Was PERA’s relatively honest self-assessment an aberration?

Following Colorado PERA’s June board meeting, we offered some guarded praise for CEO Greg Smith and his willingness to state publicly that Colorado’s public sector pension plans need substantive fixes if they’re to remain solvent.

Smith said at that June 23 meeting:

“We are already too low. At a 20 percent funded ratio line, you can’t run the risk. Period. Period. Period. We have to move that line. That’s the game. That’s the objective. That’s what has to happen. We’re already bad enough. Action needs to be taken.”

Smith also warned of a potential “death spiral” if pension funds drop below a 20 percent funded level. That’s a very real possibility unless annual returns recover their go-go 90s vigor, contributions increase, retirement ages are raised, or any number of other painful fixes are put in place. (We’re not even mentioning the obvious solution: a transition to a defined contribution system, because that seems at this point like a distant dream).

PERA’s candor was short-lived. On June 28, PERA posted a cheery, sunshine-and-lollipops article on its PERA on the Issues website. Its tone contrasts so starkly with Smith’s assessment just five days earlier that we’re pasting it here in its entirety:

Colorado PERA announced a 7.3 percent investment return, according to its 2016 Comprehensive Annual Financial Report (CAFR) released last week. The total fund—the combined assets of all five PERA member divisions—has now matched or outperformed the policy benchmark set by the PERA Board of Trustees for the one-, three-, five-, and 10-year time periods, net of fees. The long-term investment return for 35 years is 9.8 percent, gross of fees.

Those who have been following along with this year’s PERAtour effort are likely aware that the PERA Board and staff are currently soliciting feedback from PERA members, retirees, employers, and the general public on ways to help reduce PERA’s overall risk profile going forward. In 2016, the PERA Board lowered the long-term investment return assumption to 7.25 percent from 7.5 percent, reflecting their expectations for future market performance. Additionally, the Board conducted an experience study which showed that PERA members are living longer—meaning that PERA must pay benefits for a longer period of time than previously expected. The numbers reported in this year’s CAFR reflect these changes.

PERA is required by statute to undergo an annual financial audit overseen by the Office of the State Auditor, and conducted by an external audit firm. On June 22, 2017, the external auditor, CliftonLarsonAllen, reported to the PERA Board’s Audit Committee that they anticipate an unmodified “clean” opinion that the financial statements are presented fairly, in all material respects, for the seventh straight year.

In addition to the annual financial audit, the CAFR has consistently been recognized by the Government Financial Officers Association (GFOA) for excellence in the area of governmental accounting and financial reporting. PERA’s CAFR received this recognition for the 31st straight year in 2016. PERA’s annual CAFR is a wealth of vital information regarding the fund, including details on financial, investment, actuarial, and statistical facts.

Assuming that something similar will be emailed to PERA members, and that relatively few will have paid attention to news coverage of the board meeting, one has to ask what kind of double game PERA is playing here, and why.

Relative candor is fine for an audience of policymakers. But when it comes to the people who might actually suffer if PERA were to implode at some point in the future, let’s just keep spinning the positives and present information that makes it sound as though everything is hunky-dory.

There’s a term for this where we come from. Two-faced.

It’s time for PERA to be straight with its members.

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