FoP Updates
FOP General Meeting Set for March 6, 2012 (01/28/12)
Put on your calendar the next Friends of PERA general meeting set for March 6, at 9:00 a.m. in the McCollum Room at the Montview Presbyterian Church, 1980 Dahlia Street, Denver. State Treasurer Walker Stapleton has accepted our invitation to address the meeting. Bring your friends!!!
Six Bills Before the Legislature So Far in 2012
Here are the bills introduced into the 2012 General Assembly so far that involve PERA. Also, we include the position that the Colorado Coalition for Retirement Security has taken on these bills.
Senate Bill 16 – CCRS Opposed – Bill postponed indefinitely on Jan. 30, 2012, in a Senate committee.
SB 16 would have allowed employers in the Local Government Division to “swap” up to 2.5% of their required payment to the employees. We oppose any swapping structure where contributions are shifted from the employer to the employee. Swaps jeopardize the fiscal stability of PERA over time as employee dollars are only worth about 80 cents of the employer dollars because, basically, the employee dollars can be taken out of PERA by the member whereas most of an employer dollar cannot. We supported Senate Bill 1 in 2010 because of its principle of shared sacrifice. Swapping that sacrifice from the employer to the employee destroys the principle of shared sacrifice. Also, this bill increased litigation risks astronomically as the constitutionality of this swap is in question, heightening the likelihood of an additional lawsuit. The bill also created inequity among employers to the extent that an employer that did not opt to swap contributions subsidized other employers within the Division inequitably by paying more towards the unfunded accrued liability.
The following two bills are scheduled to be heard on February 7, 2012, at 1:30 pm
Senate Bill 82 – CCRS Opposed – Delays Retirement Eligibility for New Hires. SB 82 makes employees hired after January 1, 2013 eligible to retire when social security says they are eligible to retire. It also changes the ability for someone to apply for reduced service eligibility – they wouldn’t be able to apply until they are old enough to receive a Social Security benefit.
Senate Bill 84 –CCRS Opposed - Concerning PERA Transparency - This bill would make elected officials and cabinet members PERA information public. The information would include the following info – name, position held, salary amount, amount of employer and employee contributions paid, age of retirement, highest average salary, and amount of benefits paid.
House Bill 1142 - CCRS Opposed – DC Plan Option for PERA Members. HB 1142 will allow all PERA members to participate in PERA’s defined contribution plan, currently only specific PERA members (State employees and College employees) are allowed to choose the defined contribution plan as their option instead of the defined benefit plan.
House Bill 1150 – CCRS Opposed – Change in HAS Calculation. House Bill 1150 will change the Highest Average Salary calculation from three years to seven years for those eligible to retire after January 1, 2013.
House Bill 1179 – FOP Opposes – Change in the PERA Board Composition: Sponsored by Rep. Jim Kerr (R-Littleton) once again, the bill has no Senate sponsor at this time. It has been assigned to the House Finance Committee, with no hearing date set. This bill or a similar one has come many times before. It would replace four trustee positions currently elected by PERA members with four people appointed by the Governor. Last year, under House Bill 11-1248, a similar bill which would have had the Governor appoint a total of six trustees did not pass out of committee; this year the bill proposes the Governor appoint a total of seven people.
Status of Two Lawsuits Against PERA(11/15/11)
Here’s a brief summary of the two lawsuits of interest filed against PERA.
- Suit filed against PERA in February 2010 by a group of retirees opposing passage of Senate Bill 1 which reduced the cost of living formula for benefit recipients: In June 2011, Judge Robert Hyatt dismissed all of the Plaintiff's claims. The plaintiffs filed an appeal with the Court of Appeals in July 2011. In his ruling, the judge agreed with PERA that the COLA benefit at the time of retirement is not a contractual benefit. Since it had been changed so many times over the last 40 years, he said no one should have expected a set amount for life. He also said the pension benefit is a contractual benefit and underlined "is" in his ruling.
- Suit filed against the Board of Trustees by State Treasurer Walker Stapleton in his effort to obtain information that the Board believes is confidential: In June 2011, Stapleton requested for details about the top 20 percent of PERA retirees based on benefit amount; he gave no reason for wanting the information; he did not request names or specific addresses but wanted former employer, benefit amount, zip code, salary, and other information. The Board directed staff not to provide the information. To assemble this information would have required many months of employees' time. PERA subsequently issued a fact sheet on retiree benefit payments that showed less than 1% of the retirees receive an annual benefit of more than $100,000 per year. This fact sheet did not satisfy Stapleton and he filed the lawsuit in District Court in September 2011. In October 2011, PERA filed a claim asking the Court to advise PERA on what member information it can lawfully provide Trustees.
State Treasurer continues assault on PERA: (11/15/11)
State Treasurer Walker Stapleton continues his assault on PERA’s defined benefit plan. His speaking schedule took him throughout the state over the summer where he gave a very one-sided, and not fully accurate view of PERA. He continues to assert that the PERA assumed investment return 8% is unattainable and ignores the PERA average of 9% over the last 25 years. In a television interview he chided PERA for having some 25% of assets in Fixed Income stating that the return would only be 2% or 3% -- he needs to check his facts: the PERA Fixed Income Return in 2010 was 7.8% and for the three year period it was 6.9% per year.
Stapleton also appeared on at least one bogus investment radio show (which was nothing more than an infomercial for an investment program) where he referred to PERA as a “Ponzi Scheme” while the host hyped annuity products that guarantee a 7% return (after taxes and investment fees).
Stapleton wants local governments to have the authority to raise the rates of their employees’ contributions to PERA, supporting a bill which died in committee during the last legislative session. The bill would allow local entities to "swap" some of their contribution costs with their employees on a city by city basis. Of course, this would be damaging to the Local Government Trust Fund integrity and stability. The value of a member’s dollar going to PERA is not as great as the employer’s dollar, since the member may refund his dollar and would only receive a portion of the employer’s dollar. The trust fund is a pooled investment and contributions by employers should be of equal value.
Why is 8 percent annual rate of return reasonable? (11/15/11)
- PERA has access to types of investments that an individual person does not, such as private equity markets, timberland, etc., which has had higher rates of return (20.9% in 2010).
- PERA is tax exempt – taxes are paid by the retiree upon receipt of the benefit, thus taxes are not reducing the PERA return.
- Some 60% of the PERA investments are managed by professional staff “in-house”, thus reducing the overall investment cost to PERA. PERA’s expense ratio is less than 0.4% total including administration and investment fees, far below most corporate investment expenses of 1% to 1.5%.
- 8% rate of return assumption is the median for public pension plans.
- For seven of the last eight years the return has been greater than 8%.
- For 14 of the last 20 years the return has been greater than 8%.
- Of 125 large public plans, about two-thirds have an assumption of at 8% or higher.
- 61 of 85 large private employer funds have investment assumptions of 8% or higher.
Some Facts About PERA – As of July 31, 2011(11/15/11)
- Total PERA membership: 478,800. (including 22,000 Denver Public Schools members who became part of the PERA in January).
- Oldest PERA benefit recipient = 106.
- 61 benefit recipients over the age of 100.
- 64% of benefit recipients are over the age of 65.
- About 2.7% of benefit recipients are under age 55.
- 2010 pension payments totaled more than $3.1 billion.
- About 90% of retirees are Colorado residents.
- Total 2010 employer contributions (often referred to as taxpayer dollars) were $798 million. So, for every employer dollar sent to PERA in 2010, the pension fund paid out nearly $4 to benefit recipients.
- About 19% of the total pension fund value came from employers (taxpayers) while 60% came from investment returns and some 21% came from the members contributions and payments.
- Total assets for all divisions equaled more than $38.7 billion at the end of 2010.
- Investment return in 2010 was 14%.
- Investment return in 2009 was 17%.
- Avg. annual investment return for 25 years = 9%.
Pension News from Around the Country (11/15/11)
- In 2011, 26 states enacted significant changes in public pension plans by June 30.
- In 2010, 21 states enacted some changes in public pension plans.
- Six states have adopted legislation changing post-retirement benefit increases that affects people already retired and active employees.
- 12 states have enacted greater restrictions on a retirees’ ability to return to work.
- 15 states reduced early retirement provisions, but only four of those affect current employees.
- 12 states enacted longer vesting periods.
- There is a trend to reducing the employer contributions and increasing the employee contributions to the pension plan.
Overview of 2011 Legislation
Legislation in 2011 was again dominated by anti-defined benefit legislators, even though most of the bills introduced have been heard before and were defeated. Here is a list of the bills and their status.
House Bill 11-1008 - Change in PERA Board Composition (later changed to HB 1248)
Sponsors: Rep. Jim Kerr (R-Littleton) & Sen. Ellen Roberts (R-Durango). This bill was identical to the bill that Rep. Kerr introduced in 2010 that was defeated in committee. PERA and FOP opposed the bill. It would have replaced 5 elected trustees with 5 appointed trustees, making the majority of trustees gubernatorial appointees and having restrictions on who could serve.
Feb. 2: Rep. Kerr introduced the bill in the House Finance Committee but withdrew it immediately stating it “could not be modified” as written. (He did not have the votes to get it passed as it was.) Later that day, he announced a replacement bill: HB1248.
March 2, the House Finance Committee voted 7-6 to send HB1248 to the House floor for consideration. This bill proposed to reorganize the PERA Board of Trustees, resulting in six appointed “outside” trustees, eight elected trustees from the PERA membership, the state treasurer, and a non-voting trustees from the Denver Public School members. The current board has three appointed appointees and 11 elected members, plus the treasurer and DPS representative.
Kerr believes that the Board should have non-PERA trustees to look after the “taxpayers investment” in PERA. Treasurer Walker Stapleton testified in support of the bill, saying, “This is not a critique of PERA’s current board. What it is about is ensuring diversity.”
A few PERA retirees and board chair Carole Wright testified to oppose the bill, saying they fear the change would politicize the Board. Apparently, that struck a chord with Rep. Spencer Swalm, R-Centennial. “The question is which composition of the board is best to resist political pressures. I’m not sure appointees are the best ones to do that,” he said. Swalm voted yes on passage of the bill but specified that was “only for now.” Rep. Keith Swerdfeger, R-Pueblo West, also voted yes and also said “only for now.” The committee spent nearly three hours hearing testimony.
March 8: The bill was scheduled for a second reading in the House but was laid over. (A third reading vote passes the bill to the Senate.)
March 11: The bill passed second reading
March 18: The bill was debated and referred to the House State, Veterans and Military Affairs Committee without a vote (apparently the proponents did not have the necessary 33 votes). Kerr is the chair of that Committee. For the next six weeks, the bill was scheduled for hearing numerous times only to be pulled off at the last minute. The Legislature ended with the bill never coming up again. (What an absolute waste of the taxpayers’ money and the legislators’ time! It takes staff time to prepare the bill, change it, cancel it, rewrite it, etc. This sponsor should be called on the carpet for wasting time and money.
Reasons We Opposed HB1248 and any bill that proposed to change the PERA Board Composition:
- State law defines the role of a trustee as a fiduciary is to serve solely in the best interests of the members and benefit recipients of PERA, the people who own the fund. When the taxpayer dollars arrive at PERA, they cease being taxpayer dollars, but are part of the trust held in common for the members and retirees. Consequently, these are the people who should decide who they want as their trustees.
- There is no evidence or example of the Board not considering the interests of the taxpayer.
- Even if there was some stake in the fund to the amount that the taxpayers contributed, that is only 20% of the fund…the other 80% comes from the investment returns and the members contributions. The Board is already comprised of 20% of the Trustees being appointed.
- How did the sponsor conclude that taxpayers would be better off? He has not shown that the elected trustees have been irresponsible or that they have made any flawed decisions or that they do not take into consideration the taxpayers of the state.
- The elected trustees do not have a conflict of interest. They do have a vested interest in the fund, and research has shown that funds with beneficiaries as trustees result in higher rates of return than when the trustees are appointed. Warren Buffet once said that it was better to have trustees on Boards who had “vested interests” because they “have got skin in the game.” They are responsible for their own investments and that of their friends and oftentimes family members.
- Over the years, the trustees have worked with the governor and legislature to reduce the contribution rate that employers pay to PERA, thus reducing taxpayer dollars going into the fund, when prudent based on the funding level of the trust. For many years in the 1980s and 1990s, the contribution rate to the pension fund by the state and schools was lower than at least 45 other states and was about 25 percent lower than the national average of private businesses in the U.S. Chamber of Commerce.
- The elected trustees are qualified, e.g. among the 11 elected trustees they hold 26 degrees. Ten of the 11 have Master’s degrees, two have law degrees, one has a doctorate and another is working on his doctorate, and one is a CPA.
- The trustees do not need to have all of the expertise they need within themselves. Rather, the Board studies modern pension portfolio management and hires experts with differing views to help them decide how to obtain the optimal rate of return.
- The investment direction of the Board has resulted in an average rate of return over the last 25 years of 9.3%, despite the difficult two periods in this decade when the investment markets had sharp downturns. Nothing the elected Trustees or any appointed trustee could do would have prevented the two periods of negative returns.
- Would having more appointed trustees politicize the Board? The law says there should be a balance between the two major parties, but it says nothing about “non-affiliated” trustees. It is quite easy to resign from a party a become an “independent”.
- Would having “so-called” experts sit on the Board result in their thinking that they do not need to use outside resources. Having a governor appoint a person who has been in banking or some other specialty does not assure us that we will get a better qualified individual than our elected trustees. Look at all of the banks and businesses that have failed in recent years.
- The elected trustees are definitely can make tough decisions that would be detrimental to themselves personally. Consider SB 1 in which the cost of living increase was eliminated for one year and greatly reduced for subsequent years.
- The provision in the bill that some of the elected trustees must be at least 15 years from retirement eligibility, meaning ages 35 or 40 in most cases, would weaken the Board by limiting who may run for the trustee position. This also smacks of age discrimination and could be a violation of the law.
- Elected trustees are not paid. Appointed trustees are paid.
- Finally, the Board does not make the decision on what the PERA benefits are or what the contribution rates will be. That is the responsibility of the General Assembly and the Governor. The taxpayers have 101 individuals who represent them, of which 2/3 are not members of the PERA defined benefit plan. So, if there needs to be balance on the Board shouldn’t there be balance in the legislature?
- We all know what the real purpose is for this bill…to weaken the Board’s representation of the members of PERA.
- The sponsor and those who have voted for this bill in committee often call for “less government” and here we have them supporting more government involvement. How ironic!
SB 11-76 – Continuation of Contribution Rate Swap Through June 30, 2012
The Joint Budget Committee proposed legislation to continue a contribution rate swap that began with Senate Bill 10-146 for one year, whereby State and Judicial members paid 2.5% of salary more to PERA since July 1, 2010, and the state has paid 2.5% of salary less. If continued for another year (FY 2011-2012), the state budget estimated saving $55 million.
SB76 was sponsored by the entire JBC with Sen. Pat Steadman (D-Denver) and Rep. Jon Becker (R- Fort Morgan) as prime sponsors. State employees again got slammed as the bill passed the General Assembly and was signed into law by the governor.
Reasons FOP Opposes: A contribution swap harms the actuarial funding of PERA because some employees will end employment each year and withdraw their contributions along with a 50 percent match. Employer contributions remain in the trust fund. Therefore, employer contributions are more valuable for funding PERA than member contributions. This bill was an actuarial loss for PERA of an estimated $6.6 million for one year. PERA also believes there are significant constitutional issues with the swap provision.
Senate Bill 11-74 - Authorizing Contribution Swap for School, DPS, and Local Government Division Employers (and any bill proposing a rate swap).
This bill was defeated in committee. It was similar to SB 76 and was sponsored by Sen. Kent Lambert (R-Colorado Springs) and Rep. Jim Kerr (R-Lakewood). The contribution swap would have been effective for one year only or for multiple years, depending on the decision of the governing board of the school district or local government employer.
Reasons FOP Opposed: The actuarial loss to PERA would total over $200 million if all employers decided to implement a permanent 2.5% of salary contribution swap. If some employers implement the swap and other employers in the same division did not (which was allowed for in the bill), that would create an actuarial subsidy in favor of employers who implement the swap. Friends of PERA opposed this bill.
Also, we all learned what shared sacrifice was during the 2010 session by accepting the changes via Senate Bill 1 that were required to make PERA sustainable. We maybe didn’t like the changes but we knew they were needed to help PERA provide its members with long-term retirement security. Now, some legislators (less than a year after passage of the shared sacrifice SB001 legislation) tried to undermine that shared sacrifice. SB 76 and 74 both meant that employees pay 2.5% more and the employers contribute 2.5% less. This isn’t shared sacrifice – it’s putting the burden all on PERA members. This amounts to a 2.5% cut in take-home pay and it undercuts the fiscal future of PERA because employee contributions are not worth as much when it comes to reducing PERA’s liabilities. Help us tell legislators that we won’t stand for a take-home pay cut that also destabilizes PERA.
Senate Bill 11-79: Authorizing Outsourcing of Classified School Employee Positions: This bill was defeated in committee. It would have required each school district with 10,000 or more students to conduct a review of its budget related to non-instructional support services (custodial, food, and bus services, grounds maintenance, printing, and technology repair) and to obtain bids from independent sources for these services. The district could have awarded a contract to the most competitive qualified bidder. Nineteen districts would have been eligible. PERA doesn’t have statistics on the number of employees in these districts who provide non-instructional services, and it is unknown how many of these positions might become private sector jobs if this bill were passed. However, PERA’s funding projections assume that the number of school members will grow slowly over time, and that growth, along with the changes enacted in SB 10-1, will pay off the unfunded liability of both divisions within 30 years. If a significant number of school non-instructional positions are filled with workers who are not PERA members, that would extend the amortization period and could reduce the long-term soundness of the School Division and DPS Division trust funds. Sponsors were Sen. Nancy Spence (R-Centennial) and Rep. Tom Massey (R-Poncha Springs).
2010 Legislation
The 2010 legislative session ended with a major PERA bill passing and several other bills being defeated.
SB 001: Gov. Ritter signed a major PERA reform bill into law on Feb. 23, 2010. The bill made many changes to PERA including increasing contributions and altering benefits. The bill was a response to a long term solution for PERA’s sustainability when the fund was faced with a large underfunding due to the dramatic investment losses as the result of the economic downturn in 2008. (Main Sponsors: Sen. Brandon Shaffer, D-Longmont; Sen. Josh Penry, R-Grand Junction, and Rep. Andy Kerr, D-Jefferson County). PERA supported this legislation as did most organizations such as FOP.
HB 1207: Defeated March 2, 2010. FOP opposed. This bill would have:
- Replaced PERA's defined benefit plan with a defined contribution (DC) plan
- Allowed current members to transfer to the DC plan
- Cut PERA funding
- Raised member contributions to 10%
- Made numerous other changes in the DB plan.
(Sponsor was Rep. Kevin Lambert, R-Longmont) CU professor Dr. Barry Paulson, a researcher for the Independence Institute, was the only individual who testified in favor of this bill. Dr. Paulson claims that PERA is too expensive for the taxpayer, even though as a CU faculty member, he received roughly 40 percent more in employer contributions to his pension plans.)
HB 1153: Defeated on Feb. 11, 2010. FOP opposed this bill. It would have changed the composition of the PERA Board of Trustees so the Board would have 8 political appointees and only six elected trustees from the membership versus the current 11 elected and four appointees/ex officio trustees.
Colorado Coalition for Retirements Security:
Friends of PERA is one of the members of the Coalition; others include Colorado WINS, CEA, and CSPERA. The Coalition lobbies the State Legislators to protect PERA member interests. See www.securePERA.org. We encourage you to sign up for their emails!
NIRS Report Reveals Role of Pensions in Reducing Poverty
Defined benefit pension income plays a critical role in reducing the risk of poverty and hardship for older Americans. Poverty rates among older households lacking pension income are about six times greater than those with such income. The study finds that pensions reduce – and in some cases eliminate – the greater risk of poverty and public assistance dependence that women and minority populations otherwise would face.