In 2014, the Colorado State Legislature & Governor Hickenlooper hired an outside actuarial firm to review the status of PERA’s funding. They recommended a simplified signal light to allow everyone to follow how PERA is doing and track how big the risk is that if something negative happened PERA wouldn’t be sustainable. Green = good and red = bad. You can read more about the PTA Sensitivity Analysis which developed this system here.
Following the passage of Senate Bill 1 most of the divisions were in the green until last year when the state and school divisions slipped into yellow after a few less than ideal years in the market (in 2014 PERA got a 5.7% rate of return and in 2015 PERA got a 1.5% rate of return). When those divisions slipped to yellow Secure PERA started looking into why.
Then, at the end of 2016 the PERA Board of Trustees made two decisions that caused all of the funds to slip into orange status. The first decision was to lower the 30-year expected rate of return from 7.5% to 7.25%. The Board had three actuarial firms come in and give them advice on where to set the 30 years rate and the came in at 6.84%, 7.5% and 8.49% as their recommendations. After a lot of debate, they decided to set the rate at 7.25%.
The second decision they made was to adopt new mortality tables. Fortunately, we are all living longer and these table reflected that but unfortunately it increased the unfunded liability of PERA since beneficiaries would be receiving their benefit for more years.
Collectively, these two decisions along with a few other smaller decisions made by the Board increased the unfunded liability by $21 billion and increased the time it would take PERA divisions to become fully funded by anywhere from 14 – 32 years depending on the division.
This means all of the PERA divisions are now ORANGE.
But, what does orange mean? Orange means PERA isn’t going to run out of money and will be able to pay benefits into the future, but it will take longer than 50 years for the divisions to become fully funded. PERA isn’t projected to run out of money but, if stock values decline PERA won’t be as financially secure as some would like. In 2009, when we started working on Senate Bill 1, PERA was in the red. We aren’t there yet, but we also don’t want to stick our heads in the sand and hope for a 90s boom in the stock market.
So, What Does This All Really Mean?
It means that we need to look again at PERA’s funding and benefit structure and see if some changes need to be made. PERA did their statewide listening tour in May and June.
We at Secure PERA want to hear more from you. Contact us to ask us questions, or just let us know your thoughts on the changes the PERA Board is considering recommending to the State Legislature in the next session.
The ideas range from increasing contributions to increasing retirement age to reducing the COLA.