August 05, 2013 01:37 PM UTC

Colorado PERA Pension Mismanagement Condemned in United States General Accountability Office (GAO) Report.

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• by: PolDancer

The United States General Accountability Office (GAO) has released a report to Congress that, in part, condemns the Colorado Legislature's failure to pay for contractual Colorado PERA pension benefits that have been enacted by the Legislature (that is, meet actuarially required pension contributions, ARC.)

The report, "State and Local Government Pension Plans: Economic Downturn Spurs Efforts to Address Costs and Sustainability, (GAO-12-322)" also notes that the Colorado Legislature has cut "guaranteed" Colorado PERA pension COLA benefits, and that prospective public pension reform alternatives are available to public pension plan sponsors.

Making a contractual offer to a party, failing to take reasonable steps to meet your contractual obligation while other parties act in reliance on that contract, then attempting to escape your contractual obligation . . . this is, without question, mismanagement of a public pension system.

GAO report: The Colorado Legislature Has Increased Colorado PERA Pension Benefits Without Paying for These Benefits:

"This was also the case in California and Colorado where pension benefit increases in the late 1990s and early in the 2000s helped drive liabilities higher."

Denver Post editorial page editor Vince Carroll in the July 31, 2013 Denver Post:

"The administration of Gov. Bill Owens, in a major blunder, lobbied for the (Colorado PERA) fire sale as a shortsighted way to encourage early retirement . . ."

Silver and Gold Record on Governor Owen's "Fire Sale" bill, HB00-1458:

"Befort also noted that several years ago, the Legislature and Gov. Bill Owens decided to encourage higher-paid employees to retire early.  Payroll expenses went down for the state, but PERA’s costs increased, he explained.”

https://www.cu.edu/sg/messages/4405.html

This action by Governor Owens (and the failure of the Colorado Legislature to pay its full PERA bills [ARC] for the last decade are largely responsible for the decline in Colorado PERA's funding ratio from 105 percent at the turn of the century, to the high 60s in the last decade.  Should Colorado PERA retirees sit back and let the State of Colorado break their public pension contracts because of a Bill Owens screw up?  Only a fraction of Colorado PERA retirees participated in Bill Owen's PERA early retirement offer.  Why should Colorado PERA retirees relinquish their contractual public pension rights?  Colorado PERA retirees are not responsible for mismanagement of the plan.  Now that Colorado governments have benefited from lower labor costs as planned by Governor Owens, why should Colorado courts allow these governments to renege on their contractual offer to government workers?

GAO report: In 2010, the Colorado Legislature Cut the "Guaranteed" Colorado PERA COLA Benefit:

"In the case of Colorado, the state recently reduced postretirement COLAs for future, current, and retired members.  According to plan documents, most plan members, who are not covered by Social Security, had previously been GUARANTEED an annual postretirement COLA of 3.5 percent, but the recent legislation eliminated the COLA for 2010 and capped future COLAs at 2 percent."

Legislative History of the "GUARANTEED" PERA COLA Benefit:

March 24, 1993 (1:32 PM – 2:28 PM)

Rob Gray, Director of Government Relations, Colorado PERA testifying to the Legislature's House Finance Committee in regard to the "automatic" PERA COLA benefit under consideration (in House Bill 93-1324): “The PERA Board does support this bill.”  “We felt like it is something that is good pension policy . . . that it makes sense . . . THAT IT IS MAKING PERMANENT CHANGES, and also that it does help employers which is one of the goals of the bill.”  Rob Gray states that the proposed COLA "adds predictability for current and future retirees, people looking at leaving might look at this and say now I know how my future increases are going to be determined . . .”.  Rob Gray characterizes the "automatic" PERA COLA benefit as a Colorado PERA liability: “when a change in benefits is added, like this bill, it extends out the period for paying off that unfunded liability.” If you listen to the recording of this meeting, you will also hear a member of the House Finance Committee refer to the Colorado PERA COLA provision under consideration as a pension benefit that is “GUARANTEED,” “now and in the future.”

Kim Natale, Chairman, Colorado PERA Board of Trustees, February 15, 2002; March 2002, Colorado PERA Member Update:

“As a comprehensive retirement plan, PERA benefits are GUARANTEED for life.”

http://www.copera.org/pdf/Newsletters/MemberUpdate3-02.pdf

From PERA Legislative Update, February 2006:

“Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

“PERA members hired January 1, 2007 or later, called PERA Centennial, no GUARANTEED annual increase after retirement.”

http://www.copera.org/pdf/Legislation/2006/LegUp2-06.pdf

GAO report: Prospective Public Pension Reform, (Creation of New Benefit Tiers), Takes Time, but is Effective at Reducing Unfunded Pension Liabilities.

"As we have reported previously, provisions in state constitutions, statutes, or recognized legal protections under common law often protect pensions from being eliminated or diminished for current or retired members.  Thus, some state and local governments change benefits by creating a new tier or plan that applies to new employees hired only after the date of the change, and sometimes also to newer employees who are not yet vested.  It takes time for these new employees with less expensive pension benefits to become a significant portion of the workforce, delaying for a decade or more any significant reductions in plan liabilities.  Over the long term, however, these benefit reductions can reduce pension liabilities and consequently lower actuarially required sponsor contributions."

Colorado PERA Board Trustee, Judge Casebolt, assured PERA retirees present at the August 11, 2009 Colorado PERA Denver “Listening Tour” meeting that: “PERA faces no immediate danger of being unable to pay benefits, in fact, PERA can pay benefits for many years to come, based on our current funding and our benefit structure coupled with over $30 billion in assets, at present market value.”

Link:

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

Colorado PERA Executive Director Meredith Williams in the August 13, 2005, Pueblo Chieftain:

"The liabilities of the system, frankly, will be paid out over multiple decades, and we're talking 70 or 80 years. We're kind of designed for the long haul and we know we're going to experience ups and downs in the marketplace."

Link to complete GAO Report:

http://www.gao.gov/assets/590/589043.pdf

Here's another recent report I found interesting : The Center on Budget and Policy Priorities, "Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm," Center on Budget and Policy Priorities.

("The Center on Budget and Policy Priorities [CBPP] is one of the nation’s premier policy organizations working at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals.")

CBPP report:

"States and localities devote an average of 3.8 percent of their operating budgets to pension funding.  In most states, a modest increase in funding and/or sensible changes to pension eligibility and benefits should be sufficient to remedy underfunding.  (The $700 billion figure implies an increase on average from 3.8 percent of budgets to 5 percent of budgets, if no other changes are made to reduce pension costs.)  However, in some states that have grossly underfunded their pensions in past years and/or granted retroactive benefits without funding them — Illinois, New Jersey, Pennsylvania, Colorado, Kentucky, Kansas, and California, for example — additional measures are very likely to be necessary."

(My comment, as we have seen, numerous prospective public pension reform options are available to the Colorado General Assembly. These reform options, such as the prospective reform option adopted by the Colorado Legislature last year for Colorado county government pension systems in SB12-149, are "less drastic" than the breach of fully-vested Colorado PERA retiree pension contracts in SB10-001.

Jennifer Paquette, Colorado PERA Chief Investment Officer, in the May 22, 2011, Denver Post:

“In fact, employer contributions to pensions account for just 2.16 percent of all Colorado state and local government spending, according to 2008 U.S. Census Bureau data.”)

CBPP report:

"Some states — such as Illinois, New Jersey, and Pennsylvania (and to a somewhat lesser extent Colorado, Kentucky, Kansas, and California) — have skipped or reduced deposits to trust funds and/or expanded future pension benefits without providing the commensurate funding."

http://www.cbpp.org/cms/index.cfm?fa=view&id=3372

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