July 26, 2016
At https://www.copera.org/, you read that: “Colorado PERA provides retirement and other benefits to more than 500,000 current and former teachers, State Troopers, snowplow drivers, corrections officers, and other public employees who provide valuable services to all of Colorado.”
Below is Colorado State Treasurer Walker Stapleton’s email dated June 30, 2016, forwarding a June 23, 2016 article by The Denver Post editorial board.
From: Walker Stapleton <firstname.lastname@example.org>
Sent: Thursday, June 30, 2016 4:15 PM
Subject: ICYMI: PERA’s troubling spin
Trouble viewing this email? Read it online
In case you missed it, last week the Denver Post weighed in on the “troubling spin” Colorado’s pension system executives are putting on their 2015 returns that fell way below their goals.
We have been highlighting this issue for 6 years now. We must roll up our sleeves and address this problem head on!
A troubling spin on PERA returns
By THE DENVER POST EDITORIAL BOARD
June 23, 2016
The keepers of Colorado’s pension system had a dismal year in 2015, earning a paltry 1.5 percent on investments. That’s not surprising or even alarming in itself, since most investors suffered a similar experience.
What is alarming, however – if unfortunately not surprising – is how the Colorado Public Employees’ Retirement Association portrayed the news this week: as a validation of PERA’s long-term strategy.
It’s actually the opposite.
“We were able to achieve a positive return in an environment when a number of other public funds did not,” said PERA Executive Director Gregory Smith, “which affirms PERA’s investment strategy and allows us to offer our retirees and the entire state a reliable source of economic stability.”
In fact, the bad investment year put PERA further behind in its already daunting quest to become fully funded; after last year, it’s just 62.1 percent funded. Meanwhile, PERA’s unfunded liability has ballooned to $26.8 billion.
“As a long-term investor, we understand there are ebbs and flows to the market and are built to withstand them,” Smith insists. But in what sense? Even before the latest news, the legislature’s goal of fully funding PERA by 2041 under the reforms enacted in 2010 had become virtually hopeless. Now it’s likely, for example, that PERA’s state and schools divisions — the two largest — won’t be fully funded until the late 2050s at the earliest. And that assumes an average 7.5 percent return, which is better than what PERA has averaged since 1999.
By contrast, an average return of even 6.5 percent, which many investors would happily embrace in the coming decades, would be terrible news for PERA, plunging it toward the cusp of insolvency.
We’ve raised these concerns before, and so has Colorado Treasurer Walker Stapleton, who points to PERA’s “giant math problem.” Somewhat unexpectedly, however, PERA trustee Susan Murphy also weighed in recently with her own concerns in the wake of the financial report.
According to the Gazette in Colorado Springs, Murphy objected that the “gravity of that situation” was not reflected in the “verbiage and our management’s discussion and analysis” in PERA’s report. “Although the facts are there, I don’t believe that we are drawing enough attention to them,” she said.
Murphy also explained why allowing the date for full funding to recede is irresponsible. “The problem with a 30- or 40-year amortization is that the cost of prior people’s service and their retirement is being passed onto the young people and to taxpayers,” she said. “It’s a shifting of responsibility.”
At some point — and sooner far better than later — the legislature ought to revisit the possibility of further pension reforms, not only involving funding but also in order to achieve greater equity among beneficiaries. Kicking the can down the road could trigger an ugly day of reckoning.