The battle to keep Colorado’s Public Employee Retirement Association pension fund solvent isn’t an isolated problem.
In common with other private and public pension plans, the fund’s ratio between active workers and retirees is one of the causes for concern.
In 1992, 137,000 active members contributed to the plan, while 36,000 retirees drew benefits — almost a 4-to-1 ratio. Last year, the number of active members had climbed by 60 percent, to 180,000, but retiree numbers had doubled, to 72,000, for an active/retiree ratio of 2.5-to-1.
Like PERA, other public pension plans that are searching for higher returns also have moved to riskier investments.
The California Public Employees Retirement System (CalPERS), which manages more than $200 billion in assets, recently announced that, beginning this fall, the plan would invest in commodities futures contracts, which are usually characterized as risky and volatile.
As California investment banker and Colorado Springs native Timothy Collins said, “It’s almost impossible for a $200 billion fund to beat the market averages — by their very size, they are the market average. So they need to invest in alternative products — commodities, synthetics, venture deals to hit their benchmarks. Of course, these products carry risks, too.”
If CalPERS tanks, California taxpayers, by state law, will be responsible for any shortfalls. But Colorado taxpayers are under no such obligation.
If PERA becomes insolvent, the state is not legally required to bail it out.
So, in the event of a looming PERA default, what would happen?
The board would have three choices: do nothing and hope that things work out, increase contributions and/or reduce benefits, or ask the voters to fund a rescue package.
Would the voters buy it? Probably not, if West Virginia’s experience is any guide.
That state’s pension plan had dipped to a funding ratio of 17 percent when voters were asked to approve a $5.5 billion bond issue to restore the plan to solvency. The proposed bond issue was overwhelmingly rejected.