Colorado PERA’s Executive Director: Fiduciary, or Politician?

Association of State Retirement Administrators: Colorado PERA Pension Has 5th Worse Funding Discipline in the Nation.

The Executive Director of Colorado’s largest public pension plan (Greg Smith of Colorado PERA) knows quite well that the pension plan he leads has a lower level of funding (funded in the low 60 percent range) than is needed to meet the pension system’s long-term financial obligations. Greg Smith knows that the payments received by the PERA pension system from its state and local governmental sponsors, since 2002, have been well below the funding levels calculated by Colorado PERA’s own actuaries as necessary to maintain the solvency of the pension system. Executive Director Greg Smith represents a board of fiduciaries, the Colorado PERA Board of Trustees.

Yet, Greg Smith recently testified to the Colorado Legislature that the pension system requires no “additional contributions.” In my opinion, the Colorado PERA pension system (a Colorado state agency) must have a leader who will speak the truth to Colorado’s state and local elected officials, rather than a leader who seeks to perpetuate financial mismanagement of the pension system.

Historically, the fact that Colorado PERA officials have acted in a political manner rather than as fiduciaries is largely responsible for the decline in the pension system’s funded ratio. (Note the past unanimous support of the PERA Board of Trustees for Governor Bill Owens PERA “service credit fire sale,” and the fact that state agency Colorado PERA has spent many millions of trust fund dollars on lobbyists and political/public relations campaigns.) Colorado does not need a “politician” at the helm of this state agency. Colorado PERA members desperately require a pension leader who will consistently act as a fiduciary. This public pension system itself cries out for greater oversight.

PERA Executive Director Greg Smith contradicting PERA General Counsel Director Greg Smith.

On December 11, 2014, Colorado PERA’s Executive Director Greg Smith testified to the Colorado General Assembly’s Joint Budget Committee: “We don’t need additional contributions.”

On August 11, 2009, at the Denver meeting of the Colorado PERA “Listening Tour” Colorado PERA’s (then) General Counsel Greg Smith blamed the Colorado General Assembly for the decline 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.”

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.”

Note the testimony of the previous Executive Director of Colorado PERA (Meredith Williams) to the Colorado Legislature’s House Finance Committee on February 23, 2012 (relating to the Legislature’s historical underfunding of its PERA pension obligations):

“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.”

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 “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.

The National Association of State Retirement Administrators (NASRA) recently released a study addressing the extent to which public pension plan sponsors in the United States have made  “actuarially required contributions” (ARC) to the pension plans.

From the Colorado Springs Business Journal: “Colorado Ranks 46th for Pension Funding”:

“Colorado has made 74.5 percent of its annual required contribution to its public employee retirement plans from 2001 through 2013, placing it 46th in terms of average state pension funding, a report suggests.”

“While most U.S. states are meeting their pension commitments, a report by the National Association of State Retirement Administrators shows Colorado has lagged for more than a decade.”

“Colorado placed behind New Jersey, Pennsylvania, Washington, North Dakota and Kansas, and is just ahead of Virginia, Illinois and Oklahoma, according to the report. The report also included the District of Columbia.”

“The report, ‘Spotlight on The ARC Experience of State Retirement Plans, FY 01 to FY 13,’ examines how state governments performed meeting the annual required contribution (ARC) of their public employee retirement plans,” according to NASRA. It details the ARC experience of 112 state-wide and state-sponsored public pension plans in the U.S. Together, these plans account for more than 80 percent of all public pension assets and participants.”

Link to the NASRA Report:

Excerpts from the NASRA Report:

“A government that has paid the ARC in full has made an appropriation to the pension trust to cover the benefits accrued that year and to pay down a portion of any liabilities that were not pre-funded in previous years. Assuming projections of actuarial experience hold true, an allocation short of the full ARC means the unfunded liability will grow and require greater contributions in future years.”

“The annual required contribution, or ARC, refers to the amount needed to be contributed by employers to adequately fund a public pension plan. The ARC is the sum of two factors: a) the cost of pension benefits being accrued in the current year (known as the normal cost), plus b) the cost to amortize, or pay off, the plan’s unfunded liability. The ARC is the required employer contribution after accounting for other revenue, chiefly expected investment earnings and contributions from employee participants.”

“Only a few states have conspicuously failed to adequately fund their pension plans.”

“Most states made a good-faith effort to fund their pension plans; a good-faith effort is defined here as paying 95 percent or more of the ARC.”

“Failing to make even a good-faith effort to fund the ARC increases future costs of funding the pension.”

 “The median ARC experience is 95.1 percent, meaning that one-half of the plans received at least 95.1 percent of their required contributions.”

 “All but six states paid at least 75 percent of their ARC.”

The Disparity of Colorado PERA Governmental Employer Contribution Legal Frameworks:

“For the Colorado Affiliated Local plan, statutes require employers to fund the actuarially determined contribution. Employers who participate in the Municipal, School, State, and Denver Public Schools plans under the Colorado Public Employees’ Retirement Association contribute a fixed percentage of compensation specified in statutes.”

(My comment: Public pension plans that rely on fixed statutory contribution rates, like Colorado PERA, rather than regularly paying the pension’s full ARC have the lowest funded ratios.)

The Colorado PERA State Division has paid only 67.5 percent of its ARC requirement [FY05-FY13.]

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.”

In spite of the fact that Colorado PERA officials had previously admitted to the existence of the PERA “ABI” (COLA) contractual obligation, these officials hired lobbyists to enact a bill to break the contract. In 2010, the Colorado Legislature (with help from 27 lobbyists) passed the bill, in effect asking the Colorado Supreme Court for the political favor of ignoring their own court’s precedent to break the contract. The Colorado Supreme Court, as a political entity itself, obliged. Since Colorado courts refused to grant discovery in the case, PERA’s claims of an actuarial emergency received no judicial scrutiny. This is our government theoretically constrained by the Colorado and US Constitutions.

3 Community Comments, Facebook Comments

  1. hawkeye says:

    “Executive Director Greg Smith contradicting Executive Director Greg Smith.”

    I think you meant to say, “Executive Director Greg Smith contradicting General Counsel Greg Smith”.

    I believe Greg Smith is acting as a politician due to TABOR “intimidation”.  If not for TABOR, Mr Smith would act more like a fiduciary. We all know that the general electorate would never vote to provide adequate funding for PERA, and neither will the legislature (both political parties).  Only the courts are left to protect the rights of public employee retirees, and they are failing in this mission nationwide, especially in Colorado.  The Republicans are still trying to de-fund (or starve) PERA by means of legislation (see SB15-080).

    Many conservative groups, such as the Arnold Foundation and the Independence Institute, are hoping active public employees have gotten the message that what PERA (or the State of Colorado) has promised is not contractual.  The mantra of the anti public pension folks is that it’s better to place your reliance on a retirement asset (defined contribution) rather than on a retirement promise (defined benefit such as PERA).  These folks must be giddy about their recent SB10-001 court victory which makes the PERA defined benefit akin to a gratuity … especially since adequate funding of the benefit is not required.


  2. hawkeye says:

    Algernon, I also have strong feelings concerning this topic, but I suggest you subtract “compulsive liar” from the title of your post, as your choice of verbiage is way too strong. It’s not a good way to persuade or win over others to the cause. Perhaps you should say “a Politician” instead. 

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