You may recall that we wrote recently about a compelling new report by the Thomas B. Fordham Institute that examines how public sector pensions are structured deliberately to disadvantage young and early-career teachers. A young Denver educator also weighed in.
The study took a state-by-state look at how pensions suck money away from younger teachers, and pinpointed how many years a teacher would have to remain with any given state system to begin to reap true benefits. In Colorado (as exemplified by Jeffco in the study), the “crossover point” for teachers recouping everything they’ve invested is 21 years.
Last week, Colorado PERA fired back on its PERA On the Issues blog.
Public school teachers in Colorado PERA – including Jeffco teachers – participate in a hybrid defined benefit retirement plan (emphasis ours), meaning that their plan includes features of both a traditional pension-type retirement plan and a 401(k) style plan.
One of these features is the option for any member to refund or rollover their contributions at any point after leaving PERA – whether that’s after one day of work or 10,000.
Members who have five years or more of service credit and choose to refund or rollover their account also receive a 50 percent match on their contributions plus interest. Members who are retirement eligible and choose to refund or rollover their accounts receive a 100 percent match on their contributions plus interest. And all members who leave PERA-covered employment but choose not to refund or rollover their contributions become eligible for a monthly PERA benefit at age 65.
In a response submitted to PERA On the Issues March 27 but still not posted at the time this post went live, study author Martin Lueken, Fordham’s senior vice-president for research, acknowledged that his study failed to mention that PERA refunds 50 percent of the PERA match for teachers leaving after five years but before reaching retirement age, who choose to cash out rather than receiving a pension.
This Lueken wrote, “is a desirable feature lacking in most state plans.”
But he took issue with the rest of PERA’s rebuttal:
The PERA blog authors in their post are unfortunately confusing a “refund” and a “return” on one’s investment. The purpose of our report was to estimate the point when teachers could leave a system with future pension payments worth more than what they put in. That is, it compares the value of the pension benefit at a point in time with the value of one’s own cumulative contributions. That is different than comparing a refund benefit with contributions.
Also, Lueken wrote, his omission of information about the 50 percent match refund
does not impact at all the findings for Jefferson County or the broader analysis and conclusions of the report. The fact remains that a new teacher in Jefferson Country must wait twenty-one years to reach the point where her lifetime expected pension wealth is finally worth more than the total of what she’s contributed to the system.
And why, he asked, did PERA describe its plan as a hybrid, when PERA’s own website describes it differently?
The PERA site here clearly defines the plan as a “traditional pension plan”, with “options for additional financial security, by enrolling in our life insurance and PERAPlus 401(k).” Having the option to also enroll in a 401(k) account is not the same as having a hybrid, which typically includes a defined contribution component.
We’ll continue monitoring PERA’s blog for a response. Stay tuned.