Acknowledging that legal battles were certain, the House Finance Committee on Wednesday, Feb. 10, voted 8-3 for a bill that proponents say would rescue the foundering Public Employees' Retirement Association (PERA).
"We've heard loud and clear that someone will take this to court," said Rep. Andy Kerr, D-Lakewood, after seven hours of testimony and debate. "Every law we make is subject to court challenge."
Kerr, who sponsored Senate Bill 10-001 in the House, said, "This is one of the most important pieces of legislation we'll look at this year." It now advances to the House Appropriations Committee.
Projections show that on its current path, the state division of PERA, which includes the University of Colorado, could run out of money in as little as 16 years. The retirement plan comprises five separately funded divisions: state, judicial, schools (excluding higher education institutions), local government and Denver Public Schools.
SB-1 would increase contributions by employers and employees, provide no cost-of-living adjustment (COLA) for 2010 and place a cap on future adjustments for retirees. It also would move the age of retirement eligibility to 60 from 55 for most members.
About 40 witnesses testified Wednesday before the House committee. Many had previously presented their arguments to the Senate Finance Committee.
Some voiced concerns that not enough study had been done before the bill was drafted and that the process was not as transparent as it could have been.
Rep. Cheri Gerou, R-Evergreen, who voted against the bill, agreed.
"I had a problem with the process and system we were going through from the beginning," she said. "I kept looking for the dialogue. ... But it was not achieved. ... I think we're doing everyone a disservice by rushing something through that we think will go to litigation."
The core issue is the change in annual benefits. Currently, retired members receive a 3.5 percent increase in benefits each year. Out of about 470,000 members of PERA, 90,000 are retirees. But SB-1 would allow no COLA increase in 2010, while a cap of 2 percent would be in place in future years. If the plan were not fully funded, the amount of the benefit would depend upon an inflation calculation.
Retirees and some experts say the change in benefits amounts to a breach of contract and will be challenged in the courts. Many also say retirees who live on less could be pushed into poverty, especially because of steeply rising costs, including health-care premiums.
Meredith Williams, PERA's executive director, said the board had looked at every possible option. "The pain is widespread. The bill has something for everyone to dislike."
A miserable investment year in 2008, accompanied by high payout rates and other fund policies, contributed to a loss of $30 billion in assets. Previously the plan was about 70 percent funded, but the downturn lowered the rate to about 50 percent.
SB-1 would restore the plan to 100 percent funded in 30 years. (The industry standard for similar plans is 80 percent funded.)
While PERA projects a rate of return on investments in 2009 of 15 percent, that money will not be enough to continue funding the nearly $300 million per month paid to retirees, officials said.
Colorado would become the first state in the nation to cut annual benefit increases for retirees if the bill passes. Other states have changed rates of investment, extended amortization plans or switched to defined contribution plans.
Other states, said Rep. Daniel Kagan, D-Denver, have taken the easy way out. He voted for the bill, calling it "an act of courage, foresight and wisdom. Future retirees will look back on 2010 and be glad of what occurred."
Rep. Brian DelGrosso, R-Loveland, who voted against the bill, said it puts a huge burden on school districts that already are losing funding and laying off teachers. He introduced an amendment that would allow suspension of certain contributions to the plan in lean years. That amendment and several others were defeated by the committee.
Co-sponsors of SB-1, Senate Minority Leader Josh Penry, R-Grand Junction, and Senate President Brandon Shaffer, D-Longmont, negotiated the bill for more than six months. Penry has said the PERA changes are essential because, "We are fast approaching unfunded liability."
The full Senate previously had passed the amended bill by a 25-10 vote Feb. 1.
SB-1 is being quickly pushed through the Legislature so that a COLA increase, scheduled for March, would be voided. Some sections of the bill, including new COLA stipulations, would become effective immediately upon the Governor's signature.
During earlier Senate debate, Sen. Keith King, R-Colorado Springs, said he was skeptical of the rescue plan, saying PERA would need another fix in five to 10 years. He offered several amendments to the bill that were ultimately defeated by the Senate Finance Committee.
Those amendments have now become House Bill 10-1207, which is co-sponsored by King.
As drafted, the bill would, among other things, require the state treasurer to report annually on the financial stability of the fund; define actuarial necessity, a legal term that is not defined by current statutes; eliminate the amortization equalization disbursement (AED) and supplemental amortization equalization disbursement (SAED) beginning in 2011; allow contribution rates to be set by general assembly, depending on plan funding percentage; prohibit purchases of service credits after Jan. 1, 2011; raise the retirement age to 65; cap the cost of living adjustment for all members to the lesser of 2 percent or inflation; and establish a new defined contribution plan as an option to new employees and current PERA members.
The measure will be heard by the House State, Veterans and Military Affairs Committee on Feb. 23.
Another measure, HB 10-1153, would change the makeup of the 15-member PERA board of trustees to create a majority of trustees who are non-PERA members with experience in certain fields. That bill is being debated Thursday, Feb. 11, by the State, Veterans and Military Affairs Committee.