Teachers, firefighters, and other public employees in Colorado are members of PERA, the Public Employees Retirement Association. This public pension plan covers most public employees in the state. It is also a Social Security substitute: most members of PERA do not participate in Social Security. PERA has been in the news a lot ever since the financial crisis, which caused significant investment losses for the plan. This year, the Colorado state legislature passed changes to PERA intended to shore up the long-term financial stability of the plan.

Many different people and organizations in Colorado have called for changes to guarantee the long-term financial health of the plan. The PERA Board of Trustees have said that certain changes are necessary to strengthen the plan. On the other hand, State Treasurer Walker Stapleton has made gutting PERA a centerpiece of his campaign for governor. With all this talk of making changes, much of the political debate in the state has focused on whether changes need to be made and, if so, what kinds of changes those should be.

The most important element of this debate is preserving the defined benefit (DB) structure of PERA. Any move away from a DB plan would gut retirement security for Colorado’s public employees and their families and harm the local economies they support. The original legislation introduced by Republican legislators in the state senate would have expanded the choice of a defined contribution (DC) plan for all PERA members, a dangerous first step toward eliminating the defined benefit structure of the plan. This proposed expansion of DC plan choice was completely unacceptable to public employees, retirees, and their allies.

Fortunately, the alternate version of the legislation introduced in the state house did not include expansion of DC plan choice. The house-passed legislation also maintained the principle of “shared sacrifice” more fully than the Senate-passed version. Back in 2010, the Colorado legislature passed Senate Bill 1 (SB1), which enacted significant changes to PERA. An important element of that debate was the idea of “shared sacrifice”: that public employees, retirees, and employers should all contribute to improving the financial health of the plan. This principle has remained an important part of every discussion about PERA since SB1.

After passing different versions of the legislation this year, the House and Senate met in conference committee to resolve their differences over the bill, SB 200. The compromise legislation that passed on the final day of the legislative session included the following changes:

  • Employer contributions increased by 0.25 percent
  • Employee contributions increased by 2 percent
  • The state’s contribution increased to $225 million annually (roughly 3% of payroll)
  • The Highest Average Salary calculation increased from 3 years to 5 years for new and non-vested employees
  • The retirement age was increased to 64 years for new employees
  • Cost of Living Adjustments (COLA) were suspended for two years and decreased from 2 percent to 1.5 percent
  • The choice of a defined contribution plan was expanded to all employees in the State and Local divisions of PERA

While these changes are significant, they do not mean a fundamental departure from the defined benefit structure of PERA. Current and future public employees and retirees will continue to have the security and reliability of a defined benefit pension in retirement. For employees in the State division who already have the choice of a DC plan, only 12 percent choose the DC plan. The evidence indicates that the overwhelming majority of employees in the State and Local divisions will continue to choose the defined benefit pension.

Colorado PERA has been the subject of near constant debate for the past decade. It has also suffered ongoing political attacks by anti-pension ideologues like Treasurer Stapleton. For those of us who support public pensions, let’s hope that the passage of SB 200 takes some of the pressure off PERA and allows the plan to improve its financial standing while continuing to provide a secure retirement to the hard-working public employees of Colorado.