We attended yesterday’s Denver PERAtour session in Denver so you wouldn’t have to.
It was a good show. There were nice slides, a good sound system, iced tea, lemonade, and cookies. Colorado PERA CEO Greg Smith comes across as a folksy, personable guy.
The only thing lacking was true substance.
As Smith explained it, when the PERA board lowered its expected annual rate of return from 7.5 percent to 7.25 percent last November, as well as adjusting its mortality tables to reflect that people are living longer, it raised the funds’ “risk profile.”
As he did on a recent “telephone town hall,” (those with some spare time can listen to it here) Smith pointed out that PERA needs some tweaking to get it largest divisions out of the orange (we’re not on fire yet but we’re starting to smolder) category. This means it will take those divisions far longer than the recommended 30 years to reach full funding. In the case of the schools division its 75 years. For state employees, its 55 years.
He repeated several times that PERA is “not in crisis” and will remain solvent and able to pay retirement benefits “in perpetuity.” But he also said the longer PERA hangs out there exposed to the possible cold winds of economic misfortune, the higher the likelihood that another catastrophic economic event like the Great Recession will knock its funds into the red (now we’re fully on fire) category.
While there’s no imminent crisis, Smith said, some adjustments are needed. Hence the listening tour. Last night, about 60 people attended, 51 percent of them over 65 and another 35 percent between 51 and 65, according to an instant poll flashed up on the video monitor.
Using nifty click-pad technology, facilitator Chris Adams ran the crowd through a series of questions about general guiding principles PERA’s board should follow as it considers restoring funds to health.
There were no questions that even hinted that PERA might want and need to fundamentally rethink its structure to ensure its long-term viability. But c’mon, what did you expect?
Here are some of the probing, hard-hitting statements attendees were asked to agree or disagree with:
- PERA will allow retirees to maintain their standard of living throughout their lifetime.
- PERA will be fair and attractive to future employees.
- PERA will serve as a tool for employers to recruit and retain top quality talent.
We’d have rather seen statements along these lines:
- PERA’s portability stops at the state line, meaning anyone who wants to move gets the shaft.
- PERA’s benefits are back-loaded, meaning people who don’t stay in PERA-eligible jobs for decades get the shaft.
- PERA will continue to protect its current structure even if it means its youngest members ultimately get the shaft.
To his credit, Smith signaled albeit somewhat obliquely, that the PERA board will have to make some tough recommendations to the General Assembly about how to fix the current problems.
Possible fixes, reported here previously, include:
- Eliminating cost of living adjustments for pensions for pre-2007 hires. But that would cut pension purchasing power in half within 30 years.
- Recalculating pension payments for new hires and non-vested members based on career average earnings rather than the current method of basing pensions on the three years of highest average salary. But this would result in a reduction of benefits of between 35 and 55 percent.
- Employers boosting their PERA contributions by two percentage points (from 19.65 percent of a worker’s salary to 21.65 percent). Still, that leaves the fund significantly behind where it was before the return reduction. It would take the schools division “only” 52 years to catch up.
- Requiring all schools division employees to boost their contribution by two percentage points (from 8 percent to 10 percent) would reduce the years to solvency by 21 years.
Retirees in the audience asked questions until we were worn out and had to leave. None of them challenged the underlying premises of the PERA company line.
One can’t help but suspect that PERA already knows where this is headed, and that the listening tour is, in fact, a gentle “heads-up” tour.