That’s because assuming you started working for the city of Colorado Springs, or as a public school teacher 30 years ago at age 25, you could retire today and collect 75 percent of your highest average salary in any consecutive three-year period.
Say you maxed out at $80,000 a year. You’ll collect $5,000 a month, plus cost-of-living increases of up to 2 percent a year, for all the happy years remaining to you. Congratulations!
Contrast this payout with Social Security. At 55, you’d have to wait another 7 ½ years to collect your miserable stipend, which would amount to about $1,600, unless you held off for another four years to collect $2,200.
But PERA enrollees know better than to gloat.
While PERA is not legally an obligation of the state government, the public employers who participate in PERA are responsible for making up any shortfalls, should the pension plan be unable to meet its obligations to retirees.
For most of PERA’s history, any such default was inconceivable. As recently as 1999, PERA had reached financial nirvana, the state of bliss to which all pension funds aspire.
Such bliss consists in having a “funding ratio” of 100 percent, or even more. It’s a place of unworried calm, of divine equilibrium, in which plan administrators, present and future beneficiaries, and participating public employers can enjoy restful nights and sunny days, confident in the knowledge that all present and anticipated future retiree benefits are covered.
That happy state did not long endure.
PERA’s bosses, fearing a raid on the plan’s assets by legislators eager to plug budget gaps with free money, persuaded the legislature to approve a plan which both reduced employer and employee contributions to the plan and increased benefits.
It seemed like a good idea at the time, just as investing in derivatives tied to subprime mortgages seemed like a good idea to bankers in 2006.
Since 1999, however, PERA’s funding ratio has steadily deteriorated. Ill-timed investment decisions, spiraling benefit costs and two recessions have decimated the plan’s assets. In 2005, and again during this year’s session, the legislature has enacted PERA “fixes” to fix the problem.
At the end of 2008, PERA’s funding ratio stood at 52 percent. PERA’s 2009 results won’t be released until the end of June, but as of Dec. 31, 2008 the plan’s funding ratio was at 52 percent, an historic low. Its unfunded liability, which represents the gap between the present value of its investments and the assets needed to fund present and future retiree benefits, has grown from zero 11 years earlier to nearly $28 billion.
We can assume that the fund has regained some of its former asset value during the last 15 months, but it’s still a long way from nirvana.
The 2010 fix bumps up employer/employee contributions to PERA during the next few years, and caps retiree cost-of-living increases at 2 percent annually.
When the fix is fully implemented, the public employers which participate in the plan will be on the hook for employer/employee contributions amounting to 28.55 percent of salaries. That’s almost twice the 16.15 percent assessed by Social Security.
Every 1 percent increase in PERA costs School District 11 $1.2 million, so the difference between PERA and Social Security for D-11 will amount to about $15 million annually.
That’s why conservative economist Barry Poulson of the Independence Institute and many Republican state legislators, including Keith King and Kent Lambert, would like to see PERA replaced with a more affordable plan, like the defined contribution plans that private sector employees offer (if they offer anything at all).
Why, they ask, should taxpayers fund such a generous plan, and remain on the hook to make up any future fund shortfalls?
Theoretically, that’s a good idea. In practice, it wouldn’t be easy getting there.
Public employers are contractually obligated to the hundreds of thousands of active and retired employees who are covered by PERA. Taxpayers and legislators may fume and fuss, but a deal’s a deal. Besides, as Galileo assistant principal Stacy Brisben told me, “PERA is a great recruiting tool. We’ve been able to make some wonderful hires because of PERA.”
That may not be the case in the future, Brisben confirmed, as PERA contributions take a bigger and bigger bite from employee paychecks. If this year’s fix doesn’t work, it may be necessary to tweak the plan again and enact substantial retiree benefit reductions.
Messy, unsatisfactory compromises are part of life, whether in the classroom or on the floor of the legislature. Sacrifice is a way of life, and yet … personally, I’d settle for one of those $5,000 monthly retirement checks.
John Hazlehurst can be reached at email@example.com or 719-227-5861.