Colorado PERA Fiduciaries: Severely Underfunded, But See No Problem.
"We Don't Need Additional Contributions," Colorado PERA General Manager Greg Smith.
A few years ago, Colorado PERA officials and their hired lobbyists argued that the PERA public pension system's 69 percent funded ratio was such a crisis that the contracts of Colorado PERA pensioners just had to be broken.
They contended that the Colorado PERA pension system's 69 percent funded level constituted an "actuarial emergency" that justified the breach of Colorado PERA retiree pension contracts.
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.”
Since Colorado PERA officials have held the position that a 69 percent funded ratio is a financial crisis, and the pension system is currently funded in the low 60s, it seems odd that Colorado PERA officials are now suddenly complacent about Colorado PERA's funded level.
December 11, 2014, Colorado PERA public pension General Manager Greg Smith testifying to the Colorado General Assembly's Joint Budget Committee: "We don't need additional contributions."
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 has been grossly and historically underfunded, testifies to elected officials overseeing the pension system "we don't need additional contributions." This is a truly bizarre position for a public pension fiduciary. Colorado PERA is a public pension with a funded ratio currently in the low 60s, headed up by a General Manger who claims that the pension system does not need any additional funding. Rather than serving in the capacity of a fiduciary, Greg Smith appears to motivated primarily by political concerns. The Colorado Legislature has paid only 73% of the actuarially required contributions (ARC) for the Colorado PERA pension system over the last twelve years
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 credit rating firms Standard and Poor's, and Morningstar.
"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."
"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."
Colorado PERA General Manager Greg Smith at 2/31/40 on the recording of the December 11, 2014 Colorado Joint Budget Committee meeting (available on-line):
"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."
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)."
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:
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