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A Looming Cloud Over Colorado’s Retirement
Colorado PERA and a long road to recovery.
BY ADAM MILLER
Adam is a Candidate for CFP® certification, a trusted fiduciary and fee-only financial planner at Elderado Financial. He works passionately to help families pay less in taxes and give more to the people and organizations they care about.
Once upon a time, Americans workeddiligently for forty plus years in a joband in exchange, companies countedon their workers and rewarded themwith the promise of a good retirement.The current working generation hashardly heard the word pension or theterm, “defined benefit plan.” Although not extinct, theyare becoming a rare breed. Across the U.S., statepension plans are struggling and the State of Colorado isno exception.Many government employees still rely on a pension aspart of their retirement. Public employees in the State of Colorado are counting on the Public EmployeesRetirement Association, also known as Colorado PERA.PERA is the largest public pension plan in the state, andis a large piece of the retirement pie for over 400,000individuals in the state. Folks counting on PERA comefrom many walks of life; from school teachers, to firefighters, judges, law enforcement officers and manyother public employees.Colorado PERA is the 23
rd
largest public pension plan inthe United States and the fund saw a drop in assets of 29% during the 2008 market crash. As a defined benefitplan, PERA promises to pay a certain amount of moneyto retirees in a lump sum or in the form of a monthlypayment during retirement. The plan also provideshealthcare, long-term care and other benefits. After thestaggering loss in 2008, the fund now has $29.5 billionin assets and roughly $27 billion in unfunded liabilities.This means that the promises that were made toColorado Employees to provide retirement benefits are adistant reality.The entities that provide PERA for employees pay afixed percentage into PERA on behalf of employees,while a slightly smaller percentage, deducted from theemployee’s pay, funds the rest of the plan. This fundingis in lieu of Social Security Payments. The folks relyingon PERA do not put into the Social Security system andthus their Social Security benefit ends up being verylittle, or nothing at all, for life-long public employees.Last year, the Social Security Trust saw little effect fromthe negative economy, while the PERA Trust sawsizable losses. Without a fix, this could drastically affectmany employees who fully rely on the PublicEmployees Retirement.So what can be done? On a state level, a number of Band-Aids are being slapped on the PERA system butwe have yet to see a real fix. Legislators are forced tomanage the situation without stepping on toes. On oneend of the scale are the public employees who werepromised a sustainable retirement and on the other endare tax payers who refuse to be handed the burden.Finding a real solution is no easy task but circumstanceshave forced discussion on the topic.Former Governor Bill Owens suggests that we swap theragged old Defined Benefit system, which promises anongoing, consistent benefit in retirement for a DefinedContribution Plan model. States such as Alaska,Michigan, and Oregon have adopted this model whichtakes the obligation away from the employer and placesit on the employee. This would create a ‘fend foryourself’ mentality and would force Coloradans tomanage their retirement more efficiently.In the past, we have seen governments take on debt tofund retirement benefits. We even see this in the privatesector as automakers work with unions to managestaggering pension liabilities. It seems in some casesthat automakers are no longer in the auto industry, butare in business solely to fund the retirement of employees. This creates a difficult situation on a statelevel when the legislators choose to rob Peter, the tax-payer to pay Paul, the retired public employees. Citizensof the state who do not benefit from PERA may be a bitirritated when their tax dollars are funding theirneighbors retirement, civil servants or not.Another question arises when we ask who is on the hook for the whole thing. It is possible that PERA will try todeclare an emergency and pass the whole thing on to thestate. The legislators will have quite a task on theirhands with the balancing act. If they force the problemback on PERA, they are turning their back on public
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