Legislation that proponents contend is needed to keep the Public Employees' Retirement Association (PERA) fund from disintegrating passed the Colorado House on Tuesday, Feb. 16, with a 36-29 vote.
Senate Bill 1 now moves to Gov. Bill Ritter for his signature.
SB1 would decrease members' annual benefits tied to a cost-of-living adjustment (COLA), increase contributions by most employees and employers, and increase the age of retirement for most members.
Although contentious, the bill was moved swiftly through the Legislature in order for some provisions of the measure to take effect before March 1, when an annual COLA benefit is scheduled to kick in.
Retired members currently receive a 3.5 percent increase in benefits each year. Out of about 470,000 members of PERA, 90,000 are retirees. SB1 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 in future years, the amount of the benefit would depend on an inflation calculation.
By not paying out a benefits increase this year, the plan would realize a cash infusion and be on its way to becoming solvent, according to Meredith Williams, PERA's executive director.
PERA has said large payouts and stock market volatility contributed to the fund's dire condition. The plan pays nearly $3 million each month to retirees, and the market crash in 2008 led to a nearly $30 billion decline in assets.
On Feb. 10, the House Finance Committee passed the bill, despite acknowledging that legal battles over the benefits cuts were certain.
"We've heard loud and clear that someone will take this to court," said Rep. Andy Kerr, D-Lakewood.
Retirees and some experts say the change in benefits amounts to a breach of contract.
Projections by PERA show that on its current path, the state division of the retirement plan, 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.
Previously the plan was about 70 percent funded, but the economic downturn lowered the rate to about 50 percent. SB1 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 was used to help fund compromises in SB1. As drafted, the bill would not have provided for a COLA increase in 2011. The adopted bill would place a 2 percent cap on COLA benefits in 2011.
Colorado will become the first state in the nation to cut annual benefit increases for retirees to prevent its pension system from going broke. Other states have changed rates of investment, extended amortization plans, or switched to defined contribution plans.
Co-sponsors of SB1, Senate Minority Leader Josh Penry, R-Grand Junction, and Senate President Brandon Shaffer, D-Longmont, along with Kerr in the House, negotiated the bill for more than eight months.
The full Senate previously had passed the amended bill by a 25-10 vote Feb. 1.
Visit PERA's Web site to find out more about changes made to the draft bill as it moved through the legislative process.
Another measure, HB10-1153, which would have changed the makeup of PERA's 15-member board of trustees to create a majority of trustees who are non-PERA members with experience in certain fields, was tabled indefinitely Feb. 11 in the House State, Veterans and Military Affairs Committee.