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.

PERA: Best Bang For Your Buck

This week we got some good news. PERA is more efficient and costs less than other retirement plans! The Colorado State Auditor’s Office released an independent report that examined Colorado PERA’s retirement plan design and compared it to alternative public and private sector retirement savings options. The Auditor’s office teamed up with Gabriel, Roeder, Smith & Company (GRS), an independent, national actuarial firm to conduct its analysis. You can read the entire report here.

Below are the key findings from the executive summary of the study:

  • Retirement income as a percent of final income, or replacement ratio, is a common metric used to compare one retirement plan to another. Target adequacy replacement ratios range from 77% to 85% of pre-retirement final pay.
  • Alternative plans implemented for new hires require greater contributions in order to replace the same retirement income than the current PERA Hybrid Plan. If contributions are kept the same, alternative plans will provide a lower retirement benefit/replacement ratio. Alternative plans studied included defined contribution, cash balance, a combination of defined benefit and defined contribution, plus Social Security private sector model plans.
  • Transition costs for moving new hires to an alternative plan would emerge in three main pieces: (1) the acceleration of the payoff of the unfunded accrued liability, (2) the higher cost of the new plan, and (3) the changing risk profile and investment earnings of the trust.

It is important to note that the State cannot eliminate the unfunded liability by moving new hires to an alternative plan and could cost the State anywhere between $8 billion and nearly $16 billion to convert to one of the other plans this study analyzed. The study demonstrates the advantages of PERA for employees including teachers who leave the system after just a few years, but allow their funds to remain within PERA to grow and be taken out upon retirement.

This study validates what we already knew. The independent firm could not find any plan that provides a more effective level of benefits than Colorado PERA proving that it is the best bang for the buck when it comes to retirement plans.

PERA Signal Light Study Update

The Legislative Audit Committee received an update from Cavanaugh Macdonald on the funded status of PERA and an update to the Signal Light Study originally authorized under Senate Bill 14-214. We at Secure PERA wanted to take some time to look back at where we were and where we have come using the Signal Light Study. We created a one pager for the Audit committee members to demonstrate how pre-SB1 PERA was in the red and SB1 was able to bring us back to the green levels. After last year’s disappointing 1.5% rate of return the State & School divisions have slipped back to yellow. But, it is important to look at the second part of what the study showed us – what probability PERA had of improving. You can see the entire updated results from CavMac by clicking here. Or review our Signal Light Study Summary below (you can click here for the one pager version to print)

The History

A sensitivity study of PERA was commissioned by the State Legislature in Senate Bill 14-214 and completed by Pension Trustee Advisors (PTA), an independent actuarial firm. The study recommended the signal light status be updated each year during the annual valuation process. The update was done this summer by Cavanaugh Macdonald (CavMac) based on the 2015 year-end valuations and using the framework and signal position definitions developed by PTA.

The study looks at how investment returns, PERA population growth, mortality and other actuarial assumptions impact the time line for full funding of PERA’s divisions.

The Summary

All of PERA’s Divisions are solvent and on a path to full funding. PTA stated in their original Sensitivity Study that, “Investment return has the widest range of variability and has the biggest impact on the full funding date.” In the summary chart, we summarize the findings of both the PTA study and the CavMac update.

We use the investment return assumption data they provided as we agree that investment returns will have the greatest impact on PERA’s stability.

Secure PERA’s Position

As demonstrated by the PTA study and CavMac update, the sacrifices made in Senate Bill 1 are working and we have to continue to let them work, the SB1 mandated employee and employer contribution increases aren’t scheduled to be fully implemented until 2017 & 2018. Senate Bill 1 was designed as a long-term fix and it needs time to truly be effective.

A defined benefit plan is the most cost-effective for Colorado taxpayers and provides the best retirement security for current and future PERA members. The Legislature’s study authorized in SB 12-214 and conducted by Gabriel, Roeder, Smith & Company (GRS) compared different retirement plan designs and found that the cost to fund PERA benefits is lower than the cost of other plans in the public and private sector – meaning more money stays in our member’s pockets instead of Wall Street’s. They also stated that when costs are held constant, PERA’s plan delivers the highest percentage of salary replacement income in retirement for both short-term and career public employees.


This week, the Colorado Office of the State Auditor and the Legislative Audit Committee released a report written by Pension Trustee Advisors (PTA). The study explored the role and variability of actuarial assumptions in projecting the most likely future funded status of the PERA Hybrid Defined Benefit Plans. The goal of any retirement system is to accumulate sufficient assets to fully fund all of its current obligations. The report concluded that the Defined Benefit Plan is currently on track to be fully funded.

Additionally, PTA developed a simplified signal light reporting system that will help policymakers assess the current full funding date of each Division and the likelihood of future changes due to investment returns and other metrics. PERA was awarded “green lights” to four of PERA”s five division trust funds: state, school, local government, and Denver Public Schools, and a “yellow light” to the Judicial Division.

“PTA’s independent analysis of the Colorado PERA retirement plan, conducted with oversight of the Office of the State Auditor, provides policymakers with a new framework for assessing future predictions and assumptions used to determine PERA’s financial health,” said PERA Executive Director Gregory W. Smith. “We are receptive to having another tool to provide information about the sustainability of PERA. It provides more transparency to a complicated topic,” he continued.

The PTA report included three recommendations related to the use of the signal-light methodology. They are:

  1. PERA should utilize the proposed signal light reporting annually to give policymakers an assessment of the current projected full funding dates compared to the objective. The investment return required (and the likelihood) of maintaining, improving, or declining from the current signal should also be determined periodically and whenever significant changes have occurred. Other metrics should also be considered.
  2. PERA should expand its annual reporting to include the causes for any changes in the expected full funding dates.
  3. PERA should ensure that future actuarial audits include a confirmation of the multi-year actuarial projections currently used to determine the full funding date.

PERA has agreed to introduce all three recommendations.

You can read the entire report by clicking here.

PERA Release Senate Bill 1 Five Year Review Study

As part of the changes implemented in SB 1, PERA is required to report to the General Assembly every five years “regarding the economic impact of the 2010 legislative session changes to the annual increase provisions on the retirees and benefit recipients as compared to the actual rate of inflation and the progress made toward eliminating the unfunded liabilities.”

Key Findings:

  • As a result of the SB 1 reforms, PERA is sustainable.
  • Over the past five years, SB 1 reforms saved PERA approximately $15 billion in unfunded liability.
  • The SB 1 reform with the most significant impact over the last five years is the reduction in Annual Increase provisions which accounts for over 90 percent of the $15 billion in savings to date.
  • Even recognizing the SB 1 reforms which changed the Annual Increase provisions, PERA benefit recipients kept up with U.S. inflation over the last five-year period.
  • The funded ratios of the two largest Divisions of PERA (State and School) are slightly ahead of the original projections developed at the time SB 1 was implemented in 2010.

You can read the report for yourself by clicking here.