After a three-day planning session at a Colorado Springs resort, the Colorado PERA board has come up with a recommended package of reforms “designed to reduce the overall risk profile of the plan and improve PERA’s funded status.”
Under the proposed changes, which the legislature would have to adopt, employees and employers would contribute significantly more, the full-benefits retirement age would rise, highest average salary calculations for determining benefits would go up to five years from three for most divisions, and cost of living increases would be scaled back.
PERA officials will take these proposal back on the road for what they’re catchily dubbing “PERAtour 2.0.” Our guess is that they’ll get an earful from members and retirees who don’t want to see changes, however necessary, to their costs or benefits.
Here are a few details:
- Employee contribution rates would rise in all divisions. Teachers would see a three percentage point increase, from 8 to 11 percent effective 2020. New teachers hired in 2020 forward would contribute 10 percent of their salary to benefits.
- Employer (taxpayer) contributions would increase as well, by an additional two percentage points, bringing the total to 22.15 percent of salary.
- Significantly, the employer and employee contributions would be calculated based on gross pay. Until now, they’ve been based on net pay. This makes the increases significantly higher than advertised.
- New hires as of 2020 wouldn’t get full benefits until they hit age 65. Until now, depending on hire date, people could get full benefits when they hit 30 or 35 years of service.
- Cost-of-living adjustments would be capped at 1.5 percent instead of the current 2 percent.
We are glad to see that the PERA board recognizes that the system is facing severe solvency challenges and is proactively seeking to make meaningful changes on the benefit and contribution rate side of things to start addressing it.
That said, these reforms alone are likely to be insufficient to tackle the magnitude of the challenge. Still, we hope that the board’s proposed reforms could form the basis of a larger package of reforms to put PERA on the path to solvency.