Attending a Colorado PERA board meeting can be an exercise in frustration for someone not deeply immersed in the arcane fine points of public sector pensions. And PERA staff doesn’t make it any easier, providing no handouts at meetings or even meeting materials on its website, as most other public or quasi-public bodies do.
Your humble correspondent had to resort to snapping photos of slides projected on screens in the board room at last week’s PERA board meeting to capture all the numbers being bandied about by the PERA board. And this was an important meeting, at which the board decided to reduce its estimated rate of return from 7.5 percent to 7.25 percent.
So to help understand what PERA just did, and what it means, we decided to call on a friend, a knowledgeable friend deeply involved in discussions about PERA’s long-term sustainability. Here’s what our smart friend had to say:
“While it is important that PERA lowered the return assumption from 7.50 percent to 7.25 percent, even that slightly lower target return assumption would require dramatic increases in global economic growth and inflation that are inconsistent with the assumptions of most economic forecasts. To be realistic, PERA should be using a target return assumption of closer to 6.0 percent; to be conservative, the rate should be well below that.”
“In order to protect their Plan participants, corporate pension plans are forced by law to use a discount rate tied to the long-term investment grade bond rate. That rate has been hovering around 3.6 percent this year. Public employee pension plan participants such as those enrolled in PERA do not get that kind of protection. Here in Colorado, the assumption is determined by the PERA board.”
“By keeping the return assumption as high as they do, PERA masks the real financial uncertainty inherent in the Plan. In doing so, they create the impression that the expected retirement distributions of participants are more secure than they are in reality. This artificial sense of security also allows the legislature to avoid dealing with its responsibility as the ultimate stewards of PERA’s financial future. (emphasis added)”
” Ideally, PERA would take more of a leadership role in demanding that legislators and employers initiate a serious conversation about PERA’s financial unsustainability. Instead, their educational efforts typically involve aggressively persuading PERA participants that everything is fine when it is not.”
To sum it up: PERA is more interested in covering its nether regions with absurdly sunny projections than telling hard truths that might force meaningful legislative action. It’s hard to see this as anything other than an act of political cowardice.