Office of Sen.

Mike Johnston
Colorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864

FACT SHEET MEMORANDUM

SB 12-119 PERA Fiscal Sustainability Sen. Neville & Rep. Holbert Staff Name: Jailyn Soto What the Bill Does: Current law sets a maximum 30-year amortization period for deeming each PERA trust fund actuarially sound.1 The amortization period is the number of years it will take to pay off the unfunded actuarial accrued liability (UAAL), given the current funding and benefits, for each division based on a set of assumptions. SB 12-119 requires the PERA Board to reduce benefit provisions when the amortization period for any Division exceeds 30 years. The Board is required to make changes to the provisions for service credit, service retirement, benefit amounts, and annual increases in order to bring the affected Division back within a 30-year amortization period within one year of implementing the adjustments. Under the bill, the Board and the General Assembly are prohibited from increasing member and employer contributions, AED, or SAED amounts above the rates allowed by law as of December 31, 2011. Colorado Context: The funding ratio of a PERA trust fund is the ratio of the trust fund's assets to its future liabilities; an unfunded liability occurs when the funding ratio is less than 100 percent. On December 31, 2010, PERAs funded ratio equaled 64.7% based on the actuarial value of assets with an unfunded liability of $21.5 billion.2 At the end of 2010, given the current contribution rates, all funds except for the Local Government Division and the Denver Public Schools health Care Trust Fund exceeded the 30-year amortization period.3 To reduce PERAs unfunded liability and amortization period, recent legislation required employers to remit to PERA additional contributions for the Amortization Equalization Disbursement (AED) and the Supplemental Amortization Equalization Disbursement (SAED). Based on current funding as of Dec. 31, 2010, the funded status of PERA is as follows4:
Trust Fund State Division School Division Local Government
1 2

Funded Ratio 62.8% 64.8% 73.0%

Amortization Period w/Current funding 47 years 50 years 19 years

Amortization Period w/Future Contribution Rate Increases 28 years 28 years 19 years

Colo. Rev. Stat. 24-51-211 (West 2011). Colorado PERA Comprehensive Annual Financial Report, Fiscal Year Dec. 31, 2010 available at http://www.copera.org/pdf/5/5-20-10.pdf 3 Id. 4 Id. DRAFT 2/8/2012 4:12 PM For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.

Judicial Division Denver Public School Division Health Care Trust Fund Denver Public Schools Health Care Trust Fund

75.0% 88.9% 17.5% 17.9%

83 years Infinite 42 years 24 years

5

83 years Infinite 42 years 24 years

5

National Context: A sharp decrease in the value of assets during the recent economic downturn caused the funding ratio in many state pension plans to fall significantly. Nearly all pension plans, public and private, have some degree of unfunded liability. In fiscal year 2009, the gap between the employees retirement benefits liabilities and the money set aside to pay for them grew to at least $1.26 trillion, resulting in a 26% increase in one year.6 State pension plans represented slightly more than half of this shortfall, with $2.28 trillion put away to cover $2.94 trillion in long-term liabilitiesleaving about a $660 billion gap.7 State pension systems were slightly less than 78% fundeddeclining six percentage points from the 2008 level of 84%. Thirty-one states were below the Government Accountability Office recommended threshold of 80% in 2009. Bill Provisions: Requires the board of the public employees' retirement association (PERA) to adjust the provisions governing service credit, service retirement, benefit amounts, annual benefit increases, and other benefit requirements for each PERA division when the amortization period for the division exceeds 30 years or when indicated by actuarial experience. Requires the board make adjustments as equitably as possible and only to the extent necessary to maintain the long-term actuarial soundness of each trust fund. Adjustments shall be calculated to make each trust fund actuarially sound within one year of implementing the adjustment. All such adjustments shall be made by rule in accordance with the authority set forth in C.R.S. 2451-204 (5). Prohibits the board and the general assembly from increasing the combined rate of member contributions, employer contributions, amortization equalization disbursements, and supplemental amortization equalization disbursements above the combined rate of such contributions and disbursements authorized by law as of December 31, 2011. Fiscal Impact: The Colorado Legislative Council indicates that SB 12-119 may result in a potential reduction in state, local government and school district expenditures.8
5

Considering anticipated reductions in the future PCOP offset to DPS contribution requirements to the DPS Division for the cost of certain PCOPs as currently structured, the amortization period is expected to be below 30 years. 6 PewCenterOnTheStates.org, The Widening Gap, (Apr. 2011), available at http://www.pewcenteronthestates.org/uploadedFiles/Pew_pensions_retiree_benefits.pdf 7 Id. 8 Kerry White, Fiscal Note: SB 12-119 (Feb. 7, 2012), available at http://www.leg.state.co.us/clics/clics2012a/csl.nsf/fsbillcont3/67A399EFA2912F8A872579830056D930?Open&file=SB 119_00.pdf DRAFT 2/8/2012 4:12 PM For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.