Skip to main content
Colorado General AssemblyToggle Main Menu
Agency NameToggle Agency Menu
SB18-200

Modifications To PERA Public Employees' Retirement Association To Eliminate Unfunded Liability

Concerning modifications to the public employees' retirement association hybrid defined benefit plan necessary to eliminate with a high probability the unfunded liability of the plan within the next thirty years.
Session:
2018 Regular Session
Subject:
State Government

The public employees' retirement association (PERA) provides retirement and other benefits to employees of the school districts, state, local governments, and other public entities across the state. The bill makes changes to the hybrid defined benefit plan administered by PERA with the goal of eliminating, with a high probability, the unfunded actuarial accrued liability of each of PERA's divisions and thereby reach a 100% funded ratio for each division within the next 30 years. The bill modifies benefits, increases contributions, ensures alignment of contributions, service credit, and benefits, and makes other modifications as follows:

Highest Average Salary (HAS): Currently, for a PERA member who is not in the judicial division of PERA, the member's HAS is based on an average of the highest annual salaries associated with 3 periods of 12 consecutive months of service with a base year. For a PERA member who is in the judicial division of PERA, the member's HAS is based on an average of the highest annual salaries associated with 12 consecutive months of service. For all new PERA members hired on or after January 1, 2020, who are not in the judicial division, and for all existing PERA members who do not have 5 years of service credit as of January 1, 2020, who are not in the judicial division, the bill modifies the HAS calculation to be based on an average of the highest annual salaries associated with 7 periods of 12 consecutive months of service with a base year. For all new PERA members hired on or after January 1, 2020, who are in the judicial division, and for all existing PERA members in the judicial division who do not have 5 years of service credit as of January 1, 2020, the bill modifies the HAS calculation to be based on an average of the highest annual salaries associated with 3 periods of 12 consecutive months of service with a base year.

Definition of salary: The bill modifies the definition of salary. Specifically, the bill states that amounts deducted from pay pursuant to a cafeteria plan or a qualified transportation plan are included in the definition of salary. In addition, the bill clarifies that unused sick leave converted to cash payments is included in the definition of salary and that insurance premiums paid by employers are not included in the definition of salary.

Termination of affiliation: Current law allows a political subdivision of the state that is an employer associated with PERA and that is assigned to the local government division of PERA to terminate its affiliation with PERA upon application to the PERA board. The bill specifies that any employer that ceases operations or ceases to participate in PERA for any reason is deemed to have terminated its affiliation with PERA. The bill states that any such employer is required to fully fund its share of the unfunded liability of the defined benefit plan and its share of the unfunded liability of the health care trust fund. The bill specifies that the PERA board will determine the amount of such payments and that such determinations may be appealed by the employer through the administrative review process established in the board rules. The bill further specifies that the employees of an employer that terminates its affiliation with PERA will become inactive members of PERA as of the date of the termination. Such members may elect to have their member contributions credited to an alternative pension plan or refunded. In the absence of such election, the member contributions will remain with PERA.

Increase in member contributions: Currently, all PERA members with the exception of state troopers contribute 8% of their salary to PERA on a monthly basis. State troopers contribute 10% of their salary to PERA on a monthly basis. On July 1, 2018, and again on January 1, 2019, the monthly member contribution to PERA will increase by .5% of salary. On July 1, 2019, and again on January 1, 2020, the monthly member contribution to PERA will increase by 1% of salary. When all increases are fully implemented, the total contribution will be 11% of salary each month for PERA members who are not state troopers and 13% each month for PERA members who are state troopers.

Automatic contribution and annual increase amount changes: The bill specifies the circumstances under which the member contribution rate and the annual increase percentage for retirement benefits can be adjusted so the fund remains within the target of paying off the unfunded liability within 30 years. The bill specifies that the yearly adjustments can be up to one-quarter of one percent on the annual increase percentage and one-half of one percent on the employee contribution percentage. The bill places limits on how much the annual increase and contribution rates can be adjusted.

Defined contribution supplement: Beginning January 1, 2021, the bill requires employer contribution rates to be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability, plus any defined benefit investment earnings thereon, expressed as a percentage of salary on which employer contributions have been made. The employer contribution amounts only include contributions made on behalf of eligible employees who commence employment on or after January 1, 2019.

Earned service credit for part-time work: Currently, a PERA member earns a full year of service credit for 12 months of employment if the member earns a salary of 80 times federal minimum wage in each month. This applies even if the member does not work full time. In addition, a PERA member earns a full year of service credit if the member's employment pattern covers at least 8 months but less than 12 months in a year, so long as the member worked at least 8 months in the 12-month period. The bill modifies the way service credit is earned for part-time work for any PERA member who was not a member, inactive member, or retiree on or before December 31, 2019. Such members earn a full year of service credit for 12 months of employment if the member works full time or works at least 8 months but less than 12 months in a year. If the member does not work full time, the earned service credit will be determined by the ratio of part-time work to full-time work and the number of months for which contributions are remitted to the number of months required for a year of service credit.

Service retirement eligibility for new members: For PERA members who begin employment on or after January 1, 2020, the bill increases the age and service requirements for full-service retirement benefits for most divisions to age 65 with a minimum of 5 years of service or any age with a minimum of 40 years of service credit. For state troopers who begin employment on or after January 1, 2020, the bill increases the age and service requirements for full-service retirement benefits to age 55 with a minimum of 25 years of service credit or any age with a minimum of 35 years of service credit. State troopers are also eligible for full-service retirement benefits at age 65 with 5 years of service credit. For PERA members who begin employment on or after January 1, 2020, the bill also increases the age and service requirements for a reduced service retirement benefit to 55 years with a minimum of 25 years of service credit; except that, for state troopers, the bill increases the requirements to 55 years with a minimum of 20 years of service credit.

Cost of living adjustment (COLA) for all retirees, members, and inactive members: Currently, the annual COLA for benefit recipients who began membership prior to January 1, 2007, is 2%. For the years 2018 and 2019, the bill reduces the COLA to 0%. For each year thereafter, the bill changes the COLA to 1.25%, unless it is adjusted pursuant to the automatic adjustment provisions explained above. In addition, the bill requires benefit recipients whose effective date of retirement is on or after January 1, 2011, and who have not received a COLA on or before May 1, 2018, to receive benefits for at least a 36-month period following retirement before the benefit is adjusted with the COLA.

Defined contribution plan: Currently, members in the state division of PERA hired on or after January 1, 2006, may choose to participate in the defined contribution plan administered by PERA rather than the defined benefit plan. A member's participant account receives the monthly employer contribution, and the amortization equalization disbursement (AED) and supplemental amortization equalization disbursement (SAED) payments are used to amortize the unfunded liability of the defined benefit plan. Beginning January 1, 2019, members of the school division, the Denver public schools division, local government division, and judicial division of PERA hired on or after that date may also choose to participate in the defined contribution plan. A new member's participant account will receive the same employer contribution as received by current members of the defined contribution plan.

Public pension legislative oversight committee: The bill creates the public pension legislative oversight committee to study and develop proposed legislation relating to the funding and benefit designs of PERA and the fire and police pension association. The committee is comprised of 4 senators appointed by the president of the senate, 4 representatives appointed by the speaker of the house of representatives, and 4 experts in the area of pensions or retirement plan designs appointed by the state treasurer. The bill specifies limitations on the number of appointees that may be from the same political party. The bill also specifies that the state treasurer's appointees are required to have significant experience and competence in investment management, finance, banking, economics, accounting, pension administration, or actuarial analysis and shall not be members, inactive members, or retirees of PERA or the fire and police pension association. The bill repeals the police officers' and firefighters' pension reform commission on January 1, 2019.
(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)

Status

Introduced
Passed

Bill Text