September 30, 2012 06:03 PM UTC

GENERAL ASSEMBLY'S INTENT IN CREATING THE AUTOMATIC PERA COLA.

• 6 Comments
• by: PolDancer

THE COLORADO GENERAL ASSEMBLY’S LEGISLATIVE INTENT: CREATION OF A COLORADO PERA AUTOMATIC, CONTRACTED RETIREE COLA BENEFIT IN HOUSE BILL 93-1324.

The initial District Court decision in the case Justus v. State includes the following findin

g:

” . . . the 1993 legislative history indicates that no member of the General Assembly expressed intent to create an unchangeable COLA from that date forward. (House Finance Committee Hearing on SB 93-1324, 1993 Legis., at 5:6-10 (Colo. Mar. 24, 1993).”

I believe that this particular court finding is a red herring. The central question is not whether the PERA COLA (escalator, annual benefit increase) can be legally “changed,” it is whether the contracted PERA COLA can be legally, retroactively, diminished. In testimony to the Legislature, and in conflict with the initial District Court decision, a Colorado PERA representative has stated that the PERA COLA cannot be retroactively diminished absent “actuarial necessity,” “because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Improvements made to the PERA COLA do not breach PERA written, statutory pension contracts. As we have seen, in 1975 the Colorado Supreme Court held in Taylor v. PERA: “Fact that petitioner had certain pension rights at time of her retirement as a state employee did not operate to preclude postretirement pension changes which increased rather than decreased benefits received there under.”

I contend that the legislative intent of the Colorado General Assembly to create an “automatic” contracted PERA COLA benefit (that PERA members could depend upon in retirement, and that was “guaranteed”) was clearly expressed at the first legislative hearing on House Bill 93-1324.

On March 24, 1993 (1:32 PM – 2:28 PM) the House Finance Committee of the Colorado General Assembly heard House Bill 93-1324.

In presenting the bill to the House Finance Committee the bill’s sponsor, Representative Martin, noted that it had been “unanimously approved by the PERA Board.” He said “with this bill, a single actuarially sound increase at a compound rate of up to 3.5 percent per year would be established beginning in 1994.” “I think this is a reasonable approach.”

After Representative Martin’s introduction of the bill, Rob Gray, PERA Director of Government Relations, testified before the House Finance Committee.

Rob Gray said: “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.”

(My comment: Part of the motivation for this bill was to create incentives for long-time public sector employees to retire, and be replaced by less expensive employees. Accordingly, this would reduce salary costs for PERA-affiliated employers.)

Rob Gray commented on the provisions of HB 93-1324 which folded the Cost of Living Stabilization Fund (CLSF) into the PERA trust funds, while simultaneously establishing an automatic, contracted PERA retiree COLA benefit of inflation up to 3.5 percent.

(My comment: As we know, the amount of the contracted COLA benefit was later improved to a flat 3.5 percent [in 2000.] HB 93-1324 also struck the “ad hoc” language from Colorado law whereby the General Assembly reserved the right to approve COLAs before they were paid. HB 93-1324 replaced the former “ad hoc” PERA COLA statute in Colorado law with an “automatic” PERA COLA benefit. HB 93-1324 struck the following language from the PERA statutes “COLA increases shall be made only on approval of the General Assembly.” As a consequence, the discretion of the Colorado General Assembly to diminish the COLA benefit for vested PERA members was eliminated.)

Rob Gray continued: “Last year, there was a bill passed that included a study.” Rob Gray stated that PERA’s actuaries had recommended in the “CLSF Study,” “that a single annual increase should be adopted” for Colorado PERA retirees “which would have a compound increase.”

(My comment: Another motivation for the bill was concern on the part of the PERA Board and the General Assembly that even the current “ad hoc” COLA provisions could lead to the payment of higher COLA rates to retirees in the future if inflation accelerated. Ironically, at the time they believed that capping the COLA at inflation up to 3.5 percent was a good deal for Colorado PERA-affiliated employers, even though the COLA would become “automatic.”)

Rob Gray elaborated: “The (CPI up to) 3.5 percent increase is a reasonable level.” “It will probably come close to what the long-term inflation rate is.”

He said that an advantage of the (CPI up to 3.5 percent) COLA “IS THAT IT 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, EVEN THOUGH THEY MAY NOT MATCH INFLATION.”

“THESE ARE THE REASONS WHY WE THINK FOLDING THE CLSF INTO THE PENSION FUND IS A GOOD IDEA.”

“PERA does support the bill.” “We think it is a positive step, and one that can be afforded within the statutory rates.”

(My comment: Remember, at this point in time the PERA retiree COLA had not yet been improved to the flat 3.5 percent level. That occurred at the 2000 session of the Legislature. The portion of the bill folding the CLSF into the PERA trust funds included the “inflation up to 3.5%” provision. Remember too, that the Colorado PERA Board of Trustees had unanimously supported the bill.

In my opinion, Rob Gray, a representative of the PERA Board of Trustees, in this statement, clearly allays the concerns of PERA members about making the retirement decision. I believe that he offered assurances to PERA members choosing to retire under the written contractual terms of the bill that they need not be concerned that the annual increases in their pension benefits would ever be diminished. With the bill, COLA benefits were now safe, “predictable.” Since the endorsement of this employment exchange transaction by the Colorado PERA Board, and the subsequent codification of contractual terms for this deferred compensation arrangement by the Colorado General Assembly in state statutes, many PERA members have changed the course of their lives by choosing to retire in reliance upon the automatic, contracted PERA COLA.)

In another statement, I believe Rob Gray makes it clear that HB 93-1324 puts into law a new, automatic PERA pension COLA benefit that is a contractual liability of Colorado PERA and PERA-affiliated employers:

Rob Gray: “WHEN A CHANGE IN BENEFITS IS ADDED, LIKE THIS BILL DOES, IT EXTENDS OUT THE PERIOD FOR PAYING OFF THAT UNFUNDED LIABILITY.”

(My comment: If the PERA COLA benefit established in HB 93-1324 was an “ad hoc” COLA benefit, subject to the approval of the Colorado General Assembly, it would not have impacted PERA’s actuarial liabilities. Under that scenario [an “ad hoc” COLA provision], the General Assembly could simply opt against approval of the COLA in any given year, and thus avoid an addition to PERA’s actuarial liabilities. As we know, the bill specifically struck the “ad hoc” nature of the PERA COLA from Colorado law.

Rob Gray stated clearly here that the new automatic COLA provision increased PERA’s actuarial liabilities. Just as the Colorado General Assembly confirmed the “automatic” status of the PERA COLA by removing the “ad hoc” language from statute in HB 93-1324, I believe that PERA’s representative Rob Gray confirmed the “automatic” status of the COLA by emphasizing the fact that the new COLA would increase PERA’s actuarial liabilities.)

Rob Gray’s comments continue:

“We like all three parts of the bill . . . we urge you to support all three.” “We think the cost-of-living changes make a lot of sense.”

Rob Gray: “THE COST OF LIVING STABILIZATION FUND CHANGE ENDED UP PUSHING THE AMORTIZATION PERIOD TOO, SIMPLY BECAUSE YOU’RE FUNDING IT ON AN ACTUARIAL BASIS AND YOU’RE RECOGNIZING THAT IT’S AN ONGOING THING.”

(My comment: Why would PERA’s representative bother to characterize the COLA as “an ongoing thing” if it was temporary? He would not.)

A member of the House Finance Committee inquired about the impact of the bill on current retirees. Rob Gray responded: “What the bill would do is say that a base benefit is created, the amount being paid in 1994 . . . and then the maximum 3.5 percent increase would be applied to that amount.”

Rob Gray: “You’re right that you do have compounding there for the first time.”

“I think the retirees support this change, because they see it as a more actuarial way of funding it.”

“It will be easier for them to understand, because they won’t have two methods of increase . . . it will just be the single increase.”

(My comment: Although, the legislative intent to create a contracted, automatic PERA retiree COLA benefit of [CPI up to 3.5 percent] was manifest at this point in the hearing on HB 93-1324 the record shows a member of the House Finance Committee making a conclusive, indisputable statement of legislative intent regarding the PERA COLA benefit:)

“THE ACTUARIES WHO HAVE STUDIED THIS SAID WOULDN’T IT BE BETTER TO FIGURE OUT WHAT YOU CAN AFFORD, UNDER YOUR CURRENT REVENUES, WHAT YOU CAN AFFORD TO GUARANTEE EVERYBODY NOW AND IN THE FUTURE.”

(My comment: This House Finance Committee member made certain that all of her colleagues were on the same page . . . the new, automatic PERA COLA benefit was “guaranteed” into the future for PERA retirees.)

When a legislative body grants an “automatic” COLA, it relinquishes its discretion to diminish that COLA benefit in the future for vested pension members and retirees. This makes sense. You would not want to allow someone to retire based on the expectation of a contractual COLA benefit, and later renege on those contractual terms.

You would not want to allow a person to pay perhaps tens of thousands of dollars to a public pension plan to purchase service credit in the plan, based on a “guaranteed” COLA in retirement, [notably, PERA officials encouraged service credit purchases] and then, after the pension member has sent in the check [often from their retirement funds], inform them that the terms of the written statutory contract have changed to their tremendous detriment. It is unjust [and unconstitutional] to retroactively change the terms of the plan for such pension members after they have committed to retirement, or after they have committed to buying service credit.

These members were compelled [as a condition of employment] to pay into the public pension plan. Their pension benefits are supported by their member contributions, and are deferred compensation for work that has been completed.

Despite Colorado PERA’s wishes, an “automatic” public pension COLA cannot legally, retroactively metamorphose into an “ad hoc” pension COLA.

The legislative intent is clear. When enacting HB 93-1324, the General Assembly created an automatic PERA COLA benefit. Retroactively changing the COLA benefit to the detriment of a PERA retiree is unconstitutional.

http://saveperacola.com/