the feasibility of creating a Secure Saving Plan for private sector workers by September 20, 2106.

The work of the Task Force will provide legislators, other policy makers and Coloradans with solid information on the problem and solutions for helping Coloradans better save for a financially secure retirement.