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HB 12-1150 - PERA Seven Year Highest Average Salary Calculation

HB 12-1150 - PERA Seven Year Highest Average Salary Calculation

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Published by: Senator Mike Johnston on Apr 04, 2012
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04/04/2012

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DRAFT 4/3/2012 9:11 PM For a complete list of fact sheets, visitwww.mikejohnston.org/in-the-legislature.
Office of Sen. Mike Johnston
Colorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864
F
ACT
S
HEET
M
EMORANDUM
 
HB 12-1150
PERA Seven Year Highest Average Salary CalculationRep. Priola & Sen. Lambert
Staff Name
: John Feeney-Coyle
What the Bill Does:
In an effort to ensure PERA’s actuarial sustainability, the Colorado legislature
passed Senate Bill 1 in2010; making numerous changes to the provision of PERA benefits to state employees. The proposedlegislation seeks to make additional changes to the provision of benefits for employees hired on or afterJanuary 1, 2013 by increasing the number of years used to
calculate a member’s highest annual salary
(HAS)
. The bill seeks to calculate an employee’s retirement
benefit based on
that employee’s HAS over
7 years, instead of over 3 years under current law.
Colorado Context:
Colorado PERA members are eligible for a service or reduced service retirement benefit based on theirdate of hire, years of service credit, and age of retirement.
A PERA member’s retirement
benefitamount is equal to 1/12
th
of the average of the HAS on which PERA benefits were paid. HAS is based on4 periods of 12 consecutive months of employment, one base year and three subsequent years. Thoseyears need not be the final 3 years of employment, nor do they need to be earned under the same stateemployer
 –
they need only be consecutive. The proposed legislation would calculate that final benefit
based on 7 consecutive years on an employee’s HAS rather than 3
.
 National Context:
 
Across the country concerns about ‘salary spiking’
has prompted calls for state legislatures to extend thenumber
of years by which a public employee’s HAS is calculated.
1
 
For instance, California’s pensionprogram calculates a public employee’s HAS based only on that employee’s final year of employment.Indiana similarly proposed calculating their public employees’
 
HAS based on the “the sum of the highestcompleted twelve (12) months of salary that was paid to the participant before retirement.”
2
 
1
Public officials will convert incentives like education expenses, longevity bonuses, and unused vacation time intocash payments in their final year of employment in order to increase their HAS, thereby increasing their retirementbenefit. In some instance, public employees will earn more in retirement than they did while employed because of 
‘salary spiking.’
Catherine Saillant, Maloy Moore & Doug Smith,
Salary ‘Spiking’ Drains Public Pension Funds,
 Analysis Finds
, L.A.
 
T
IMES
2
B
OARD OF
T
RUSTEES OF THE
I
NDIANA
P
UBLIC
R
ETIREMENT
S
YSTEM
,
Resolution No. 2012-2-01
:
Section 3. 35 IAC 1.2-4-7(b)

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