Colorado PERA Officials Corrupt State Budget Process. Joint Budget Committee Analyst Silenced.

Colorado state agencies will be surprised to learn that answering questions posed by the Joint Budget Committee's staff and members in the state budget oversight process is optional.

Colorado PERA administrators have manipulated the Colorado state budgetary process to avoid answering budget process questions posed by the members and/or staff of the Colorado Joint Budget Committee (JBC.) This recent Colorado PERA action continues an historical pattern of manipulation of Colorado state legislators by Colorado PERA officials.

The non-partisan JBC staff analyst, who posed the inconvenient budget questions, relating to Colorado PERA pension oversight, is a staffer named Alfredo Kemm. An investigation is warranted of what is clearly political interference with the duties and professional obligations of a non-partisan Joint Budget Committee analyst.

On December 11, 2014, the Colorado Joint Budget Committee set aside 30 minutes for their annual review of this state agency, Colorado PERA. The state's historical mismanagement of the Colorado PERA pension system has racked up nearly $30 billion in state debt. (Yet, 30 minutes were set aside for this review.)

But, even this 30 minutes of Colorado legislative scrutiny of the state agency, Colorado PERA was too much for Colorado PERA administrators to bear. Accordingly, it was arranged that the most difficult budgetary questions posed by the members and/or staff of the Joint Budget Committee would be quashed.

The JBC prepared five sets of questions for Colorado PERA's response at the December 11, 2014 hearing. Colorado PERA officials agreed to answer only the four questions that posed no threat to their political agenda. The fifth set of questions, of the greatest consequence for the State of Colorado, were suppressed. Apparently, state agency administrators have the power to ignore JBC budget questions that they might find politically inconvenient to answer. That is, some state agency administrators (such as Colorado PERA's administrators) view questions posed by the members of the Colorado Joint Budget Committee as optional.

The five question sets posed by the JBC staff and/or members are listed at the end of the PERA response document (at the link below, beginning on page 24.) Note that, at the beginning of this PERA response document Colorado PERA administrators choose to respond to only four of the question sets (beginning on page 1 of the document.)

http://www.tornado.state.co.us/gov_dir/leg_dir/jbc/2014-15/perahrg.pdf

Here is the comprehensive set of questions from the Joint Budget Committee that Colorado PERA ignores in their response to this legislative committee:

"22. Do current normal yearly contributions – member and state contributions – fully fund the retirement liabilities generated over the year for state employee PERA members? If not, what is the projected percentage of current year liabilities that are being funded by the normal yearly contribution and how much should the normal yearly contribution rate increase to fully fund the liability?

IF NOT, WHY HASN'T PERA REQUESTED AN INCREASE IN THE NORMAL CONTRIBUTION RATES FOR MEMBER AND STATE CONTRIBUTIONS IN ORDER TO FULLY FUND CURRENT YEAR LIABILITIES?

OR WHY HASN'T PERA REQUESTED AN ADJUSTMENT TO FUTURE MEMBER BENEFITS THAT WOULD BE FULLY FUNDED BY NORMAL YEARLY CONTRIBUTIONS? (My emphasis.)

If not, what percentage of AED and SAED are for the purpose of fully funding liabilities generated due to the shortfall in normal yearly contributions and what percentage are for the purpose of back-filling or paying off the unfunded liabilities that were recognized at the point that AED and SAED were implemented? Are AED and SAED compensation provided to current state employees or are they payments made for underfunding PERA benefits for state employees in the past? If AED and SAED are intended to cover a shortfall in the normal yearly contribution for current state employees, why shouldn't that percentage be included directly in the normal yearly contribution rather than being lumped in with amortization payments intended to cover existing unfunded liabilities?"

The JBC staff asks why Colorado PERA officials have not sought increased contributions or pension benefit cuts to meet the annually accruing actuarial liabilities of the PERA pension fund. Colorado PERA officials quash and ignore their questions. The fact that questions of such moment for Colorado state finances have been ignored or suppressed by a Colorado state agency does not pass the smell test.

Colorado Revised Statutes: "2-3-203. Powers and duties of the joint budget committee.

(1) The committee has the following power and duties:
(a) To study the management, operations, programs, and fiscal needs of the agencies and institutions of Colorado state government."

"The JBC is statutorily charged with analyzing the management, operations, programs, and fiscal needs of the departments of state government."

http://www.tornado.state.co.us/gov_dir/leg_dir/jbc/jbcrole.pdf

"JBC hearings provide an opportunity for members to question department staff about programs, needs, new funding initiatives and other issues for the upcoming fiscal year."

http://cclponline.org/wp-content/uploads/2013/12/Colorado-Budget-Primer-2012_DOC-6.6.12.pdf

The Joint Budget Committee staff provides an annual written and verbal update to the members of the JBC regarding Colorado PERA. Here is a link to the 2014 JBC staff written PERA update:

http://www.tornado.state.co.us/gov_dir/leg_dir/jbc/2014-15/perbrf.pdf

In this document, the JBC staff reports Colorado PERA's claim that ARC underfunding is $1.4 billion (in the period 2009 to 2013.)

"An amortization contribution deficiency is generated when the actual contributions flowing into PERA are less than the annual required contribution that is calculated as a part of the actuarial liability analysis. PERA reports that the 30-year amortization contribution deficiency over the period from 2009 through 2013 totaled just under $1.4 billion."

The JBC staff document notes that the payment of Colorado PERA pension benefits is a payment of Colorado state and local government debt to creditors:

"Employees earn their pensions while working as a part of their compensation; pensions are not earned when they are received. The retirement pension payment is a payment of debt to the creditor – the retiree – who has already earned that payment. As a matter of fairness, the people who receive that employee's services should pay for those services at the time services are provided."

The JBC staff notes that additional payments must be made into the Colorado PERA pension system to address pension fund deficits:

"Therefore, normal yearly contributions should be fully funding those retirement liabilities. A normal yearly contribution that does not fully fund those retirement liabilities necessarily pushes the unpaid cost to future payers that did not receive those services. Underfunding the normal yearly contribution creates a debt that will have to be repaid by others. If a significant pension fund deficit develops due to underfunding or due to financial market declines, the government must make additional payments to eliminate that deficit with unfunded pension amortization payments."

The JBC staff criticizes the current AED/SAED pension funding mechanism as "back-loaded":

"However, the amortization of unfunded liabilities through the AED and SAED payments was structured as a percentage of payroll amortization rather than as a flat amount amortization over the 30-year projected period of amortization. Further, both AED and SAED payments were also structured to ramp-up the percentage of payroll over a period of time. This ramped-up percentage of payroll payment structure even further back-loaded the amortization period."

The Colorado PERA Board Has Reduced the PERA Portfolio Return Assumption. The Cost of the Reductions Was Paid by Colorado PERA Pensioners with the Taking of Their Statutory "Annual Benefit Increase" (COLA) in 2010.

"In 2013, PERA reduced its investment rate of return and discount rate assumptions to 7.5 percent from 8.0 percent. This followed PERA's reduction in 2009 from 8.5 to 8.0 percent. The rate reduction in 2009 generated a $4.8 billion loss or increase in liabilities in PERA's actuarial liability analysis. The 2013 reduction generated an additional $3.1 billion increase in liabilities.

These changes in rate are responsible for a total of $7.9 billion in actuarial unfunded liability.

These actuarial loss figures give an idea of the scale of change in fund status that is implied when assuming a more conservative rate of return or discount rate."

The 2014 JBC Staff Budget Briefing document for Colorado PERA is available at the following link:

http://www.tornado.state.co.us/gov_dir/leg_dir/jbc/2014-15/perahrg.pdf

For the record, Alfredo Kemm's presentation of his PERA briefing to the JBC begins at 2/06 on the recording of the December 3, 2014 JBC hearing.

To me, it really isn't surprising that Colorado PERA pension administrators have refused to answer the questions of the Colorado Joint Budget Committee relating to the underfunding of the pension system. Colorado PERA administrators recently refused to answer this identical question when posed by Colorado PERA retirees. Colorado PERA retirees requested that lawyers at the Office of the State Legislative Counsel (or the Office of the State Economist) examine the payment of the PERA pension system ARC historically, and provide a comparison of "ARC funding discipline" among major US public pension systems.

Instead of the requested ARC statistics, the Office of the Legislative Counsel acted as a conduit for a Colorado PERA political response, sending the following off-topic political commentary:

“I learned that the State of Colorado has always paid PERA the amount that has been owed by statute.” (My comment: This is an answer to a question that PERA retirees did not ask.)

“According to PERA staff, PERA has never been shorted on receiving these contributions.”

(My comment: Again, PERA retirees inquired about the failure to pay the pension ARC, not statutory contribution rates. There is no issue regarding the payment of statutory contribution rates by PERA employers or employees. The current statutory contribution rates are insufficient to cover the pension ARC.)

“PERA staff also explained that the ARC is just an actuarial calculation and measurement, and it roughly amounts to $3.3 billion for the whole system since 2001.”

(My comment: This $3.3 billion figure does not consider lost investment opportunities for funds not contributed, and is accordingly false. The provision of this figure is intended to minimize the significance of the Colorado PERA pension system ARC underfunding, and mislead the state legislators who followed up on the retirees' request for information. Expecting Colorado PERA officials to casually dismiss the historic lack of Colorado PERA ARC funding discipline, PERA retirees sought out an independent agency to provide the information, the Legislative Counsel. The PERA retirees were disappointed by the political response they received from the Legislative Counsel, but are encouraged by the forthright examination of state pension debt by the Joint Budget Committee staff.)

The December 11, 2014, Colorado Joint Budget Committee annual review of the state agency, Colorado PERA, was recorded. Listen to the JBC agency hearing for Colorado PERA at this link (arrow down to December 11, 2014):

http://www.leg.state.co.us/clics/clics2014A/cslFrontPages.nsf/Audio?OpenPage

Below I provide a few of the most pertinent comments made during the December 11 PERA hearing and my reactions. At 1 hour/49 minutes into the recording of the JBC's December 11, 2014 agency hearing schedule, Greg Smith begins the Colorado PERA testimony to the JBC:

" . . . appreciate the opportunity to be here and meet with you all and answer any questions including the predetermined questions."

(My comment: Greg Smith appreciates the opportunity to answer any of the JBC's "predetermined questions," with the exception of the JBC's question set #22, or any other question that is contrary to the Colorado PERA political agenda.)

"We've provided each of you a packet that consists of a brief slide show that I'll go through . . . also HAS THE WRITTEN RESPONSES TO YOUR QUESTIONS . . ." (my emphasis.)

(My comment: Given the fact that JBC Question #22 to Colorado PERA was ignored or suppressed, this appears to be a false statement by a state agency head. What are the standards that must be met by state agencies in our state budgeting process? Are agency heads granted the power to ignore or suppress budgetary questions at their pleasure? If this is indeed the environment in which Colorado budgeting occurs, I am not surprised that the Colorado PERA ARC under-funding has been successfully ignored for 12 years.)

At 1/56/51 on the recording Greg Smith states: "We don't need additional contributions."

(My comment: Colorado PERA's Greg Smith may very well be alone in the nation in that he, as a fiduciary who heads a major public pension system that is grossly and historically underfunded, testifies to elected officials overseeing the pension system "we don't need additional contributions." This is a truly bizarre position. Colorado PERA is a public pension with a funded ratio in the 60s, headed up by a General Manger who claims that the pension system does not need any additional funding.

I ask: Were Colorado PERA officials speaking the truth to Colorado legislators on February 23, 2012 when [then] Colorado PERA General Manager Meredith Williams, testified to the Colorado House Finance Committee, in regard to the Legislature’s failure to pay the Colorado PERA ARC? Meredith Williams: “We’ve had a significant problem over the years, in that . . . contributions, payments by (PERA) employers into PERA have been kind of the last thing in the budget building process, and we have not made the required payments. Unfortunately, in our line of work, where we’re involved in compounding shortfalls grow, particularly when the shortfalls continue year after year after year.”

Or, were Colorado PERA officials speaking the truth to Colorado legislators on December 11, 2014 when JBC members heard from Colorado PERA that "we don't need additional contributions"?

Logically, only one of these Colorado PERA statements to Colorado state legislators can be true.

Greg Smith's position on public pension underfunding is at odds with the position of the National Governors Association, the National Conference of State Legislatures, the Council of State Govern­ments, the National Association of Counties, the National League of Cities, the U.S. Conference of Mayors, the International City/County Management Association, the Govern­ment Finance Officers Association, the National Association of State Auditors, the Comptrollers and Treasurers Association; the National Association of State Retirement Administrators (NASRA); the National Council on Teacher Retirement, and the financial firms Standard and Poor's, and Morningstar.

NASRA:

"Employer Contributions: A variety of state and local laws and policies guide governmental pension funding practices. Most require employers to contribute what is known as the Annual Required Contribution (ARC), which is the amount needed to finance benefits being accrued each year, plus the cost to amortize unfunded liabilities from past years, minus required employee contributions."

http://www.nasra.org/files/Issue%20Briefs/NASRACostsBrief.pdf

NASRA:

"PENSION FUNDING: A Guide for Elected Officials, Report from the Pension Funding Task Force 2013."

"The 'Big 7' (National Governors Association, National Conference of State Legislatures, Council of State Govern­ments, National Association of Counties, National League of Cities, U.S. Conference of Mayors, and the International City/County Management Association) and the Govern­ment Finance Officers Association established a pension funding task force in 2012. The National Association of State Auditors, Comptrollers and Treasurers; the National Association of State Retirement Administrators; and the National Council on Teacher Retirement also serve on it. The Center for State and Local Government Excellence is the convening organization for the Task Force."

"The Task Force recommends pension funding policies be based on the following . . . have a pension funding policy that is based on an actuarially determined contribution."

"The Task Force recommends that state and local governments . . . stay within the ARC calculation parameters established in GASB 27 . . ."

"The most important step for local and state govern­ments to take is to base their pension funding policy on an actuarially determined contribution (ADC). The ADC should be obtained on an annual or biannual basis."

http://www.nasra.org/files/JointPublications/PensionFundingGuide.pdf

Colorado PERA General Manager Greg Smith at 2/31/40 on the recording:

"I'm not a huge fan of the credit rating agencies and the job that they do."

Standard and Poor's:

"We believe that not fully funding the ARC is a short-term solution that will likely result in a larger unfunded actuarial accrued liability down the line."

"We've observed that persistent underfunding of ARC correlates highly with pension funding contributions that are statutorily or contractually determined."

http://www.nasra.org/Files/Topical%20Reports/Credit%20Effects/A_Bumpy_Road_Lies_Ahead_for_US_Public_Pension_Funded_Levels.pdf\

S&P emphasizes the importance of pension ARC funding discipline. Yet, Colorado PERA staff casually dismiss ARC funding discipline, and ignore the fact that (as S&P's analysts have noted) fixed statutory contribution levels, like those set for Colorado PERA, result in pension systems "with the weakest funded ratios."

Morningstar Analyst Rachel Barkley:

"Although Colorado is still absorbing losses from 2009, the main reason its funding gap is yawning is the state's failure to make the contributions recommended each year by its own budget experts, Barkley said."

"Even if public pensions realize their projected investment returns on average over coming years, the failure by many plans 'to pay less than the full ARC . . . will produce less than full funding over the next 30 years,' according to a recent report by the Center for Retirement Research (CRR)."

http://www.reuters.com/article/2014/03/10/us-usa-pensions-rally-analysis-idUSBREA2907320140310

A recent study by the Tennessee Treasurer's Office reveals that the cost of delaying public pension plan actuarially required contributions [with an assumed 7.5 percent return assumption] for a 12-year period [the Colorado Legislature began underfunding the PERA pension system 12 years ago] is a premium of 138.2 percent of the skipped pension contribution.

Link to the Tennessee Treasurer's report:

http://s3.amazonaws.com/s3.documentcloud.org/documents/1012837/pension-report.pdf

From the Tennessee Treasurer's report:

"It costs an additional $435,000 to delay a one million dollar pension payment for five years assuming an earnings rate of 7.5%. This is a 43.6% increase in the amount to be paid. The pension cost more than doubles by delaying a payment by 10 years. A $1 million pension cost becomes $2.06 million if delayed 10 years. See Attachment 2 that illustrates the cost of delaying employer pension contributions."

"GASB noted in its release accompanying Statement No. 68 that pension contribution issues are public policy matters. Indeed, leading finance professional organizations, including the Government Finance Officers Association have adopted positions calling for governments to adopt a funding policy based on an actuarially determined annual funding amount."

"Failure to pay annually when due the full actuarially required contribution is in effect underfunding the pension plan. The amount that is not funded increases the unfunded accrued liabilities of the plan. Further, the pension plan will not have the under-funded amount available to invest, thereby resulting in lost earnings opportunity."

"The funding for a pension plan assumes that 100% of the ARC will be paid annually, and further assumes that those contributions will be invested to earn at least the assumed rate of return for the pension plan. Thus, the failure to pay 100% of the ARC can quickly lead to a serious underfunding of the pension plan. Chronic underfunding of the ARC will eventually make the pension plan financially unstable. Nationwide, multiple severely underfunded pension plans that are now financially unstable are examples of the failure to pay annual funding requirements."

Greg Smith states (at 2/03/29 on the recording of the December 11 JBC PERA hearing) that the Colorado Supreme Court Decision regarding SB10-001 "was exactly what we had advocated for."

This statement is not entirely accurate. The Colorado Supreme Court Decision in the case, Justus v. State, found that Colorado PERA retirees had no contractual right to the statutory pension COLA benefit (that it can legally be reduced by the Legislature after it has been supported by employee labor and contributions.)

Colorado PERA officials, in 2009, admitted the existence of the PERA COLA contract to the members of the Joint Budget Committee (audio recording and in writing.) Accordingly, in the case Justus v. State, Colorado PERA's lawyers did not initially deny the existence of the contractual right to the PERA COLA, as is implied by Greg Smith's statement at 2/03/29 on the recording. In the case, Colorado PERA officials originally admitted that the contractual obligation to pay the PERA COLA existed, but they argued that a retroactive taking the COLA benefit was "actuarially necessary." As we know, the Colorado Supreme Court ignored this evidence in the case, Justus v. State.

December 16, 2009

Colorado PERA officials in written testimony to the Joint Budget Committee: “The General Assembly cannot decrease the COLA (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.”

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

Representative Jack Pommer, JBC Chairman in 2009, 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. 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 (as a PERA investment time horizon) because if we’re not balanced within 30 years that creates actuarial necessity which then let’s us change retiree benefits?”

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

January 29, 2010

Rep. Lambert on SB 10-001:

 “I have heard from my constituents, as many of you have, that this proposal will breach retiree’s contracts.”

March 11, 2009

Colorado PERA officials place blame on the Colorado General Assembly for creating the latest PERA financial downturn: “Other notable factors (for the downturn in PERA’s fiscal position) include employers not contributing the actuarially determined contribution rates, the sale of purchased service credit at rates below actuarial costs, and the raising of benefits in the late 1990’s coupled with decreasing employer contributions.”

http://www.kentlambert.com/Files/PERA_Response_Pt_1.pdf

August 11, 2009

Colorado PERA’s General Counsel Greg Smith blames the Colorado General Assembly for PERA’s fiscal downturn: “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

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

Greg Smith comments at 2/06/26 regarding the PERA Board's authority, telling the legislative members of the JBC, "you determine what the benefits in the PERA system are exclusively."

I also find this statement by Greg Smith to be disingenuous given Colorado PERA's extensive lobbying activities. Later in this article I provide an example of the level of control of Colorado PERA's lobbyists and lawyers over the Colorado Legislature. A level of control that demonstrates the falsity of Greg Smith's comment "you determine what the benefits in the PERA system are exclusively."

Greg Smith neglected to mention to the JBC members that PERA administrators spend up to $400,000 each year lobbying the legislators to help them "determine what the benefits are."  What is the total Colorado PERA lobbying expenditure related to "determining the benefits" in SB10-001?

From the Denver Post:

"The system budgeted $400,000 for lobbying this year, although it receives help at the state Capitol from influential unions including the Colorado Education Association."

"The fund also has spent as much as $2.2 million per year on staff and contracted attorneys, who advise on benefit disputes with retirees and review investment contracts."

"The fund's $49.6 million administrative budget includes $28 million for salaries and benefits."

http://www.denverpost.com/ci_18404598

A 2009 article in the publication “State Bill Colorado,” addressed the initial recruitment of the Colorado PERA SB10-001 lobbying troop:

“PERA is ‘obviously gearing up for some heavy-duty lobbying, one observer noted. The agency has hired two lobbyists from the firm Colorado Communique, Collon Kennedy and Steve Adams, former president of the Colorado AFL-CIO. The pension system also has hired Mary Alice Mandarich, a well-connected Democratic lobbyist who formerly was chief of staff for Senate Democrats and who worked on campaigns for former Senate President Joan Fitz-Gerald, former Gov. Roy Romer and gubernatorial candidate Gail Schoettler. Coalition members have their own lobbyists, and the well-staffed higher education lobby is sure to be involved in this issue as well.” “All that lobbying power will be focused on 100 legislators . . .”

Link:

http://statebillnews.com/2009/10/pera-woes-loom-large-for-education/

At 2/08/09 on the recording of the JBC PERA oversight hearing Greg Smith comments on a recent e-mail from Colorado PERA retirees to state legislators addressing the failure of the Legislature to pay the PERA pension system ARC.

Greg Smith: "There's been a recent e-mail transmission to a number of legislators questioning whether or not PERA has been paid the contributions that were due to it."

The PERA retirees' "e-mail transmission" did not question whether PERA has been paid the statutory contributions that are due from PERA employers and employees. The e-mail drew attention to the fact that PERA ARC is not being paid. The e-mail states that setting a fixed contribution rate in statute IS NOT THE EQUIVALENT OF PAYING THE ARC."

Greg Smith states: "The concern is that we have not been receiving the ARC for the past many years, AND THAT IS AN ACCURATE STATEMENT, WE HAVE NOT BEEN RECEIVING THE ARC," (my emphasis.)

On the recording, Greg Smith goes on to rationalize the failure of the Legislature to ensure that the PERA pension ARC is paid, stating that since 2010 paying the ARC would have been difficult. He then presents false choices. He presents the false choice of immediately raising both employer and employee contribution rates by four percent in 2010, and ignores the option at the time of PROSPECTIVE benefit reductions, for pension benefits not yet earned, as a means of reducing PERA liabilities. In lieu, of prospective reductions of benefits not yet earned in the PERA pension system, the Legislature enacted a retrospective claw back of contracted pension ABI (COLA) benefits. Colorado's public sector unions wanted to protect active members at the time, and so went after the PERA retirees' contractual inflation protection.

Greg Smith fails to mention that the PERA Board could have proposed a simple reduction in the PERA pension system "multiplier" in 2010. That is, the rate at which PERA benefits accrue each year. A reduction in the PERA pension system multiplier was a policy option available to the General Assembly, as a means of reducing unfunded liabilities and facilitating payment of the pension ARC. The Colorado PERA "multiplier" is currently set at 2.5 percent per year. Rather than reducing the PERA pension "multiplier" the unions involved in the development of SB10-001 schemed to push almost the entire cost of the SB10-001 reform [90%] onto the backs of PERA retirees (who don't pay union dues.)

Some courts have recently sanctioned the prospective reduction of public pension "multipliers":

http://m.jsonline.com/news/milwaukee/supreme-court-oks-milwaukee-county-cuts-to-pension-benefits-b99411960z1-286363761.html

At 2/10/33 on the recording, Greg Smith plays the JBC members like a fiddle, misdirecting the members, and wasting the JBC's time with a red herring. Greg Smith states:

"The other part of that communication that's important is that there was a suggestion that some of the employers are not paying in or PERA is not working to collect those dollars. Every single employer without exception, every single employee without exception has paid all of the statutory contributions that the law of the State of Colorado requires them to pay."

Greg Smith goes on at length, piously assuring the JBC members that something is not happening, that no one has suggested happens. In their e-mail, PERA retirees did not suggest that PERA employers and employees are failing to pay their statutory pension contributions.

Here is the text of the e-mail sent by a number of Colorado PERA retirees to all Colorado state legislators:

"Request for Information Re: Colorado PERA.

Hello, my name is _______. I am a Colorado PERA retiree who is concerned about financial management of the Colorado PERA pension system.

Recently, a letter was published that pointed out the failure of the Colorado Legislature to make 'actuarially required contributions' (ARC) payments to our public pension system, that is, to pay the state’s annual public 'pension bill.'

The letter is available at this link:

http://www.boulderweekly.com/article-13611-letters-week-of-november-13.html

As a state legislator charged with management of our pension system, I ask that you request that your staff, or the Office of the State Economist, examine the level of the Colorado PERA pension system ARC that has been paid historically. I wonder what percent of the Colorado PERA pension system ARC has been paid in recent decades and how this percentage compares to other public pension systems across the nation. My understanding is that payment of a public pension system’s “ARC” is critical to the long-term sustainability of a public pension system.

A retiree organization has drawn attention to the following statements of current and former Colorado PERA leaders lamenting the underfunding (failure to pay the ARC) of the PERA pension system.

On August 11, 2009, at the Denver meeting of the Colorado PERA “Listening Tour” Colorado PERA’s (then) General Counsel Greg Smith commented on the decline of PERA’s actuarial funded ratio: “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

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

On February 23, 2012 (then) Colorado PERA General Manager Meredith Williams, before the Colorado House Finance Committee, testified relating to the Legislature’s historical underfunding of its PERA pension obligations, i.e., the failure of the Legislature to ensure payment of the ARC through appropriate statutory contribution rates, or supplemental appropriations. Colorado PERA General Manager Meredith Williams: “We’ve had a significant problem over the years, in that . . . contributions, payments by (PERA) employers into PERA have been kind of the last thing in the budget building process, and we have not made the required payments. Unfortunately, in our line of work, where we’re involved in compounding shortfalls grow, particularly when the shortfalls continue year after year after year.”

Since most Colorado state and local government employees are ineligible to receive Social Security benefits in retirement, they rely on the appropriate financial management of the Colorado PERA pension system to avoid poverty after giving a lifetime of service to the public. I would very much appreciate your help in gathering information regarding the historical Colorado PERA ARC payments.

Sincerely,"

This letter is just seven paragraphs long. It is not difficult to read these seven paragraphs and see that Greg Smith has made a false statement in a JBC budget hearing. The letter makes no mention of PERA employers failing to pay statutory pension contributions. This letter simply points out that the Colorado Legislature is failing to pay the PERA pension system ARC. Greg Smith's red herring is a transparent manipulation of state legislators and the Colorado budgetary process by a state agency head.

As noted above, unfortunately, Colorado legislators forwarded this letter to the staff of the State Legislative Counsel which, rather than conducting the requested ARC statistical research for PERA retirees, acted as a conduit for a Colorado PERA political response.

As evidenced by the letter above, Colorado PERA retirees requested that the Legislative Counsel (or the Office of the State Economist) examine the payment of the PERA pension system ARC historically, and provide a comparison of "ARC funding discipline" among major US public pension systems. Colorado PERA administrators ignored the requested statistics and instead, sent legislators and retirees a political statement.

Below is a link to a PERA retiree response to PERA's refusal to provide the requested statistical information. This response was subsequently sent to all Colorado state legislators:

http://coloradopols.com/diary/65975/the-colorado-legislatures-chronic-underfunding-of-the-colorado-pera-pension-system

Greg Smith at 2/11/40 on the recording of the JBC agency hearing:

"We pride ourselves in our transparency." (My response: Indeed, Colorado PERA administrators "transparently" quashed the JBC's question set #22.)

Greg Smith at 2/21/23:

"We're interested in everybody understanding the facts about PERA."

Greg Smith at 2/21/04:

"GASB is eliminating that provision (the ARC calculation), as a part of the adoption and the effective dates of 67 and 68. The ARC will no longer be a component of GASB's requirements."

(My comment: Of course, the fact that GASB is changing its emphasis from ARC funding discipline to plain statements of pension liabilities on public sector employer balance sheets DOES NOT EXCUSE the failure to pay the PERA pension ARC for the previous twelve years.

This Greg Smith statement also ignores that fact that, as noted earlier, nearly all organizations representing public sector entities in the United States recommend a continuation of public pension calculation of an annual "actuarially determined contribution," with implementation of the new GASB rules.

National Association of State Retirement Administrators:

"Of note, our associations recommend that state and local governments continue to calculate an actuarially determined annual required contribution (ARC). For those who do, GASB’s new standards will require governments to provide supplementary information regarding their actuarially determined pension contribution, the history of their funding commitment in relation to this amount, and underlying assumptions regarding this calculation and other factors that materially affect the trends in financial reporting schedules."

http://www.nasra.org/Files/Letters/Joint%20Letter%20to%20Commissioner%20Gallagher%206-16-14%20%282%29.pdf

Note that, at its 2014 legislative session, the Tennessee Legislature enacted a bill requiring payment of their public pension system ARC each year. (Some states, recently Alaska, have supplemented statutory contribution rates to pay off their public pension liabilities.)

See the articles:

http://coloradopols.com/diary/58527/tennessee-legislature-models-responsible-public-pension-management-for-colorado-pera-and-the-colorado-legislature

http://coloradopols.com/diary/65975/the-colorado-legislatures-chronic-underfunding-of-the-colorado-pera-pension-system

"When government entities fail to pay annual required contributions, not only do they jeopardize the actuarial soundness of the funds, but they also put pension plan trustees in a precarious position. Have plan trustees breached their fiduciary duty when they do not take action to try to collect a contribution underpayment? In other words, does fiduciary duty obligate the plan trustee to take action to try to compel a government entity to pay its required contribution? If the answer to this question is 'yes,' what actions are required? Are they required to bring legal action against the government sponsors to collect the required contributions, or is simply sending a demand letter sufficient to satisfy the obligation? The ultimate answer may be largely determined by state law and whether the obligation to pay the ARC derives from the state constitution, statute or a matter of contract law between the government sponsor and the pension fund. To date, this issue has not been addressed by a court, but it may only be a matter of time."

http://www.bgdlegal.com/news/2011/04/29/articles/are-public-pension-plan-trustees-at-risk-for-fiduciary-liability-when-public-plans-are-underfunded/

"Does Your Pension Board Need Help Meeting Its Fiduciary Liability? – Create a Funding Policy."

http://www.publicpensioninstitute.org/public/10292print.cfm

THE POWER OF COLORADO PERA'S LOBBYISTS.

Historically, Colorado PERA has purchased a substantial lobbying presence at the Colorado Legislature with PERA Trust Fund assets. See the article: "Colorado State Senators Jump for Angry Colorado PERA Attorneys." at this link:

http://coloradopols.com/diary/36778/colorado-state-senators-jump-for-angry-colorado-pera-attorneys

The influence of Colorado PERA's internal and external lobbying force was revealed during Senate floor debate on SB10-001 in 2010. This is the bill that struck Colorado PERA pensioner contractual rights to the statutory "annual benefit increase" (COLA.)

During floor debate of SB10-001, Senator Scott Renfroe: "IF YOU WANT IT TO GO OUT OF HERE (THE SENATE) WITH THE PERA APPROVED DOCUMENT."

The Colorado Senate took up SB10-001 on two occasions; “Second Reading” on January 29, 2010, and “Third Reading” on February 1, 2010.

On “Second Reading,” a member of the Senate, Senator King, tried to amend the bill to provide that Colorado law would permit the breach of its public pension contracts if a financial condition called “actuarial necessity” could be established. The King amendment also stated that the Colorado Legislature could not break the contracts of Colorado PERA members who had already fulfilled all of the conditions of their pension contract and retired. This amendment proposed by Senator King was voted down.

Next up, Senator Renfroe proposed an amendment to SB10-001 on “Second Reading,” stating that if the Legislature intends to break its public pension contracts it must provide notice of the breach to the parties to the contract, i.e., PERA members. The Renfroe amendment also precluded the Colorado Legislature from breaking the contracts of Colorado PERA members who had already fulfilled all of the conditions of their PERA pension contracts and retired. This Renfroe amendment was passed by the full Senate on “Second Reading” and became part of SB10-001.

A few days went by before Colorado PERA officials realized that Senator Renfroe’s “Second Reading” amendment to SB10-001 would prevent their taking of PERA retiree’s contracted pension COLA benefits (which represented 90 percent of the cost-shift in the bill, according to the bill’s prime sponsors, Senator Penry and Senator Shaffer, as well as Colorado PERA.)  Apparently, the fact that some Colorado Senators had failed to march in lock-step with Colorado PERA's orders resulted in raised tempers . . . and a decision to fix the Renfroe “Second Reading” amendment on the Senate floor on February 1, 2010 when the bill was to be heard by the Senate on “Third Reading.”

This effort to “fix” Senator Renfroe’s amendment makes for some of the most interesting action from the Colorado General Assembly’s debate of SB10-001. You can watch the Senate’s “Third Reading” debate on SB10-001 on the Colorado Channel here:

http://www.coloradochannel.net/colorado-senate-2010-legislative-day-20

(Click on “SB10-001” on the right of the screen.)

On “Third Reading,” the members of the Colorado Senate disagreed about whether or not Colorado PERA members should be told of their contractual rights to their pension benefits.  Colorado PERA’s attorneys in the lobby grew angry. The members realized that the presence of the Renfroe amendment in SB10-001was a tacit admission by the Legislature that it could not impair fully-vested, accrued, contracted PERA pension COLA benefits.

Listening to the floor debate of SB10-001 it’s clear to me, that PERA’s attorneys were running the show.

Here are transcribed highlights from the February 1, 2010 Senate “Third Reading” floor debate on Senator Renfroe’s amendment (that was placed in the bill two days earlier on “Second Reading”):

Senator John Morse stated:

“I ask permission for a Third Reading amendment.”

“Members, we put an amendment on the tail end of Second Reading and it turns out that that amendment had the effect of undoing the bill.”

Senator Renfroe stated:

“I think it’s an amendment we still need to keep in there, but modify the language to make the attorneys happy as opposed to just deleting it out.”

“I’m standing before you to tell you that I did not have ulterior motives, with this as has been suggested and that angers me to no end that I would receive phone calls from members and from the press about that.”

“Now, if the attorneys outside don’t like what we did, well then let’s fix it and let’s include it and go down the road.”

“I have another Third Reading amendment that would put my language back in without striking out the language that made the attorney or attorneys, or whoever it is, angry with what it was.”

Senator Harvey stated:

“The only thing we did compromise was on this amendment . . . that we would say that we would notify the (PERA) members of what their rights are.”

“Now we’re coming back two days later and saying ‘no’ we can’t even offer that amendment to tell the (PERA) members what their rights are.”

“If we can’t fix that technical issue and compromise in telling the (PERA) members just what their rights are, then we’ve got a more serious problem in this body than simple technical amendments on Third Reading.”

Senator Mitchell, (admits that Senator Renfroe’s language in the bill precludes the General Assembly from modifying fully-vested PERA retiree pension benefits):

“My understanding then is that Senator Renfroe offered an amendment that provided for notice to all PERA-covered employees of their rights under the changing programs, and that amendment was adopted by this body.” 

“A unanimous vote by this body to give notice to PERA members of their rights . . . that sounds like a worthwhile and good government policy.”

“Now, we learn this morning that there were some unintended consequences, and mistaken overreach in the amendment that would have the effect of gutting the bill. Well, some of us might think that is a good thing.”

Senator Renfroe, (makes it clear that Senator Morse’s amendment to replace the Renfroe language currently in the bill is actually being offered by PERA’s attorneys in the lobby):

“Or, if you want it to go out of here with the PERA-approved document and nothing else then let’s just approve this one and vote mine down.”

Senator Penry, co-prime sponsor of SB10-001, (makes it clear that the Renfroe amendment currently in SB10-001 would preclude the General Assembly’s retroactive taking of PERA COLA benefits):

“And to be clear what we’re talking about it’s the COLA, the COLA reduction which represents $15 billion of the $30 billion shortfall in this proposal is what was stripped out as part of that (Renfroe) amendment.”

The Senate then broke for a “Senatorial Five” in order that continued discussion of the contractual rights of Colorado PERA members not become part of the official Senate record.

After the powwow, Senator Morse has abruptly changed his mind. He now supports the Renfroe amendment.

Senator Morse withdraws his own (PERA-sponsored) amendment and asks for the Senate’s support for the Renfroe amendment that puts into Colorado law the language about “actuarial necessity” that is in the final version of SB10-001, (Floor Amendment #41).

Senator Renfroe’s amendment was adopted.

This Senate “Third Reading” debate on SB10-001 makes it clear that the members of the Senate knew that they were breaking fully-vested Colorado public pension ABI contracts. The “Third Reading” debate on SB10-001 also makes it clear that the members of the Senate have abdicated their public policy-making authority regarding Colorado public pensions to Colorado PERA attorneys in the lobby.

The Senate’s “Second Reading” debate on SB10-001 on January 29, 2010 is also quite interesting. During this SB10-001 “Second Reading” debate we hear members of the Colorado Senate declare that the Colorado General Assembly’s proposed taking of the PERA COLA contracted benefit is unconstitutional.  Now, for some reason, the Senate’s “Second Reading” debate on SB10-001 has disappeared from the Colorado Channel archives.  (If you click on “SB10-001” for Legislative Day 17 [January 29, 2010] in the Colorado Channel archives you get this error message: “Video not found.”)  Does someone not want public access to the SB10-001 “Second Reading” debate on SB 10-001?

Fortunately, I have preserved pertinent comments from the January 29, 2010, Senate “Second Reading” debate on SB10-001. Here are a few:

Senator Harvey, “We have made a commitment. We have a contract with current retirees. That is already in place.” “Reforms should be made for new hires.” “We do not have that commitment to new hires.”

Senator Spence, “The bill places an unfair burden on retirees.”

Senator Scheffel, “We are breaching our promises to existing retirees.”

Senator Lundberg, “This bill is a deal that was cut before this body met.”

It is ironic that, during floor debate of SB10-001, the Colorado Senate debated the concept of "actuarial necessity" which Colorado PERA and the sponsors of SB10-001 believed was necessary for the state to escape the PERA COLA contractual obligation to PERA pensioners. The irony is found in the fact that, later in the litigation of the case Justus v. State, Colorado PERA switched its legal strategy, from arguing that "actuarial necessity" was necessary to break the PERA COLA contract, to arguing that the PERA COLA contract did not exist. [Of course, as noted above, PERA's lawyers had already testified to the JBC in 2009 that the PERA COLA contract did indeed exist.])

During the debate on SB10-001 there was universal guarded speech on the floor of the Senate and much tiptoeing around the subject of Colorado PERA retiree vested pension rights. The Senators were concerned about accidently providing too much evidence for Colorado courts that they were aware of the contractual nature of the PERA COLA benefit. But, it turns out that the Senators' fears were unfounded. The Colorado Supreme Court had no intention of examining evidence in the case, Justus v. State, and did not examine the evidence. Such an examination of  evidence in the case would have interfered with the desired political resolution of the case.

Longstanding Colorado case law has deemed fully-vested public pension contracts inviolate. (An earlier Colorado Supreme Court concluded in McPhail: “ . . .we believe that in a case, such as that before us, involving a contributory system it is the only reasonable conclusion that can be reached (the contract principle.)”  “It would be unjust and contrary to our basic notions concerning the validity of contracts to hold that this provision could be changed by the lawmakers.”  Colorado courts have historically adhered to the "California Rule" of public pension contractual rights.

The final language of the Renfroe “Third Reading” amendment to SB10-001 (that is now part of Colorado law) requires that written notice be provided to Colorado PERA members and inactive members that in the event of "actuarial necessity," the Colorado General Assembly is free to break its public pension contracts.

Colorado PERA's gamesmanship during the 2014 Joint Budget Committee PERA hearings are simply a continuation of its historical manipulation of Colorado state legislators to conceal the underfunding of the PERA pension, and a premeditated breach of Colorado PERA pension ABI statutory contracts. This is all very ugly, and a sad statement about the reality of our Colorado state government.

Colorado, the tenth wealthiest state in the nation, is allegedly forced to break its contracts with public pensioners.

"Gov. John Hickenlooper's economists predict, however, that the state needs to refund $196.8 million (TABOR refund to taxpayers) next year because of revenue increases in the current budget year. Lawmakers weren't expecting refunds until the 2016 tax year, and Hickenlooper's budget request sets aside nearly $137 million for those."

http://www.bnd.com/2014/12/22/3575777_lawmakers-getting-briefing-on.html?sp=/99/102/&rh=1

The fact is that many Colorado state legislators have desired to use state funds (that should be directed to meeting state contractual obligations) for other purposes. These legislators are willing to go to great lengths to achieve that goal. Our Colorado Legislature has lacked statesmen who will speak the truth and inform Colorado voters that the Legislature cannot break its existing contracts to accommodate TABOR. We lack elected officials who will honestly inform Colorado voters that either TABOR must be modified, or state services must be further diminished. We lack leaders who will inform Colorado voters that our Legislature will no longer continue the charade of borrowing from the PERA pension system, and from future generations, to maintain state services in the present.

Support the Rule of Law in Colorado at saveperacola.com.

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