Colorado PERA does an excellent job putting a happy face on information about its investments and overall financial health. But a new report by The Pew Charitable Trusts shows that even accepting all of PERA’s assumptions at face value, total Colorado pension contributions are too small, meaning unfunded liabilities will continue to grow.
In fact, the report shows, Colorado PERA’s “net amortization as a percentage of payroll” is the fourth worst among the 50 states. Only infamous laggards Kentucky, New Jersey, and Illinois fared worse.
For those of you who aren’t accounting geeks, here’s how Pew defines net amortization:
Measures whether total contributions to a public retirement system would have been sufficient to reduce unfunded liabilities if all actuarial assumptions—primarily investment expectations—had been met for that year. The calculation uses the plan’s own reported numbers and assumptions about investment returns (emphasis ours). Plans that consistently fall short of this benchmark can expect to see the gap between the liability for promised benefits and available funds grow over time.
The Pew report bases its findings on investment returns for 2014 and 2015. In June, we’ll see how 2016 looked, and given the market run-up that occurred last year, return rates should look better.
But, Pew warns, market volatility of recent years should sound an alarm for people worried about the security of their retirement:
Although one or two years of weak returns may not indicate fiscal danger for a pension plan, investment volatility does present a long-term policy challenge. Since the end of the Great Recession in 2009, overall median returns for public pension plans have ranged from 1.0 percent in 2016 to 21.5 percent in 2011. This volatility can be attributed in part to increased investment portfolio risk. The share of public funds’ investments in stocks, private equity, and other similar assets, has increased by over 20 percentage points since 1990.
Bear the findings of this report in mind in June, when PERA and its actuaries spin their 2016 investment returns to make everything sound hunky-dory.