PERA officials last week presented their proposal to rescue the ailing retirement fund to the Legislative Audit Committee.
The draft legislation, called 2/2/2 Plus, includes a 2 percent increase in employee contributions, a 2 percent increase in employer contributions, and a 2 percent cap on cost of living increases for retirees.
More than 438,000 people belong to the Public Employees Retirement Association, which faces a multi-billion-dollar deficit over the long-term because of high payouts and stock market instability. PERA includes four independent trusts covering different segments of the labor market: judicial, state, schools and local government workers. In January, Denver Public Schools will be added as a fifth division.
"Change has to occur to ensure the system is sustainable to all of our members," Meredith Williams, PERA's executive director, has said.
According to the plan, solvency would be reached in 30 years. Previously, the association operated on a 60-year amortization plan.
To reach that goal, return on investments would be reduced to 8 percent, from the current 8.5 percent.
The increase in employer contributions would begin in 2013 and continue through 2017, while the employee increase would begin in 2014 and run through 2017. Cost of living increases (COLA) would be capped at 2 percent and would be dependent on the Consumer Price Index. (The index, CPI-W, is generally used to determine cost of living raises for labor contracts.) Currently, the COLA raise for members is 3.5 percent annually.
PERA's plan also contains a funding corridor that would automatically adjust changes, depending on how well the plan is funded. For instance, if the plan is 90 percent funded, the employee and employer contributions would begin to rise. If the plan reached 110 percent funding, the contributions would be reduced. The adjustments would be made according to each division's needs.
The cost of living increases, however, would be determined by the stability of the entire fund.
Also included in the plan:
- A provision that would use a 5-year salary average rather than a 3-year average to calculate benefits.
- A 5-year vesting period for eligibility to receive a 50 percent match upon refund.
- Imposition of an 8 percent employee contribution for those choosing to work after retirement for a PERA employer.
- Early retirement provision that would pay out a smaller benefit for a larger period of time.
Gregory Smith, general counsel/chief operating officer of PERA, has said the plan does not affect those who are eligible to retire on the effective date of the legislation. Those retirees will have locked in benefits.
PERA continues to draft the legislation it hopes would be "first out of the hopper" in January when the Legislature begins its session, said Katie Kaufmanis, director of communications.
For more information about specifics of the plan, visit www.copera.org.