IP-2-2009 (March 2009)
Author: Barry W. Poulson
Colorado’s Public Employee Retirement Association (PERA) is experiencing a financial crisis. The current financial crisis has resulted in a significant decrease in the value of PERA’s portfolio. But the financial crisis in PERA is not just the result of the current financial crisis. PERA’s defined benefit pension plan is fundamentally flawed; the problems in the plan have emerged over several decades. While the current financial crisis has exacerbated these problems, PERA is facing a long-run deterioration in its financial condition.
The legislature has enacted several reforms over the past decade to address PERA’s financial problems. These reforms have included changes in benefits, increased contribution rates, and administrative changes. Unfortunately, these reforms have failed to address the fundamental flaw in PERA’s defined benefit plan.
This Issue Paper explores the financial crisis in PERA. Different measures of the magnitude of the crisis are examined, and the flaws in PERA’s defined benefit plan are analyzed. The failed legislative reforms of PERA are critically evaluated. The Issue Paper concludes that the legislature should consider declaring a financial emergency and enacting the fundamental reforms needed to solve PERA’s financial crisis. Other states have successfully reformed their own state employee pension plans by replacing a defined benefit plan with a defined contribution plan.