February 22, 2013 04:49 PM UTC

Drunk on the Colorado PERA Contract Breach Kool-Aid.

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• by: PolDancer

PROPONENTS OF COLORADO’S PENSION CONTRACT BREACH: YOU SHOULD HAVE SAVED MORE MONEY TO PROTECT AGAINST INFLATION . . . ANTICIPATED THAT COLORADO WOULD BREAK YOUR CONTRACT.

In 2010, the Colorado General Assembly adopted legislation to break the state’s contracts with elderly Colorado pensioners.  The bill breaking the state’s contracts, SB10-001, retrospectively seized accrued Colorado PERA pension benefits that Colorado PERA retirees had paid for, and worked for . . . for decades.

SB10-001 was supported by a group of public sector unions, school administrators, and corporate interests in Colorado.  (Public records name the registered lobbyists supporting SB10-001).

It’s easy to see why Colorado corporate interests would support SB10-001.  If the Colorado PERA pension contract is broken, this lowers the future tax burden of Colorado corporations. (But, isn’t it sick that Colorado businesses would support taking money from old people through the breach of contracts in order to pad their future corporate earnings?)

Money motivated corporate support for the breach of Colorado PERA pension contracts.  Money was also the motivation for union support for the breach of Colorado PERA pension contracts.

Colorado public sector unions supported the breach of the contracts of their retired union “brothers and sisters” in order to limit increases in pension contributions by their dues-paying (non-retired) members.  However, I believe that the support of these public sector unions for the breach of the PERA pension contracts of their retired members was myopic.  If the State of Colorado and Colorado PERA are permitted to abandon their contractual pension obligations once, IT IS A CERTAINTY, that the State of Colorado and Colorado PERA will break PERA pension contracts repeatedly.  There is no question that this will happen.  Colorado state legislators have already demonstrated that they prefer to make discretionary expenditures of public funds that buy them votes, in lieu of meeting Colorado’s contractual public pension obligations, i.e., paying the Colorado PERA annual required contributions.

Is that the outcome Colorado’s public sector unions desire?  Endless breach of Colorado PERA pension contracts, to the point that the relationship between public employees and the governmental sponsors of their pension plan IS NO LONGER CONTRACTUAL?  Do Colorado’s public sector unions want their union members to work for their entire careers, paying into a pension fund, contributing their labor in exchange for contracted pension benefits, only to have that contract discarded by public sector employers at retirement?  This will inevitably be the end result of their support for SB10-001.

Many of the interests that supported the breach of pension contracts in Colorado (in SB10-001) are represented by a group called the Colorado Coalition for Retirement Security (CCRS).  Three weeks ago, (January 30, 2013) CCRS conducted a “town hall” meeting by telephone.  The event was titled the “January 2013 Tele-Town Hall.”

Julie Whitacre, a lobbyist for the Colorado Education Association, was present at the “Tele-Town Hall.”  Ms. Whitacre stated at the outset: “We support Senate Bill 1 from 2010.”

John MacPherson, former Communications Director for the Denver Public Schools Retirement System, representing CCRS, was also present.

This morning, I listened to the recording of this CCRS “Tele-Town Hall” meeting and put my reactions on paper.  I listened . . . and I could not believe what I was hearing.

It’s clear to me now that those who supported the breach of Colorado PERA pension contracts labor under serious delusions.  They seem to have forgotten that we all live under the rule of law in the United States.  They have forgotten that governments in the United States may act only within the strictures of the U.S. Constitution.  Contrary to Colorado public pension case law, they assume no contractual relationship between public employees and their Colorado governmental pension plan sponsors.

From the comments made during the “Tele-Town Hall,” it appears that the proponents of SB10-001 have not read relevant Colorado public pension case law or the 2004 Colorado Attorney General opinion on this subject.

From the “PERA Retiree Update,” December 2008, page 1:

“The AG’s opinion states that when a PERA member retires and begins receiving pension benefits such member’s pension rights have fully vested and such pension benefits may not be reduced.”  (Meredith Williams, Colorado PERA Executive Director, discussing Attorney General Ken Salazar’s 2004 Formal Opinion on Colorado PERA contractual pension obligations.)

The proponents of SB10-001 seem to think that the payment of Colorado PERA COLA benefits is discretionary on the part of PERA-affiliated employers.  They speak of “shared sacrifice,” without realizing that this concept is irrelevant in the context of contractual relationships.

These people are drunk on the Colorado PERA Contract Breach Kool-Aid.

Below, I provide transcribed comments from the Colorado Coalition for Retirement Security “January 2013 Tele-Town Hall,” and my reactions to those comments.

Midway through the “Tele-Town Hall,” CCRS took questions.  At thirty-three minutes into the discussion, a caller “Paul” asks a question over the telephone.  Paul notes that he is old enough to remember the high inflation of the 1970s, and that he expects that current Federal Reserve Board quantitative easing will eventually cause high inflation again.  He notes that: “There is nothing in Senate Bill 1, I think it is, that protects pensioners in the event of inflation that is extremely high, which can cause the pension to essentially disappear.”

Paul asks: “Are there any thoughts about that?”

John MacPherson, representing CCRS, took the question and responded:

“I certainly share those concerns that we all have to look at what the effects of inflation are going to be on our pension distribution as we go through time.”

John MacPherson noted that Colorado PERA: “is one of the few public pension plans in the nation that actually has a GUARANTEED cost-of-living adjustment.  Most public pension plans do not have that COLA . . .”.

(My comment:  The CCRS representative admits that the Colorado PERA pension COLA benefit is “guaranteed,” i.e., it is an “automatic” COLA.  Yet, how can the CCRS representative describe the PERA COLA benefit as “guaranteed” and simultaneously support a retrospective state taking of the benefit?  When the State of Colorado ignores its contractual obligations to pay the PERA COLA benefit, does that not somehow preclude its characterization as “guaranteed”?

Perhaps CCRS members should have paid greater attention to Colorado PERA’s General Counsel when he noted in an August 17, 2005 Rocky Mountain News article (and in his legal brief at the time) that courts have never found that the Colorado Legislature “has reserved its power” to make retrospective changes in Colorado PERA pension benefits.  From the August 17, 2005 Rocky Mountain News:

"Smith said in his opinion that 'other (non-Colorado) courts have set a high burden to meet the necessity threshold.'"

"His briefing paper said 'there has never been a finding in Colorado that the state has reserved its power to make changes' in PERA's benefit structure.")

John MacPherson continued with his comments at the “Tele-Town Hall”:

“Is it something that could erode our purchasing power?  Absolutely.  But, as we plan for retirement we have to plan both for our defined benefit distribution, our defined benefit pension in our retirement years, as well as some supplemental savings that will address things such as the inflation factor as we go forward.”

(My comment: So, here is the message from a representative of CCRS, now that you as a Colorado PERA retiree have completed your own obligations under the PERA pension contract, now that you have made pension contributions and worked for thirty years, you were foolish to rely on your contract with Colorado PERA.  You should not have expected your PERA-affiliated employer or the State of Colorado to hold up their end of the bargain.  When planning for your retirement over the last few decades you should have saved more, you should have anticipated that your employer would break your pension contract.  The audacity of this statement is breathtaking.)

John MacPherson continues with his response to Paul’s question:

“So, Paul is absolutely right that inflation could have a detrimental effect on our pension . . .”.

“But, we also should look at the fact that should inflation go up above where its been the last few years . . . should it get up into the high single digits or even into double digits, most likely the investment returns are going to go up with that, and that means the full funding of PERA would come that much sooner, therefore it would mean the relaxation of the limitation on the 2 percent cost of living adjustment would come that much sooner . . . ”

(My comment: First, let’s not forget that Colorado PERA’s official long-term inflation assumption is 3.75 percent.  The Colorado PERA Board of Trustees believes that inflation for the foreseeable future will average 3.75 percent.  So, by supporting SB10-001 and the retrospective reduction of the PERA COLA benefit to a 2 percent level, the Colorado PERA Board of Trustees has adopted a de facto policy to erase the contractual obligations of its PERA-affiliated employers through inflation.

Another point that escapes John MacPherson (or does it?) is that in an environment of hyper-inflation borrowing costs in the United States would spike, the economy would slow, equity prices would fall, the Colorado PERA trust funds would take a loss, and under the provisions of SB10-001, the COLA would not be relaxed.  PERA retiree COLA benefits would be inflated away.

Why does John MacPherson believe that the higher bond yields accompanying high inflation would bring Colorado PERA to full funding?  A spike in interest rates would hammer the bonds that Colorado PERA currently owns, decimating the value of PERA’s fixed income portfolio holdings.  It would take years to offset these losses through the higher coupon rates of new bonds added to the portfolio. A significant interest rate spike would also bring down stock prices and accordingly the value of PERA’s equity portfolio.)

John MacPherson continues:

“This is actually a distribution of your deferred compensation from the time that you were working as an active employee.  You are now enjoying the benefits of having set money aside during your working years to finance your retirement years, and that’s the way you should think of this.”

(My comment: John MacPherson nails it here.  That is indeed the way Colorado PERA retirees “should think of this.”  That is indeed the way that Colorado PERA retirees have thought of it throughout their careers.  John MacPherson is describing the “consideration” associated with the Colorado PERA contract, and the “deferred compensation” that is due Colorado PERA retirees under the contract.  Before accepting employment with their Colorado PERA-affiliated employers, and throughout their careers, Colorado PERA members have had the expectation that their PERA public pension contracts would be honored by their governmental employer.)

At Forty-one minutes into the “Tele-Town Hall” CCRS receives a question from a person named “Steve.”  “Steve” begins: “I want to ask about this concept of ‘shared sacrifice.’”

“I don’t see it as an even shared sacrifice . . . I see it as mostly a sacrifice by state employees.”

“Where is my view of this wrong . . . if it is wrong?”

(My comment: Of course, “Steve” perceives the situation correctly:

From “Colorado PERA on the Issues”:

“In all, about 90 percent of the changes enacted by Senate Bill 1 will fall on the shoulders of current and future PERA members and retirees – not other taxpayers.”

Link:

http://www.copera.org/pera/about/issues.htm

Senator Shaffer, in the Denver Post, April 17, 2011:

“I sponsored last year's legislation, known as Senate Bill 1, to protect PERA.  The bill required shared sacrifice, but frankly most of it — 90 percent of the burden — falls on the shoulders of PERA's current and future members and retirees.”

Link:

http://www.denverpost.com/opinion/ci_17858107

Meredith Williams, PERA Executive Director, in the Pueblo Chieftain, May 29, 2011:

“In fact, about 90 percent of the changes enacted by Senate Bill 1 are falling on the shoulders of current and future PERA members and retirees — not other taxpayers.”

SB 10-001 co-prime sponsor Senator Josh Penry and sponsor Senator Greg Brophy in the Denver Post, January 22, 2010:

“Fully 90 percent of the PERA fix comes from benefit cuts to current and future retirees . . .”

Link:

http://www.denverpost.com/search/ci_14242354

Colorado PERA Executive Director Greg Smith, at the “Fall 2011 PERA Shareholder’s Meeting,” (thirty-six minutes into the video):

“‘Only ten percent of the fix” of the [SB10-001] reforms in 2010 came from additional employer contributions.

Link:

http://www.copera.org/pera/about/shareholder.htm.)

John MacPherson asked Steve: “Steve I would just ask you, what would you be looking for as evidence of shared sacrifice?”

Steve responded: “Well, to give you a personal example, I looked at the Excel spreadsheet that ‘Save Pera Cola’ put out, where you could plug in your monthly pension benefit and see how much you will lose over the course of time.  And I projected out 30 years . . . I figured I’m going to live 30 years after my retirement, and the amount that I lost was pretty significant  . . . six figures.”

“I just don’t see that there is a shared sacrifice, that the citizens of Colorado overall are sacrificing anything as a result of the economic downturn in Colorado.”

(My comment: Again, Steve knows what is happening to his pension contract.  In an August 2, 2010 letter, the Ritter Administration [Office of the Colorado State Controller] to the federal pension regulator, the Governmental Accounting Standards Board [GASB] the Ritter administration reports that SB10-001 will cost each Colorado PERA retiree an average of $165,000: “In Colorado, a class action lawsuit has been filed challenging recently passed statutory reductions in annual COLA increases which for an average member would result in $165,000 of reduced benefit over a 20 year period.”  This amount is “substantial” for nearly every resident of the planet.  You can read the entirety of the letter on GASB’s website here:

http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157387791.)

John MacPherson responded to “Steve”:

“What you did is, is you went on the Save Pera Cola website, and that is the group that filed the lawsuit that I spoke about regarding Senate Bill 1, and, in part they are absolutely right that as PERA retirees, we believed that when we retired we would see an annual increase of 3.5 percent on a compounded basis.”

(My comment: The CCRS representative admits that Colorado PERA retirees have legitimate expectations to receive their contracted Colorado PERA pension benefits.)

John MacPherson continues:

“We as retirees accepted that, rather than a 3.5 percent COLA every year, we would accept essentially a guarantee of a 2 percent COLA every year.”  “Now that was the immediate effect of Senate Bill 1.”

(My comment: To the CCRS representative I pose this question: “In the coming years, when the Colorado Legislature continues to ignore its Colorado PERA annual required contributions and decides to again break the PERA pension contract will you accept essentially “a guarantee” of a one percent COLA every year?”  John MacPherson’s understanding of “guarantee” differs markedly from my understanding of the term.)

At the “Tele-Town Hall” meeting, Julie Whitacre (the CEA lobbyist) described the Colorado Coalition for Retirement Security (CCRS) noting that:

“Our coalition members include AFSCME Colorado, the American Federation of Teachers, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, the Colorado Education Association, the Colorado School and Public Employees’ Retirement Association, Colorado WINS, and Friends of PERA.”

(These groups are voting members of the CCRS, see this link:
http://www.securepera.org/wp-content/uploads/2013/01/CCRS-Bylaws-1_1_2013.pdf)

Here’s a link to an audio recording of the January 30, 2013 Colorado Coalition for Retirement Security “Tele-Town Hall”:

http://www.securepera.org/

So, PERA retirees, you know what to do.  Help Save Pera Cola put an end to this madness.  The rule of law must prevail in Colorado.  In Colorado we must pay our debts.  We are a wealthy state with the lowest state taxes in the nation.  We are not “welchers.”  Contribute to Save Pera Cola at their website, saveperacola.com.  Friend Save Pera Cola on Facebook.