After attending the Boulder campus PERA presentation in which proposed legislative changes were explained, I came away with some disturbing thoughts. By reducing benefits to accommodate poor market performance, we end up with a defined contribution plan masquerading as a defined benefit plan. When the benefit guarantee is removed, the difference between the two vanishes. When the risk becomes mine, I should be entitled to make my own investment decisions. Brooding upon my pension conjures uninvited images of Ponzi schemes and gambling casinos.
I believe the PERA trust fund should invest mostly, if not exclusively, in bonds, as proposed by G. Bennett Stewart III in his June 2003 Harvard Business Review article, Pension Roulette. Meanwhile, PERA's latest reported fixed income and cash/cash-equivalent investments stand at less than 30 percent. We are all paying the price for such hubris. The Social Security trust fund invests 100 percent in fixed-income securities; because PERA is a Social Security substitute, ought we not take counsel? I hope the Colorado legislature considers this before adopting any changes because it alters the metrics of the entire program.
Fixing the funding shortfall by simply decreasing benefits and increasing contributions without also correcting the asset mix might improve the odds, but it still amounts to a roll of the dice. And, as we see, the house doesn't pay on bets that it loses. You and I do.
Accounting and Business Support, University of Colorado at Boulder