April 13, 2013 01:13 PM UTC

6,000 Colorado Police and Firefighters to Consider Taxing Themselves to Pay for a Pension COLA Benefit.

• 2 Comments
• by: PolDancer

(IN DECADES TO COME, WHEN THE COLA IS ALL PAID OFF . . . WILL THE STATE LEGISLATURE JUST TAKE IT?)

In 2014, more than 6,000 police officers and firefighters in Colorado will have a chance to vote on the question of raising their pension contributions (by a gradual increase of an additional four percent) to pay for a new pension benefit . . . an enhanced annual cost-of-living increase after they retire.

These Colorado police officers and firefighters are members of a pension system called the Fire and Police Pension Association of Colorado (FPPA.)  In Colorado, we have a number of public pension systems . . . including Colorado PERA, the FPPA, the Denver Employees' Retirement Plan and many county-run pension systems.  These public pension systems are governed by Colorado statutes, which set forth a variety of standards for the contractual pension rights of the members of these pension systems.  Under the 2012 bill, SB12-149, accrued public pension benefits of certain Colorado county-run pension plans are honored, while the 2010 bill, SB10-001, seizes accrued public pension benefits.  Current Colorado law also provides disparate treatment of Colorado pension systems in regard to "amortization of plan liabilities" (the amount of time pension plans have to pay off their debt.)  Colorado law allows some pension plans to amortize plan liabilities over a 40-year period, while other plans (like Colorado PERA) are permitted only a 30-year "maximum amortization period."

Colorado's police officers and firefighters should take heed.  Pensioners in the Colorado PERA pension system paid for their DEFINED, pension COLA benefit (out of every paycheck) for decades, only to see the Colorado Legislature renege on this contract.  Why would a Colorado police officer or firefighter trust that the Colorado Legislature, or a local government, would not simply pass legislation in the future to take their money as well?  As we have seen, Colorado politicians are primarily concerned about maintaining Colorado's status as a "tax haven."  They are not above breaking contracts to win votes from constituents who want governmental services, but don't want to pay for those governmental services.

I ask, in a state that casually breaks public pension COLA contracts, and that has recently demonstrated a willingness to seize accrued public pension COLA benefits, why would any public employee vote to tax themselves for a public pension COLA benefit?

Police officers and firefighters would be better off placing this money in their own savings accounts and managing their own "retirement inflation protection," instead of putting the money in the hands of a governmental plan sponsor that may use it to reduce future taxpayer obligations.

Colorado PERA pension benefits are governed by Colorado state law, the Colorado Revised Statutes.  Colorado fire and police pension benefits are also governed by the Colorado Revised Statutes.  In 2010, the Colorado General Assembly enacted a bill that amended the Colorado Revised Statutes to break Colorado PERA contracts and seize accrued PERA pension COLA benefits.  What is to prevent the Colorado Legislature, or a local government, from simply enacting legislation in decades to come to shore up local government pension plans through the elimination of the proposed, new FPPA COLA?  Nothing.  The reality is that a majority of the members of the Colorado Legislature do not respect public pension contracts.  They will take accrued, earned, contracted pension benefits to the extent permitted by courts.  Moral constraints on such takings of property are not a factor.  Remember that taking accrued, earned, contracted pension COLA benefits was the first choice of Colorado legislators in 2010.

If accrued pension COLA benefits may be freely seized in Colorado state legislation, or in municipal ordinance, if pension contracts are freely abrogated under the Colorado Constitution, why would a Colorado police officer or firefighter vote to increase their monthly contributions to pay for a new COLA benefit?  If police officer or firefighter pension contributions can simply be redirected under Colorado law to fund other municipal programs, why would they support this contribution increase?

What legal protections for police officers and firefighters does the FPPA propose that would prevent FPPA-affiliated employers (local governments) from passing ordinances to unilaterally take the new COLA benefit in the future?  None.  What is to prevent an FPPA-affiliated local government from following the example of the Colorado General Assembly?  Underfund the pension to lower its funded ratio, claim that the low funded ratio represents a "fiscal crisis" justifying seizure of accrued pension benefits, break pension contracts to lower taxpayer obligations, repeat . . .

The assets of public pension plans are trust funds that belong to the beneficiaries of the pension plan.  In spite of this fact, for decades, Colorado legislators have tried to get their hands on public pension trust funds.  In the minds of many Colorado legislators, access to these pension trust funds allows them to keep state taxation low in the state with the nation's lowest state tax revenue per capita.  Colorado legislators have tried to get at public pension assets through the "front door" and through the "back door."

At the turn of the century, former Governor Bill Owens sought and signed legislation creating "early retirement incentives" for Colorado PERA members.  His goal was to persuade the older, more "expensive" public workers to retire under Colorado PERA, in order to shift Colorado public sector labor costs from Colorado governments to the Colorado PERA pension system.  Governor Bill Owens pension scheme was a "back door" raid on Colorado PERA public pension assets.  Having prompted these retirements, the Colorado Legislature now seeks to renege on the deal.

In 2010, Colorado legislators passed a bill that brazenly seized accrued, earned, contracted Colorado PERA pension benefits (SB10-001) to minimize future taxpayer contributions to the pension system.  This bill, SB10-001, represents the legislators' desired "front-door" raid on the Colorado PERA pension trust funds.  Even Governor Hickenlooper is getting into the public pension raid game with his recent decree that Colorado PERA pension trust funds will be used to provide corporate welfare ($50 million in loans) to businesses that the private sector apparently won't touch.

"AD HOC" PENSION COLAS VS. "AUTOMATIC" PENSION COLAS.

The FPPA currently provides a small "ad hoc" pension COLA benefit, that is, a COLA benefit that is discretionary.  The Colorado PERA pension system provides an "automatic" COLA benefit under Colorado law, that is a COLA benefit that is contracted, guaranteed, mandatory on the part of the pension plan sponsor.

FPPA:

"Benefit adjustments are not guaranteed and are determined annually by the FPPA Board of Directors based on the most recent actuarial study. The amount of the benefit adjustment can be 0% to 3%, or the greater of the Consumer Price Index (CPI) per year."

http://www.fppaco.org/pdfs/pubs_handouts/SWDBP_3.5.13.pdf

The Colorado PERA pension system has "automatic" pension COLA benefits (i.e., pension COLA benefits that are a contractual obligation of PERA-affiliated employers):

“PERA Benefits at a Glance,” 2004:

“Receive an annual AUTOMATIC increase of 3.5 percent in your monthly retirement benefit to help keep up with the cost of living.”

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

Buck Consultants (independent actuary) 2001 actuarial report to the Legislative Audit Committee of the Colorado General Assembly: the Colorado PERA 3.5 percent COLA is “AUTOMATIC,” a “fixed” COLA, that is “compounded annually for each year of retirement,” part of PERA's “guaranteed benefits at retirement."

Colorado PERA publication “History of Colorado PERA Legislation”:

“HB 00-1458.  Established 3.5% compounded annual AUTOMATIC COLA effective March 2001.”

NEXT YEAR'S FIRE AND POLICE PENSION COLA ELECTION.

Here are a few excerpts from FPPA materials for next year's police and fire COLA election . . . the "FPPA Fire and Police Pension COLA Election White Paper":

"A benefit adjustment for retirees, often commonly known as a 'COLA' or cost of living adjustment, is not guaranteed in the SWDB (FPPA Statewide Defined Benefit) Plan. The board of directors of FPPA determines on an annual basis what, if any, benefit adjustment to provide to current retirees."

"In addition, an election requires a mandate from the active members of the plan, since 65% of the members must vote in favor of a proposition and a non-vote is treated as a negative vote."

"Effect of inflation upon purchasing power."

"The base benefit provided in the SWDB Plan does not have any form of automatic adjustment for inflation. Without some type of inflation protection, an annuity will not provide equivalent purchasing power over time."

"It cannot be over-emphasized, however, that the SWDB Plan does not provide guaranteed benefit adjustments."

"In the event that the Plan were ever to become actuarially unsound, the board of directors has the authority to: Reduce or eliminate plan amendments voted in by the membership."

"Retirement income needs to keep pace with inflation as much as possible, so that over time the retiree can continue to maintain his or her standard of living."

"Benefit adjustments provide protection against inflation and are the most cost-effective way to achieve that protection."

"Working together, members of the SWDB Plan can proactively act to preserve and improve retirement security for themselves."

http://www.fppaco.org/pdfs/election-2012-pdfs/white-paper.v03.pdf

(My comment: Colorado PERA retirees "worked together," and made mandatory contributions to the Colorado PERA pension system for a "DEFINED" pension COLA benefit upon retirement.  Colorado PERA retirees "acted proactively" to ensure their "retirement security."  For decades Colorado PERA retirees made these mandatory contributions.  In 2010, Governor Ritter, with the stroke of a pen, seized these PERA contributions, and breached the retirees' PERA contracts.)

From the FPPA "Election Handout":

"Why vote 'yes' on increasing the member contribution rate?  The short answer is that added funding: Increases the likelihood that you will get a greater benefit adjustment (commonly called a COLA) when you retire . . .".

http://www.fppaco.org/pdfs/election-2012-pdfs/handout.V4.3.19.13.pdf

(My comment: "Likelihood," an excellent word choice here.)

COLORADO'S ARBITRARY PARAMETERS FOR MEETING PUBLIC PENSION LIABILITIES.

As noted earlier, a public pension plan's "maximum amortization period" is the number of years allowed by the legislative body overseeing the plan during which any pension liabilities must be paid off.  Although public pension benefits will come due over the next 70 years, Colorado law requires that these liabilities be paid off in about half that time frame.

Under Colorado law, the Colorado PERA pension system is currently permitted a period of 30 years to pay off its unfunded pension liabilities.  Seven years ago, Colorado law allowed the Colorado PERA pension system 40 years to pay off unfunded pension liabilities (the time period was reduced in SB06-235.)  Sixteen years ago, Colorado law allowed the Colorado PERA pension system 60 years to pay off its unfunded pension liabilities (the time period was reduced in HB97-1114.)  Colorado law currently allows the FPPA pension system to pay off unfunded pension liabilities over a 40-year period, except for FPPA "Old Hire" pension plans that get 37 years.  You can see that this factor, incorporated into written, statutory public pension contracts in Colorado, is set in law in an arbitrary fashion.

Colorado PERA, in its publication "Setting the Record Straight":

"The bottom line is that SB 1 prefunds these liabilities over the next 30 years while the payment of benefits will occur over the next 70 years."

"PERA is a long-term investor with an investment horizon that spans not just 10 years, but 50 or 70 years."

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

In 2006, the Colorado Legislature lowered Colorado PERA's maximum amortization period to 30 years, in 2010 the Colorado Legislature claimed that this 30-year maximum amortization period was such a burden that the State of Colorado was forced to break its PERA pension contracts.

Recall the words of Representative Jack Pommer, JBC Chairman in 2009.  At the December 17, 2009 meeting of the Joint Budget Committee, Representative Pommer asked: “Are we not just saying we’re going to pick 30 years because if we’re not balanced within 30 years that creates actuarial necessity which then let’s us change retiree benefits?”  Representative Pommer asked if the Legislature could legally alter the statutory parameters of the PERA pension to manufacture a “crisis” in order to justify its breach of pension contracts.

http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf

Colorado law governing the FPPA:

"31-31-102. Definitions. (1) "Actuarially sound" means a police officers' or firefighters' pension fund . . . receiving or scheduled to receive employer and member contributions . . . actuarially determined to be necessary . . . to pay the annual contribution necessary to amortize any unfunded accrued liability over a period not to exceed FORTY years."

"31-31-408. Modification of state plan by the board. (1) . . . the board may modify the pension benefits and the age and service requirements for pension benefits . . . with respect to the members of the statewide defined benefit plan if:  (f) The modification does not adversely affect the pension benefits of retired members."

http://www.fppaco.org/pdfs/Title%20%2031-30%20thru%2031%20w-%20amendments%20(2012).pdf

Colorado Legislature: We'll break Colorado PERA pension contracts in order to pay off the unfunded liability in 30 years, but we'll give local government Old Hire fire and police pension plans 37 years.  (The arbitrary 30-year time frame is included in the title of the bill that broke Colorado PERA pension contracts, SB10-001.)

"31-30.5-304. (4) (a) For municipalities, fire protection districts, and county improvement districts (with Old Hire fire and police pension plans) . . . contributions for each calendar year . . . shall be at a rate . . . required to amortize the unfunded accrued liabilities of such state-assisted fund over a period of not more than thirty-seven years . . .".

"31-30.5-305. No change in employer obligation. It is the intention of the general assembly that the minimum funding standards established by this part 3 shall not enlarge nor diminish the obligation of municipalities and fire protection districts to their employees for pension benefits provided pursuant to this article."

Colorado Legislature: However, the funding standards that we put in SB10-001, WE DO INTEND to use to break pension contracts and diminish our own state PERA pension obligations.

From the FPPA Rules:

"909. Vesting. Upon attaining the eligibility requirements for a benefit, a Member shall be fully vested in the benefits such Member has accrued."  "This rule is not to be construed as a reduction or limitation of rights heretofore existing, nor as an indication that vested benefits would be forfeitable before the stated age is attained."

http://www.fppaco.org/pdfs/rnr/120927%20%20Codified%20Final%20FPPA%20Rules%20Regulations.pdf

Colorado law governing Colorado PERA:

"24-51-211, C.R.S. Amortization of liabilities.  (1) . . . A maximum amortization period of thirty years shall be deemed actuarially sound . . . the employer or member contribution rates for the plan may be adjusted by the general assembly when indicated by actuarial experience."

(My comment: No mention here in Colorado statutes about the Colorado General Assembly breaking its pension contract when "indicated by actuarial experience.")

Instead of simply re-amortizing Colorado PERA's unfunded pension liabilities in 2010, a majority of Colorado legislators preferred to break PERA contracts.

THE COLORADO LEGISLATURE INTENDS TO PAY AN ADDITIONAL $142  MILLION IN NEXT YEAR'S BUDGET FOR LOCAL GOVERNMENT PENSIONS THAT ARE NOT ITS RESPONSIBILITY . . . WHILE IGNORING ITS OWN CONTRACTUAL PERA PENSION OBLIGATIONS.

The Colorado General Assembly claims that financial hardship necessitates its breach of Colorado PERA pension contracts, while simultaneously the Colorado General Assembly tops off a collective $700 million appropriation for local government public pensions that are not its responsibility.  At least the local government lobbyists are happy.

On September 19, 2012,  FPPA CEO Dan Slack provided testimony to the Colorado General Assembly's Police Officers and Firefighters Pension Reform Commission (29 minutes into the hearing) regarding the obligation of the State of Colorado to pay for local government "Old Hire Police Officers Pension Plans."  Dan Slack: "So the State has made certain commitments, but has been very careful not to make binding obligations upon itself as the state to provide some assistance with funding for these plans."

Link:

http://www.leg.state.co.us/clics/clics2013A/cslFrontPages.nsf/Audio?OpenPage

“31-31-101. Legislative declaration.”  “The general assembly further declares that state moneys provided to municipalities, fire protection districts, and county improvement districts DO NOT CONSTITUTE A CONTINUING OBLIGATION OF THE STATE to participate in the ongoing normal costs of pension plan benefits . . . but are provided in recognition that the local governments are currently burdened with financial obligations relating to pensions in excess of their present financial capacities.”

This “Legislative Declaration” states that the Colorado General Assembly has provided state resources “in recognition that local governments are currently burdened with financial obligations relating to pensions . . .”. Accordingly, the policy preference of the Colorado General Assembly is that discretionary grants of state resources should be made to Colorado local governments when they are “burdened by financial pension obligations,” but when the State of Colorado is also “burdened by financial pension obligations” the State of Colorado will break its public pension contracts.

More Colorado law:

"31-30.5-304, C.R.S. (3) The general assembly finds and determines that it has contributed substantial sums to the (FPPA Old Hire fire and police pension) program established by this part 3 and that the state has a responsibility to evaluate the advisability of its contribution in light of its own fiscal situation."

http://www.fppaco.org/pdfs/Title%20%2031-30%20thru%2031%20w-%20amendments%20(2012).pdf

In spite of this statutory language, and the fact that the State of Colorado is currently in breach of its own pension contracts, the Colorado Legislature intends to pump this additional $142 million into local government pension obligations in the next fiscal year.

How much more evidence is needed to demonstrate that no fiscal emergency exists in Colorado that would justify any breach of state contracts?

Colorado PERA active and retired members, it is clear that the Colorado Legislature has placed into statute public pension contract provisions that are arbitrary, providing unequal protection under the law.  Fight for your contractual public pension rights!  Contribute at saveperacola.com.  "Friend" Save Pera Cola on Facebook!