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.

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