PERA Quick Facts
(this section is under revision to incorporate the 2008 returns)
Some legislators have said that PERA’s 8.5% assumed rate of return on investments is too optimistic. Not true. See below.
- The return for Calendar Year 2005 was 9.8%.
- The return for Calendar Year 2006 was 15.7%.
- The return for Calendar Year 2007 was 10.0%.
- The 3-year annual return at the end of 2007 was 11.7%, more than two percentage points higher than the Median Plan.
- The 10-year annual return at the end of 2005 was 9.0%.
- The 10-year annual return at the end of 2006 was 9.2%.
- The 10-year annual return at the end of 2007 was 8.1%.
- PERA’s 25-year annualized return rate through 2007 was 10.8%, some 27% greater than PERA's 8.5% assumed annual rate of return.
- PERA's diversification into domestic as well as foreign stocks, real estate, alternative investments, and timber make it possible to receive such good returns.
Some legislators have said the employer contribution rate to the PERA fund is excessive. Not true. PERA is a bargain for the Colorado taxpayer.
- The employer contribution rate for the PERA pension plan is below the average rate contributed by public & private employers into retirement plans for their employees. Many employers contribute between 6% and 10% of pay in addition to 6.2% of pay for Social Security, for a total of 16.2% of pay.
- In 1984, the contribution rate to PERA's pension fund for the School and School Divisions was 12.5% and 12.2%, respectively. Over the years, the rate dropped to less than 10%. The rate in 2009 is 11.9%, still lower than it was 25 years ago. (See Other Pension Plans on the homepage.) These percentages do not include health care contributions. (Note: often you will see the PERA rate including the 1.02% dedicated to health care but for comparison, this contribution is not included.)
Compare PERA’s rate with other non-PERA Colorado public plans:- Denver = 13.7% Adams & Pueblo counties = 13.7%
- Douglas County = 14.2% University of Colorado = 16.2%
- City of Fort Collins = 13.7% Jefferson County = 13.2%
- Durango = 11.2% Westminster = 10.3% Lakewood = 11.7%
- Compare PERA’s rate with the average rate of the seven neighboring state pension plans:
- 11.9% vs. average of 18.3%.
- NM State = 22.8%
- NM School = 17.8%
- Utah RS = 21.9%
- Wyoming = 17.5%
- NE School = 13.5%
- OK RS = 20.7%
- KS PERS = 14.2%
- Compare PERA’s rate with the average of 32 public DB plans: 11.9% vs. 14.3%.
Average pension cost for all Private Employers according to the 2006 Chamber of Commerce Employee Benefits Study is 14.25%. PERA is 16 percent below this. - Rate cuts to PERA between 2000 and 2005 equaled some $325 million.
- The State (taxpayers) is not the major provider of funds to the pension plan; only 17% of PERA’s revenue of $45 billion in the last 20 years came from the taxpayer; members contributed about 18% of the revenue. Investments brought in 65% of the revenue.
- PERA is an economic driver in Colorado, investing around the world and returning billions of those dollars to Colorado. For every dollar invested by the taxpayer, three dollars are returned as payments to benefit recipients. In 2008, more than $2.7 billion was paid to 70,440 PERA retirees who live in Colorado.
Some legislators said PERA is in a financial crisis. They use this term to push their agenda of closing down PERA in favor of defined contribution plan.
- PERA’s funded level at the end of 2007 was an overall 75% of assets – about the same as it was in 1984.
- PERA worked with legislators, employee and employer groups, and the governor's office in 2006 to ensure passage of legislation to make moderate changes that would improve PERA's funded level over the long-term.
- No one could foresee the economic situation that we are currently in; the culprit here is not PERA but the politicians and Wall Street executives who play loose with our money.
- Equating PERA’s amortization period (number of years when it will have the unfunded portion paid off) to an actuarial emergency or necessity is erroneous. PERA continues to have a positive cash flow without selling off assets.
- An unfunded liability is like a house mortgage on which an owner gradually makes payments. The "house" does not need to be paid off in full today, just as PERA does not need to have today all of the funds it promises to pay out over the next thirty years. Many of those who will receive a benefit from PERA are 5, 10, 20, and 30 years away from retirement so there is time to allow investment returns to help correct the problem.
- PERA has been fully funded only two years in its 75-year history – in 1999 and 2000. When it was fully funded, Governor Owens immediately pursued cutting the employer contribution rate and unwisely pushed the Board of Trustees very strongly to reduce the cost to purchase service credit. This action resulted in a very large unfunded liability increase to the fund. When PERA tried to pursue legislative changes to remedy the situation, Governor Owens vetoed the legislation because it did not include a “defined contribution option” for state employees. Finally, the Legislature did work with PERA and others in 2006 to obtain changes that would have ultimately brought PERA to full funding, though not immediately. The fund today is in a greater problem due to the loss in market asset value. A study is underway to determine what to do.
Some legislators and at least one radio talk program commentator harangued that the PERA benefits are excessive. They are not.
- The average PERA benefit is about $2,734 per month. When health care premiums for a couple under age 65 are more than $1100 per month after the PERA premium subsidy has been given, this is not excessive.
- PERA benefits are actually lower than private industry and other public plans that have Social Security plus a pension.
- PERA retirees do not receive Social Security benefits for their years under PERA and, actually, receive as much as a 50 percent reduction in their Social Security benefit that comes from any non-PERA employment if they receive a PERA benefit.
- Benefits are approved by the Legislature and enacted by the Governor. Laws passed in 1999 and 2000 to reduce the cost to purchase years of service and to provide for earlier retirement were initiated by Governor Owens' office and legislators who wanted to encourage long-term state employees to retire. At the same time that the benefit rules were made better, the employer contribution rates were reduced and the rate employees paid remained the same. These changes were made by the Executive and Legislative branches, not by the PERA board.
- PERA is a substitute for Social Security and provides benefits to spouses and families of deceased members and those employees who become disabled. Taxpayers do not have to pay extra to cover those costs if employees become disabled or die before they retire.
PERA is a low-cost operation.
- The cost to operate PERA last year was 0.44% of assets, far below most mutual funds, annuities, and other similar financial products. Mutual funds that have a similar mix of investments as PERA charge 1.25% to 2% of assets - if they handled the PERA fund, the added expenses would be about $375 million per year.
Members of the trust should control the Board of Trustees.
- Most PERA members opposed changing the Board structure as was done in 2006. There was no evidence or accusation that the member-elected Board of Trustees failed to fulfill its fiduciary duty to the membership of PERA, but some legislators inferred that the trustees were no well enough educated to handle the trust fund and that taxpayers should have more of a "say" in how it is managed. The move to change the Board to one that was dominated by governor appointees was politically motivated.
- The elected Trustees have to meet rigorous financial & benefit administration educational requirements. At the time of the change, the 14-member elected Trustees hold 26 degrees, including doctorates, law degrees, and master’s degrees in mathematics and finance. Many Trustees have daily work experience in areas such as finance and benefits administration. During 2006 when the change was being advocated since the Trustees supposedly "lacked experience and educational credentials", the only individual on the 16-member Board who did not have a college degree was the temporary governor-appointed State Treasurer Mark Hillman.
- Various proposals in 2006 would have dismantled the very nature of PERA’s 75-year-old governance structure in favor of a structure that placed political appointees in control. A negotiated change reduced the number of elected Trustees from 14 to 11 and added three Governor-appointed Trustees to the Board effective July 2007. It also deleted the State Auditor as a Trustee.
- PERA reports annually to the Legislative Audit Committee, the Joint Budget Committee, and to the House and Senate Finance Committee.
- There is a misconception that the “taxpayers” are owners of the fund; the trust fund is owned by the beneficiaries of the fund and thus those beneficiaries should decide who the Trustees are.
Some legislators charged in 2006 that PERA was slow in addressing required changes when the market dropped. Not true!
- Small, incremental and thoughtful changes are appropriate to see how these changes affect employee behavior. Changes to PERA were made in 2004, 2005 and 2006; time should be given to allow the impact of these changes to become evident. Massive change is not needed.
- PERA reacted promptly to the market downturn in 2001. In 2002, it developed a proposal that would have saved PERA millions of dollars in payments and brought in millions of dollars in additional revenue. This plan was passed unanimously by the General Assembly in 2003 but was vetoed by Governor Bill Owens (R). He vetoed this bill because of a political desire to include defined contribution plans as an alternative option to PERA, even though no other organization in the state offers a "choice" in retirement plans.
- Currently (Feb. 09) some legislators and the media want the Legislature to take action...but what action? PERA needs a complete picture of its assets before recommending any changes. It also needs to have a complete picture of how any change would impact its bottom line before recommending a specific course of action. Because the stakes are so high, it is imperative that PERA does everything in its power to get it right. A comprehensive proposal for legislative action in 2010 will be based on accurate calculations and a complete picture of what PERA faces.