State and PERA File Appellees’ Briefs

New on the Resources page www.SavePERACOLA.com/resources are the two answers that PERA and the State of Colorado have filed with the Colorado Court of Appeals. These are in response to our appeal of Denver District Court’s dismissal of our lawsuit over the reduction in our annual 3.5% cost-of-living adjustments brought about by Senate Bill 10-001 in February of 2010. There is little new here that they have not claimed previously, except mention of the dismissal of two similar lawsuits that were filed in South Dakota and Minnesota. They do not cite numerous other lawsuits across the nation where retirees and active pension members have recently won.

Our attorneys are now preparing appellants’ answer to these two briefs, which are due to the court June 12. We are optimistic that the Court of Appeals will send the lawsuit back to the trial court for action with direction of the constitutionality of our claims.

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65 Responses to State and PERA File Appellees’ Briefs

  1. Al Moncrief says:

    THE COLORADO PERA FALL 2011 SHAREHOLDER VIDEO: PERA OFFICIALS DOCUMENT HISTORIC PERA MISMANAGEMENT.

    I watched the video of the PERA Fall 2011 Shareholder available on the PERA website here:

    http://www.copera.org/pera/about/shareholder.htm

    It’s interesting to see Greg Smith, PERA’s Interim Executive Director, describe the historic mismanagement of the PERA pension. This discussion begins 29 minutes into the video. He comments on the action of the General Assembly and Governor Bill Owens to cut PERA contributions and increase benefits in 2001.

    He comments further on legislation that PERA supported to increase contributions in 2003, legislation that passed out of the Colorado General Assembly only to be vetoed by then-Governor Bill Owens. Greg Smith notes that, in the subsequent two legislative sessions, PERA was able to persuade the General Assembly to provide only about one-half of the level of contributions that were necessary to sustain the pension.

    Stop for a moment and realize the level of culpability that former Colorado Governor Bill Owens has for the historic mismanagement of the Colorado PERA pension. His actions in 2001 caused tremendous harm to the future funded status of Colorado PERA. Then, in 2003, when Bill Owens had an opportunity to partially rectify his earlier mistakes, he opted to veto a bill that would have achieved this. Bill Owens truly had not an iota of concern for the prudent administration of the PERA pension.

    PERA retirees will not be forced by the Colorado General Assembly to bear any burden resulting from their historic mismanagement of the PERA defined benefit pension.

    Thirty-six minutes into the video Greg Smith notes that “only ten percent of the ‘fix,’ or the reforms, in 2010 came from employers in the form of additional contributions.”

    The Colorado General Assembly, having historically underfunded and mismanaged the PERA pension, enacted reforms in 2010 in which 90 percent of the cost savings were attributable to the taking of the contracted PERA “automatic” COLA benefit.

    Later in the video, while discussing the litigation over SB 10-001, Greg Smith states “We wanted the ability to modify the COLA.”

    If Colorado PERA officials held the belief that the “automatic,” contracted PERA COLA could legally be diminished for current retirees with fully-vested pension benefits, these PERA officials would not state “We wanted the ability to modify the COLA.” This statement presumes the speaker’s belief that the COLA cannot be legally diminished.

    If the PERA COLA was an “ad hoc” COLA benefit, Greg Smith would not bother to state that PERA wants the ability to modify the COLA. That ability would be assumed.

    Fifty-one minutes into the video Meredith Williams provides some interesting information. He points out that “The average corporate pension defined benefit plan in the U.S. has an 8.1 percent rate of return assumption.” This rate of return assumption exceeds that of most public pension plans. Meredith notes that this statistic is not widely known.

    While looking through the shareholder presentation material on PERA’s website I found something that surprised me. Take a look at the copy of the slides for the Fall 2010 PERA Shareholder’s Meeting available on the PERA website at this link:

    http://www.copera.org/pdf/Shareholder/ShareholderPresentation10.pdf

    Note that even in the Fall of 2010 Colorado PERA put the following sentence into the slides for the shareholder presentation: “Plaintiffs claim Contract Clause protects automatic 3.5 percent increase.”

    Even in the Fall of 2010, PERA was referring to the contracted PERA COLA as “automatic.”

  2. Al Moncrief says:

    PEW CENTER REPORT CONDEMNS THE COLORADO GENERAL ASSEMBLY FOR MISMANAGEMENT OF ITS PUBLIC PENSION OBLIGATIONS – LEGISLATIVE MANAGEMENT OF STATE PENSIONS RECEIVES LOWEST POSSIBLE PEW RATING.

    The Pew Center has released an update of its periodic pension report titled “The Widening Gap Update.”

    The report is available here:

    http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_Pensions_Update.pdf

    This Pew Center update includes fact sheets addressing public pension management in each state. Here’s a link to a fact sheet specifically addressing Colorado’s public pensions:

    http://www.pewstates.org/research/state-fact-sheets/colorado-widening-gap-update-85899399291

    The Pew Colorado Fact Sheet notes that the State of Colorado has “failed to consistently pay its full annual pension contribution from 2005 to 2010.” Of course, we know that this pattern of failure to adequately fund the Colorado PERA pension plan runs uninterrupted through the first decade of this century, and continues a tradition of underfunding state pension obligations in the 1990s.

    “In 2010, Colorado paid only 66 percent of the recommended contribution to its pension plans . . .”

    The Pew Colorado Fact Sheet gives Colorado’s management of its retirement liabilities the lowest possible rating.

    “Pew assigned ratings to each state based on how well the states have managed their public sector retirement benefit liabilities.”

    According to the Pew Colorado Fact Sheet, Colorado’s management of its long-term liabilities for pensions was cause for “serious concern,” the lowest state rating.

    Turning our attention from the Pew Colorado Fact Sheet to the full Pew Update, i.e., “The Widening Gap Update,” I have a few initial reactions I want to share.

    First, I find it ludicrous that public pension unfunded liabilities in the U.S. are described as a “gap” or as a “shortfall.” I suspect that this language has been chosen with an agenda in mind. It intentionally misleads.

    A public sector defined benefit pension plan is similar to a mortgage. If I have paid off half of my $200,000 home mortgage, and yet I still feel compelled to run through the streets screaming that I am “in crisis.” . . . that I have a $100,000 “shortfall” of unfunded mortgage liabilities . . . my neighbors would rightly consider me “barking mad.” As with home mortgages, pension obligations are met over decades . . . up to 30 years.

    So why are we hearing this drumbeat about the “public pension crisis” in the US? If a pension “crisis” exists in the states, it has been self-inflicted by these states through mismanagement of public pensions by elected officials (as noted in the Pew Update.)

    Public pension mismanagement by the Colorado General Assembly will not be used as a justification for breach of the state’s public pension contracts. The actuarial funded levels of public pensions may be improved through legal, prospective pension reforms. These constitutional options were ignored by the Colorado General Assembly.

    Next, the Pew Update addresses “Colorado’s” pension liabilities. What does this mean? Does the Pew Update address the unfunded liabilities of all Colorado public pension systems, including the Denver retirement system, and the Colorado Fire and Police Pension Association? Or, does the report solely focus on Colorado PERA?

    Another reaction . . . I have read that this Pew Update is being criticized for its use of data that is several years old. I believe that the term “update” used in the title of the report is a misnomer.

    The Pew Update notes that “The main data sources used for this report were the Comprehensive Annual Financial Reports produced by each state and pension plan for fiscal year 2010.” The information presented in this Pew report is old news from 2009, so why bother? The funded status information does not further the debate surrounding public pension policy. Was the main purpose of the Pew Update simply to condemn the ineptitude of some states in managing their pension obligations, and to reward those states that have acted as responsible stewards of state resources and liabilities?

    Further, the Pew Update notes that a handful of states have enacted the pension “reform” of limiting retiree COLAs. The report provides this information while failing to note which of the COLA limitation “reforms” were reductions of “ad hoc” COLAs, i.e., legal COLA reductions, and which “reforms” were reductions of “automatic” COLAs. This information makes all the difference in the world, and it is absurd that the report fails to make this distinction. This practice is akin to reporting that someone has taken money from a checking account, without mentioning whether that checking account belongs to the person taking the money or to a stranger.

    Here are a few important excerpts from the Pew Update:

    “Many states have not held up their end of the bargain when they should have been paying for the promises they made. All told, state and local governments participating in state-run retirement systems should have set aside $124 billion in fiscal year 2010 to pay the recommended contribution for their pension and retiree health care obligations.”

    “While it is currently difficult for states to make contributions toward their retirement systems, given the drop in revenues and fiscal stress from the recession, many of these states also failed to make the recommended contributions when times were good.”

    “The rebound in the market over the last three fiscal years—the median gain was 21.6 percent in 2011—has not made up for those losses or for the underfunding in state retirement systems that preceded the financial crisis.”

    “While the Great Recession exacerbated the public sector retirement crisis, it did not create it. Before the downturn, many states drove up their pension liabilities by increasing employee benefits early in the decade, either without considering the price tag or assuming that market gains would cover the cost. In 2001, 11 states expanded retirement benefits; others followed suit in subsequent years. While the trend of increasing benefits without paying for them ended before the Great Recession, many of these states compounded the problem by failing to make recommended contributions in both good times and bad.”

    “Keeping up with the annual required contribution is perhaps the most effective way that states can responsibly manage their long-term liabilities for public sector retirement benefits. Pew’s research shows that states that consistently make their full payments have better-funded retirement systems and smaller gaps. States that paid the full annual contribution for their pensions were 84 percent funded in 2010, while states that did not were only 72 percent funded.”

    “The reforms that states have enacted in the last three years mostly affect future state workers, as it is legally difficult to reduce benefits for current employees and retirees.”

  3. Al Moncrief says:

    RHODE ISLAND NEA OFFICIAL: “THEY SAY FOLLOW THE MATH, WE SAY FOLLOW THE LAW” – FOUR COLA THEFT LAWSUITS FILED.

    Rhode Island public sector unions have finally filed their COLA-theft lawsuits . . . just a week before the Rhode Island Legislature’s pension bill takes effect.

    Check out this remarkable (twelve minute) video of the NEA Rhode Island’s Executive Director Robert Walsh standing up for the rule of law in the United States, and aggressively defending pension rights afforded by the US Constitution:

    http://blogs.wpri.com/2012/06/22/watch-nearis-walsh-discusses-the-unions-pension-lawsuit/

    Did you watch it? I don’t know about you, but I find it incredible that the NEA in Rhode Island (and other NEA chapters across the country) work to protect public sector pension rights, while simultaneously, the Colorado Education Association has supported a bill that retired union members claim is a breach of their pension contracts. How is that possible? How can one organization espouse such discordant public policy positions? The explanation must be that I simply do not understand the governance structure of the National Education Association. State NEA affiliates must be able to act with complete independence of the national organization.

    Here are some excerpts from a WPRI article about the new lawsuits:

    “A coalition of the state’s public-sector unions filed suit Friday in Rhode Island Superior Court against the governor on behalf of state employees and teachers, municipal workers in the state-run Municipal Employees Retirement System and retirees already collecting pensions, Robert Walsh, executive director of the National Education Association Rhode Island teachers union, told WPRI.com. While others have said they ‘followed the math,’ we follow the law, Walsh said. ‘We believe this is a violation of the law, and that’s why we’re going to court.’ The unions contend the law violates the due process, contract and takings clauses of Rhode Island’s state constitution.”

    “‘The state constitution in Rhode Island does not allow a contract to be broken and something to be taken,’ he said. ‘We are contending that the Rhode Island Retirement Security Act is a violation of the Rhode Island Constitution.’”

    “The law enacted in November has drawn national attention for saving billions of dollars by suspending retirees’ cost-of-living adjustments (COLAs) until the pension system is 80% funded and moving most current employees into a hybrid pension plan. All the law’s changes are scheduled to take effect on July 1.”

    (My comment: Walsh believes that suspension of the COLA until an 80 percent actuarial funded ratio is achieved is drastic. What would he think of Colorado’s SB 10-001 which attempts to take contracted retiree COLA benefits until a 100 percent funded ratio is reached?)

    “Walsh pointed to the fact that Rhode Island leaders say there isn’t enough money to pay promised pensions in full yet have pledged to pay off the moral-obligation bonds floated to fund Curt Schilling’s video game company, 38 Studios, even though the state is not legally obligated to do so. ‘We’re first in line,’ Walsh said.”

    (My comment: The Colorado General Assembly has also taken discretionary steps to direct state revenues away from its contractual pension obligations . . . $100 million just this last session was used for discretionary property tax relief.)

    “The union leader accused (State Treasurer) Raimondo of creating ‘a manufactured crisis’ in 2011 by dropping the pension fund’s investment outlook from 8.25% to 7.5% in one fell swoop, which sharply raised the amount of money taxpayers needed to put into the fund. He said unions will tell a judge that other solutions weren’t considered.”

    “‘She went too far,’ Walsh said of Raimondo.”

    Here’s the full article at WPRI:

    http://www.wpri.com/dpp/news/politics/local_politics/rhode-island-unions-file-suite-against-landmark-pension-law

    “Time will tell who is right and who is wrong,” Walsh said. “We know there were more reasonable alternatives to what they did.”

    Article:

    http://www2.turnto10.com/news/2012/jun/22/unions-file-suit-against-ri-pension-overhaul-ar-1080370/

    FYI, here is the most recent Rhode Island court ruling on the subject:

    “The case law does not preclude but rather supports this Court’s holding that Plaintiffs, as ten-year veterans of the State, possess a contractual relationship with the State pertaining to retirement allowances and COLA benefits which are not subject to collective bargaining.”

  4. Al Moncrief says:

    WHY DID AFSCME COLORADO SUPPORT A BILL THAT RETIRED UNION MEMBERS CLAIM WAS A BREACH OF THEIR FULLY-VESTED PUBLIC PENSION CONTRACTS?

    AFSCME Colorado supported the enactment of SB 10-001. Provisions of SB 10-001, relating to the taking of Colorado PERA retiree contracted COLA benefits are currently the subject of litigation.

    As we read on the Colorado PERA website:

    “In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

    http://www.copera.org/pera/about/ask.htm

    AFSCME (or AFSCME Colorado) has published materials claiming that Colorado PERA did not face a “financial crisis” in 2009. If this is true, then why was it necessary for the General Assembly to attempt a breach of PERA retiree pension contracts?

    Here is a link to an AFSCME Fact Sheet addressing Colorado PERA’s finances:

    http://www.afscme.org/issues/pension-security/resources/state-pension-fact-sheets/document/Colorado_Public_Employees_Retirement_Association.pdf

    Here are a few excerpts from this AFSCME Fact Sheet:

    “PERA is Financially Sound.”

    “There have been some recent claims that retirement systems covering public employees are facing a financial crisis. These claims are rarely true, and they are not true of PERA. As of December 31, 2009, the combined pension plans held assets with an actuarial value of $52.8 billion and had accrued liabilities of $75.3 billion. In other words, the fund had 70.1 percent of the money it will need to pay accrued benefits in upcoming years. (Recent surveys show that the average funding level for large public sector plans is in the range of 70 to 75 percent).”

    “This ratio of assets to liabilities is simply a snapshot that captures a plan sponsor’s ongoing effort at one point in time to fund its pension obligation; any unfunded liabilities can be made up over many years. If the plan sponsor is consistently making its annual required contribution, its pension plan can have a funded ratio below 100 percent yet still be on track toward full actuarial funding.”

    “A recent National Association of State Retirement Administrators report points out that Colorado governments spent just 2.16 percent of their budgets on pension contributions in FY 2008, while the national average was 2.96 percent. (Issue Brief: State and Local Government Spending on Public Employee Retirement Systems, National Association of State Retirement Administrators, January 2011).”

    (My comment: According to this AFSCME Fact Sheet, it appears to me that AFSCME or AFSCME Colorado believes that since Colorado PERA had “70.1 percent of the money it will need to pay accrued benefits,” at the time of the taking of the contracted retiree COLA benefit, Colorado PERA did not face a “financial crisis” at that time.

    According to this Fact Sheet, it appears to be the opinion of AFSCME [or AFSCME Colorado] that a pension plan may have “a funded ratio below 100 percent yet still be on track toward full actuarial funding.” If this is the position of AFSCME, then why did AFSCME support a bill that attempts a clear overreach . . . a taking of PERA retiree contracted COLA benefits until the PERA actuarial funded ratio achieves a 100 percent funded level? This PERA actuarial funded ratio has occurred only twice in Colorado PERA’s 81-year history.)

    Another AFSCME Fact Sheet addressing public pensions, “The Truth About Public Service Workers’ Pensions” is available at the following link:

    http://www.afscme.org/issues/pension-security/resources/document/AFSCME-FactSheet_Pensions.pdf

    Here are a few excerpts from this Fact Sheet that I find relevant to the taking of the Colorado PERA retiree contracted COLA benefit:

    “Employee contributions and investment returns fund the overwhelming majority of the cost of pensions. Taxpayers shouldered only 14.3 percent of all pension funding in the 11-year period ending in 2007.”

    “Public service workers often are not covered by Social Security, so their employer (state or local government) does not pay into Social Security as other employers do. Since the worker does not qualify for Social Security benefits, his/her pension is the only source of retirement security.”

    “While politicians who run state and local governments have often failed to faithfully contribute to their employees’ plans, public workers have contributed year in and year out.”

    “The deep financial downturn of 2008 and 2009, spurred by recklessness on Wall Street, caused significant problems in many pension funds. Until the recent market crash, public pensions were well funded and not a problem – they had on average 86 percent of the assets they needed to pay for accrued benefits (anything over 80 percent is considered healthy).”

    (My comment: If AFSCME believes that a pension actuarial funded ratio exceeding 80 percent is “considered healthy,” again, why did AFSCME Colorado support a bill that proposes to confiscate the contracted PERA retiree COLA benefit until the Colorado PERA pension’s actuarial funded ratio reaches a 100 percent level?)

    “Pension funds are not at imminent risk of default, and they have years to recover investment loses. The history of public pension fund management demonstrates that pensions have not been a long-term burden to governments.”

    “Where the problems with pension funds are substantial, the cause is the failure of employers to consistently fund pension plans and recent investment losses. In the past, too many politicians ignored pension contributions in favor of wasteful programs or special-interest tax breaks.”

    (My comment: The Colorado General Assembly has skipped its annual required contributions to the PERA pension plan [as identified by Colorado PERA’s actuaries] for the last decade. The Colorado General Assembly has “ignored pension contributions” as recently as a few months ago, when it opted to grant discretionary property tax relief in Colorado, in lieu of directing resources to meet its contractual PERA pension obligations. The Colorado General Assembly’s policy decisions relating to the management of the PERA defined benefit plan, and meeting contractual PERA pension obligations, simply boggle the mind.)

    “In any case, unfunded liabilities do not disappear if pension benefits are cut or the pension fund is closed. The pension liability debt remains.”

    “In 2008, state and local government pension expenses amounted to just 3.8 percent of all (non-capital) spending.”

    “The unfunded pension liabilities may be paid during a period of 30 years under generally accepted accounting. During this 30-year period, state and local government revenues will be approximately $40 to $50 trillion, so the unfunded liabilities are approximately 2 percent of governmental revenues during the payback period.”

    (My comment: This statistic, provided by AFSCME, does an excellent job of placing public defined benefit pension plan obligations in their proper perspective.)

    “Because of the recession, a substantial majority of state and local governments have lost between 10 percent and 20 percent of their revenues during the past two to three years. As revenues recover, governments will be able to set aside appropriate money to cover their pension obligations.”

    (My comment: Instead of waiting for a turn in the volatile Colorado economic cycle, the sponsors of SB 10-001 considered the recent downturn a “window of opportunity” during which they could attempt a breach of PERA retiree COLA contractual obligations.)

    “The reason costs are increasing for public pension plans is because employers are now paying for past service that the employer did not properly fund.”

    (My comment: This AFSCME perspective describes the accumulation of Colorado PERA unfunded pension obligations perfectly.)

    Also worth considering in view of the taking of the Colorado PERA contracted COLA benefit is a letter that AFSCME sent to the Governmental Accounting Standards Board (GASB) on September 17, 2010. The letter addresses proposed changes to state and local public pension accounting and financial reporting.

    The AFSCME comment letter that was sent to GASB is available here:

    http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157431851

    Here are a few excerpts from the letter that I find particularly pertinent to the Colorado General Assembly’s attempted taking of the contracted PERA retiree “automatic” COLA benefit:

    “AFSCME agrees with the GASB view expressed in Chapter 2: ‘that for accounting and financial reporting purposes, an employer has an obligation to its employees for pension benefits by virtue of the employment exchange, and this obligation is not satisfied until the defined pension benefits have been paid to the employees or their beneficiaries when due.’”

    “Our disagreement arises where GASB intends to project the cost of ad hoc COLAs. The reason pension plans utilize ad hoc COLAs, as opposed to automatic COLAs, is so that they can make a decision about whether or not the COLA can be funded on a regular basis.”

    (My comment: Here AFSCME recognizes the distinction that is made in public defined benefit pension administration between “ad hoc,” i.e., “discretionary” COLA benefits and “automatic” pension COLAs, i.e., COLA benefits that are a contractual obligation of public pension plans and their employer-affiliates.)

    “We also have concerns with the added subjectivity that arises when determining whether facts and circumstances exist to conclude that ad hoc COLAs are not substantively different from automatic COLAs. Actuaries and accountants should not be required to guess at future employer decisions.”

    (My comment: If one skims through all of the comment letters that have been sent to GASB on this subject of state and local public pension accounting and financial reporting it is interesting to note that there is no debate at all regarding the contractual obligations of public pension plans and their employer-affiliates to pay “automatic” pension COLA benefits. The debate in these GASB comment letters surrounds the degree to which public pension plans are contractually obligated to meet long-standing “ad hoc” pension COLA promises and expectations.)

    This GASB comment letter was submitted by:

    “Steven Kreisberg, Director of Collective Bargaining and Health Care Policy, AFSCME.”

  5. Al Moncrief says:

    GRS PAPER PRESENTS “LESS DRASTIC” ALTERNATIVES FOR COURTS WHEN STATES ATTEMPT TO IMPAIR THE OBLIGATIONS OF THEIR OWN PENSION CONTRACTS.

    Recall that, some time ago, we looked at a paper by the Congressional Research Service addressing the legality of state and local pension plan attempted “clawbacks” of accrued public pension benefits.

    The author of the paper, Jennifer Staman, is a Legislative Attorney at the Congressional Research Service. The paper, “State and Local Pension Plans and Fiscal Distress: A Legal Overview” was published on March 31, 2011.

    In her paper, Ms. Staman notes that “. . . a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”

    “Despite the variation in when a contractual right to a public plan pension benefit begins, as noted above, state courts generally find that the benefits of individuals who have already retired may not be diminished or impaired.”

    Here’s a link to the Congressional Research Service paper:

    http://www.nasra.org/resources/CRS%20state%20and%20local%20legal%20framework%201104.pdf

    If you read this Congressional Research Service paper, the question naturally arises: “What ‘less drastic’ alternatives were available to the Colorado General Assembly than taking the contracted Colorado PERA COLA benefit from PERA retirees who have fully-vested pension rights?”

    If the Colorado General Assembly is not free to impose “drastic” impairments of its contractual public pension obligations, such as taking fully-vested COLA benefits, then what “less drastic” options should have been considered by the General Assembly?

    A 2009 paper published by Gabriel, Roeder, Smith & Company (GRS) outlines some alternatives that should have been considered by the Colorado General Assembly.

    This paper, “GRS Insight, October 2009, Preserving Financially Sound Defined Benefit Pensions in Challenging Market Environments” was written by Norm Jones and Paul Zorn of GRS.

    I encourage you to read the complete 2009 GRS paper at this link:

    http://www.vermonttreasurer.gov/sites/treasurer/files/pdf/retirement-all/GRS_Pesnio__Insight2009_10.pdf

    Although the GRS paper is thorough, it fails to mention several alternatives to the breach of fully-vested pension contracts such as: the issuance of pension obligations bonds (or pension certificates of participation), and reductions in the rate of accrual of pension benefits by current, active, and future pension members who have partially-vested pension rights, and no pension rights, respectively. Other “less drastic” alternatives that are not mentioned in the GRS paper include identification of new revenue streams to meet pension obligations, such as assessments on natural resource extraction, or casino assessments (that under consideration in other states.) These constitutional, prospective pension reform alternatives were not considered by the Colorado General Assembly simply because they were not the preference of the lobbyists who were driving the pension reform effort.

    Here are a few excerpts from the GRS paper that I consider important:

    “state and local governments are examining ways to mitigate the impact of the market decline on plan funded levels and contribution requirements. This article discusses the advantages and disadvantages of several approaches for defined benefit plans; however, it does not recommend any specific approach.”

    “However, when investment earnings are not sufficient to fund a large portion of promised benefits, either additional contributions must be made or the benefit program must be restructured.”

    “If actuarially determined contributions are repeatedly unpaid, future contributions will grow rapidly. Consequently, increasing plan contribution requirements to ensure the plan is actuarially funded will, over the long term, reduce the employer’s costs of providing benefits.”

    (My comment: The Colorado General Assembly has intentionally stressed the PERA trust funds through historical underfunding of the pension, and ill-conceived pension policy decisions. Now, the General Assembly is seeking to be bailed out through the breach of PERA retiree pension contracts.)

    “Under most state laws, accrued benefits may not be reduced once vested. As a result, efforts to control costs by changing benefits usually involves: changing ad hoc cost-of-living adjustments (i.e., non-guaranteed COLAs); changing benefits for newly hired employees; or changing benefits for current employees in some manner.”

    “Most public plans provide a COLA in order to protect retirees’ purchasing power from inflation. In many cases, the COLA is automatic and set at some fixed rate (e.g., 3% annually) or based on the Consumer Price Index (e.g., 80% of the annual CPI increase). In other cases, the COLAs are ad hoc and granted by a decision of the plan’s board of trustees. Because ad hoc COLAs are not part of the guaranteed benefit, they may be reduced or eliminated as circumstances warrant.”

    (My comment: “Automatic” COLAs are part of the “guaranteed benefit.”)

    “Changing Benefits for Newly Hired Employees.”

    “Because public plans have evolved over time, many provide different levels of benefits (referred to as “tiers”) for members hired at different dates.”

    “Usually, a new tier is based on an older tier, with some or all of the following changes: (1) reductions in the benefit multiplier; (2) longer periods for determining final average earnings; (3) longer vesting periods; (4) increases in the age and service requirements for unreduced benefits; (5) increases in member contributions; and (6) reductions in retiree COLAs.”

    “Adding Incentives to Delay Retirement.”

    “Rather than reducing benefits, another way to control plan costs is to encourage employees to delay retirement. There are several ways to provide incentives for delayed retirement, including: providing higher multipliers for longer service (e.g., service over 30 years); offering deferred retirement option (DROP) plans with long DROP periods (e.g., 10 years); or increasing the eligibility age for retiree health benefits.”

    “Changing Benefits for Current Employees.”

    “To the extent benefit changes do not reduce accrued benefits, or are applied to non-vested members, in many plans it may be possible to make certain changes, including: lowering or eliminating interest paid on refunds of employee contributions; increasing the averaging period for determining final average earnings; limiting items of compensation that may be used in determining final average earnings; freezing benefit accruals so they are not affected by future pay increases; and, lowering the benefit multiplier for future service.”

    “Changing Wage Inflation Assumptions.”

    “The wage inflation assumption is a key assumption used in plan valuations. Because public pension benefits are most often based on final average earnings, higher wage inflation assumptions result in higher projected benefits.”

    “To the extent the current economic downturn is likely to reduce upward pressure on prices and wages for some years, a temporary reduction in the wage inflation assumption may be warranted in some cases when it is known that a pay freeze or pay reduction is in effect.”

    “Additionally, if the amortization period is extended beyond 30 years, governmental accounting standards generally require the plan sponsor to show the net pension obligation as a liability in its annual financial statements.”

    “Changing the Asset Smoothing Period.”

    “Lengthening the smoothing period increases the time over which investment gains and losses are recognized, and so lessens their impact on contribution rates in a given year.”

    “Adding or Changing Asset Value Corridors.”

    “In order to ensure asset smoothing does not result in unreasonable asset values, many plans have asset value corridors in addition to asset smoothing. Asset value corridors set an upper and lower limit on the extent to which the smoothed value of assets may differ from the market value.”

    If a pension “crisis” exists . . . it was created by the Colorado General Assembly. How has the Colorado General Assembly historically stressed the Colorado PERA trust funds? Here are some of the contributing factors:

    The Colorado General Assembly has habitually underfunded the Colorado PERA pension.

    The Colorado General Assembly has failed to meet its annual required pension contributions for the last decade.

    The Colorado General Assembly and Governor Bill Owens irresponsibly granted PERA pension benefit increases further stressing the PERA trust funds.

    The Colorado General Assembly has granted discretionary property tax relief (2012) at a time that it also claims the state is in a “fiscal crisis,” diminishing the availability of funds that could be used to meet the state’s contractual pension obligations.

    The Colorado General Assembly has appropriated $500 million for pension obligations that are the responsibility of Colorado local governments (Old Hire Fire and Police Pensions) while ignoring its own Colorado PERA contractual obligations. Again, this policy decision diminished the availability of funds that the General Assembly could have used to meet its own contractual PERA pension obligations.

    Finally, the Colorado General Assembly has artificially limited its available resources through its own faulty legal interpretation of the statutory Arveschough-Bird budgetary restriction.

  6. Al Moncrief says:

    VERMONT TREASURER’S PENSION COMMISSION LEGAL ADVISORY REPORT: COLORADO PUBLIC PENSION OBLIGATIONS WERE DETERMINED IN THE COLORADO SUPREME COURT CASE, POLICE PENSION AND RELIEF BOARD V. MCPHAIL.

    In 2009, the Vermont Treasurer’s Office released a study of the funding of public pension plans in the United States. The title of the study is “Report of the Commission on the Design and Funding of Retirement and Retiree Health Benefits Plans for State Employees and Teachers.”

    Here’s a link to the full report (PDF):

    http://www.vermonttreasurer.gov/sites/treasurer/files/pdf/retirement-all/_Summary_Retirement_Commission_Report_Dec_09.pdf

    Appendix A of the Vermont Treasurer’s report addresses a topic that we are particularly interested in, i.e., the obligation of public pension plans in Colorado (including Colorado PERA) to honor their contractual public pension obligations.

    The title of Appendix A in the Vermont Treasurer’s report is:

    “APPENDIX A – TO LEGAL ADVISORY REPORT FOR VERMONT COMMISSION ON DESIGN AND FUNDING OF RETIREMENT AND RETIREE HEALTH BENEFITS.”

    Appendix A can be read in its entirety here:

    http://www.vermonttreasurer.gov/sites/treasurer/files/pdf/retirement-all/v1-Vermont_-_Appendix_A_to_Commission_Report.pdf

    When I read the portions of Appendix A of the Vermont Treasurer’s report that relate to the contractual obligations of public defined benefit pension plans in Colorado, I see a vast discrepancy between the conclusions of the Vermont Treasurer’s Commission in this regard, and the (recent) conclusions of Colorado PERA and the Denver District Court relating to public pension obligations under Colorado law.

    Perhaps you will also note a discrepancy.

    Here are the contents of the Vermont Treasurer’s investigation relating to public pension obligations under Colorado law:

    “Colorado: Art. II, § 11: No ex post facto law, nor law impairing the obligation of contracts, or retrospective in its operation, or making any irrevocable grant of special privileges, franchises or immunities, shall be passed by the general assembly.”

    “The Colorado Supreme Court held that the vested pension rights of a retired public employee may not be impaired by subsequent legislation. Police Pension & Relief Bd. of Denver v. McPhail, 139 Colo. 330, 338 P.2d 694 (Colo. 1959). With respect to active employees the Court has stated that although prior to eligibility to retire the pension plan could be changed, it could not be abolished nor could there be a substantial change of an adverse nature, without a corresponding change of a beneficial nature. An employee’s pension rights prior to his eligibility to retire may be modified for the purpose of keeping the pension system flexible to permit adjustments in accord with the changing conditions if at the same time the basic integrity of the plan is still maintained. Hence, prior to eligibility for retirement, changes may be properly made in a pension plan if these changes strengthen or better it, or if they are actuarially necessary. Police Pension & Relief Bd. of Denver v. Bills, 148 Colo. 383, 390, 366 P.2d 581, 584 (Colo. 1961).”

  7. Al Moncrief says:

    APPARENTLY, COLORADO GOVERNMENTAL FINANCE OFFICERS KNOW THE DIFFERENCE BETWEEN AN “AUTOMATIC” PENSION COLA AND AN “AD HOC” PENSION COLA.

    Here’s an interesting document I came across today, it appears to be a presentation (an “update”) to the Colorado Government Finance Officers Association (CGFOA) by a GASB official at the 2011 CGFOA annual conference in November 2011.

    Looking over this document, it is clear to me that GASB officials and governmental finance officers in Colorado are aware of the distinction between “automatic” and “ad hoc” public defined benefit pension COLAs.

    Here’s a link to the document on the CGFOA website:

    http://www.cgfoa.org/PDF/Conf%202011/Presentation%20PDFs/COGFOA%202011%20GASB%20Update.pdf

    “2011 Annual Conference GASB Update, November 2011.”

    Comments relating to GASB Statement #27 begin on page 104 of the presentation:

    “Accounting and Financial Reporting for Pensions.”

    “An employer’s net pension liability should be recognized on the statement of net position.”

    Under “Projection of Benefit Payments” the presentation addressed financial reporting for “automatic” and “ad hoc” public defined benefit pension COLAs:

    “Include automatic cost‐of‐living adjustments (COLAs) and other automatic retroactive benefit changes.”

    “Include ad hoc COLAs and ad hoc retroactive benefit changes that are substantively automatic.”

    “Examples of assumptions…”

    “Inflation, Mortality, Salary increases & COLAs.”

    “Jeff Bridgens, Practice Fellow, jbreidgens@gasb.org, 203-956-5210.”

  8. Al Moncrief says:

    FOP AND CASE HAVE MUCH TO SAY REGARDIING COLORADO PERA . . . I AGREE WITH MANY OF THEIR POSITIONS. Part 1 of 2.

    The organizations “Friends of PERA” (FOP) and the Colorado Association of School Executives (CASE) were part of the coalition that supported, SB 10-001, the bill that “impacted” (like an asteroid) the Colorado PERA contracted retiree COLA benefit.

    As we read on the Colorado PERA website:

    “In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

    http://www.copera.org/pera/about/ask.htm

    Since these two organizations supported SB 10-001 (a bill including provisions that are the subject of litigation) I find it admirable that the two organizations state their (currently or formerly held) positions on questions relating the historical funded status of Colorado PERA with candor on the FOP website.

    Further, I commend the organizations for making these positions readily available to members of the public. This openness brings a refreshingly forthright attitude to the debate surrounding the breach of fully-vested PERA retiree pension COLA benefits.

    Below, I highlight (and express opinions relating to) CASE and FOP statements available on the FOP website here:

    http://www.friendsofpera.com/

    I comment on CASE and FOP statements that I find germane to the taking of the PERA retiree contracted COLA benefit. I’ll begin with the 2006 CASE Issue Brief relating to PERA on the FOP website here:

    http://www.friendsofpera.com/facts/PERAIssuebrief.pdf

    Some time has passed since I first read the 2006 CASE Issue Brief addressing Colorado PERA’s underfunding. I had forgotten what an excellent brief it is. It is published by an organization that has followed the activities of Colorado PERA (and state legislation impacting Colorado PERA) closely for many years.

    Below are a few quotations of interest from the 2006 CASE Issue Brief and my opinions relating to the positions CASE takes in the brief. (I’m not certain if these are official CASE board statements in the Issue Brief or just those of the CASE official who wrote the report.)

    Anyway, here are some excerpts from the 2006 CASE (PERA) Issue Brief:

    “What is PERA’s financial condition? Is PERA stable? Yes. PERA is quite stable. As of this writing, PERA’s market value is in excess of $35 billion. If there were flat investment returns in the future, PERA would have enough cash to pay benefits or over 40 years. By almost every standard, PERA is solvent.”

    “PERA has an ‘unfunded liability’ of over $11 billion. An ‘unfunded liability’ is when one doesn’t have enough cash or assets, on hand, to cover liabilities that will become due in the
    future.”

    “For example, if your home mortgage were to be considered ‘fully funded,’ you would have enough cash, right now, to pay off your mortgage today! But PERA’s future liabilities, or the benefits PERA owes at any point in the future, have grown at a faster rate than contributions and returns on the investment portfolio. Nearly all pension plans, public and private, have some degree of unfunded liability. The question becomes — how much is too much? In 2034, it is estimated PERA will have $60 billion in assets. But if investments don’t outpace current projections, PERA will need to increase contributions, decrease liabilities, or both over the long term to cover all current and future retirees.”

    “How did PERA get into this predicament? Several factors have contributed to PERA’s current funded status. In 1999 and 2000 when PERA had more assets than liabilities, there was a major political movement to increase benefits, to lower the age of retirement, and to lower employer contribution rates for PERA.”

    (My comment: PERA retirees who have fully-vested pension rights [including fully-vested rights to the contracted PERA pension COLA benefit] bear no responsibility, or legal liability, for this “predicament.” They will not surrender their fully-vested PERA pension rights to fix a fiscal problem caused by a “political movement.”)

    “Regardless of who began this giveaway, every group and association in Colorado, including CASE, stood up and cheered and implored the legislature to ratify the changes.”

    (My comment: Here CASE graciously accepts a proportionate share of culpability for effecting the downturn in PERA’s actuarial funded status. Regardless, Colorado PERA retirees do not have the onus of managing the PERA pension trust funds. That burden lies with the Colorado General Assembly and Colorado PERA. Colorado PERA retirees have fulfilled their contractual obligations to Colorado PERA by meeting retirement eligibility criteria set forth in Colorado law. Colorado PERA retirees will not stand idly by while their PERA pension contracts are breached. It is both unreasonable and unconstitutional to expect Colorado PERA retirees who have fully-vested pension rights to be forced by the Colorado General Assembly to pay for past mistakes and mismanagement of the pension by elected officials.)

    “Now, some of the same politicians who voted for increased benefits and lower contribution rates are the ones pointing fingers and talking about a ‘crisis.’”

    “One result of these changes is that PERA’s employer contribution rate has declined by 25 percent since the late 1990s. Current contribution rates and estimated return on investments aren’t enough to pay off the debt over time.”

    (My comment: I agree with this CASE position that PERA has been historically underfunded by the General Assembly. In the last decade, this underfunding has continued, to the tune of approximately $3.7 billion according to Colorado PERA’s actuaries.)

    “In short, employer contributions were lowered during the boom years — now employers need to step up to fill some of the gap.”

    (My comment: Legally, employers are required to “fill” all of the gap, or reduce their pension obligations over time by supporting the enactment of legal, prospective pension reforms.)

    “Different groups have proposed numerous ‘fixes’ that range from adjusting how Highest Average Salary is figured, to reconfiguring the benefit package, to privatizing the system.”

    (My comment: Here CASE notes the existence of several “less drastic” alternatives to the breach of fully-vested retiree pension contracts in its 2006 Issue Brief.)

    “The negative publicity about PERA over the past year is largely the work of organized ideologically motivated activists and profit-minded special interest groups.”

    “In reality, PERA has one of the lowest employer contribution rates in comparison with other public pension plans in Colorado and other states. The 2006 employer contribution to PERA is 10.65 percent. By comparison, public pension plans for neighboring states show an average employer contribution rate of 17.2 percent. Even with the scheduled gradual increase of the employer rate up to 13.15 percent by 2012, Colorado will still compare favorably with other public pension plans.”

    (My comment: Accordingly, employer contribution rates could be immediately raised to a level commensurate with employer contribution rates in other states. Such a pension reform is yet another example of a “less drastic” alternative to the breach of fully-vested PERA pension retiree contracts.)

    “Keep doing what you love. In our opinion, your retirement is secure.”

    (My comment: In light of the fact that the contractual pension COLA rights of PERA retirees have recently been breached by SB 10-001, and that this bill, if it withstands court scrutiny, will serve as a model for future breaches of PERA pension contractual rights by the Colorado General Assembly, Colorado PERA retirees do not feel “secure.”)

    “By Phil Fox, deputy executive director, and Jana Caldwell, director of communications, CASE.”

    Apart from the 2006 CASE Issue Brief, the “Friends of PERA” website provides further historical information relating to the recent dip in Colorado PERA’s actuarial funded ratio. Apparently, these statements on the FOP website represent the (currently or previously held) positions of the organization, FOP.

    Here are a few such quotations from the FOP site that I find compelling:

    “Some legislators have said the employer contribution rate to the PERA fund is excessive. Not true. PERA is a bargain for the Colorado taxpayer.”

    “The employer contribution rate for the PERA pension plan is below the average rate contributed by public & private employers into retirement plans for their employees. Many employers contribute between 6% and 10% of pay in addition to 6.2% of pay for Social Security, for a total of 16.2% of pay.”

    (My comment: I believe that employee and particularly employer contribution rates to PERA have been too low historically to adequately fund the PERA Trust Funds in light of PERA’s contractual obligation to pay earned, accrued, fully-vested retiree pension benefits, including contracted retiree COLA benefits.)

  9. Al Moncrief says:

    FOP AND CASE HAVE MUCH TO SAY REGARDIING COLORADO PERA . . . I AGREE WITH MANY OF THEIR POSITIONS. Part 2 of 2.

    “In 1984, the contribution rate to PERA’s pension fund for the School and School Divisions was 12.5% and 12.2%, respectively. Over the years, the rate dropped to less than 10%. The rate in 2009 is 11.9%, still lower than it was 25 years ago.”

    “Compare PERA’s rate with other non-PERA Colorado public plans: Denver = 13.7%, Adams & Pueblo counties = 13.7%, Douglas County = 14.2%, University of Colorado = 16.2%, City of Fort Collins = 13.7%, Jefferson County = 13.2%, Durango = 11.2%, Westminster = 10.3%, Lakewood = 11.7%.”

    “Compare PERA’s rate with the average rate of the seven neighboring state pension plans: 11.9% vs. average of 18.3%, NM State = 22.8%, NM School = 17.8%, Utah RS = 21.9%, Wyoming = 17.5%, NE School = 13.5%, OK RS = 20.7%, KS PERS = 14.2%.”

    “Compare PERA’s rate with the average of 32 public DB plans: 11.9% vs. 14.3%.”

    “Average pension cost for all Private Employers according to the 2006 Chamber of Commerce Employee Benefits Study is 14.25%. PERA is 16 percent below this.”

    (My comment: I agree with FOP that the Colorado General Assembly has historically set employee and employer PERA pension contribution rates at levels that are insufficient, in light of the contractual obligations of Colorado PERA and PERA-affiliated employers to fully-vested PERA retirees. This constant underfunding of the pension plan has resulted in a decline in PERA’s actuarial funded ratio which was later used to justify the breach of retiree pension contracts.)

    “Rate cuts to PERA between 2000 and 2005 equaled some $325 million.”

    (My comment: This is dramatic evidence of insufficient support for the PERA Trust Funds by the Colorado General Assembly, Colorado PERA and PERA-affiliated employers. Now, under SB 10-001, the Colorado General Assembly would like to force PERA retirees to subsidize Colorado state and local governments for decades in compensation for this historical underfunding.)

    “The State (taxpayers) is not the major provider of funds to the pension plan; only 17% of PERA’s revenue of $45 billion in the last 20 years came from the taxpayer; members contributed about 18% of the revenue. Investments brought in 65% of the revenue.”

    (In light of the contractual obligations of PERA-affiliated employers, perhaps the State should be the major contributor of funds to Colorado PERA. Remember that PERA retirees who have fully-vested, contractual rights to their PERA COLA benefit bear no “market risk.”)

    “Some legislators said PERA is in a financial crisis. They use this term to push their agenda of closing down PERA in favor of defined contribution plan.”

    “PERA’s funded level at the end of 2007 was an overall 75% of assets – about the same as it was in 1984.”

    (My comment: PERA’s actuarial funded ratio was 54.5% in 1973, yet there was no campaign that year by public sector unions to breach the pension contracts of their retired “brothers” and “sisters.”)

    “Equating PERA’s amortization period (number of years when it will have the unfunded portion paid off) to an actuarial emergency or necessity is erroneous. PERA continues to have a positive cash flow without selling off assets.”

    (My comment: Precisely! PERA has a positive cash flow, and the Colorado General Assembly could have adopted any number of pension reforms that would have been “less drastic” than the breaching of fully-vested PERA retiree pension contracts. I agree with what I perceive to be the primary conclusion of this FOP statement . . . that PERA would have to reach a point at which it is “selling off assets” in order for the breach of “partially-vested pension” contracts to become “actuarially necessary.”)

    “An unfunded liability is like a house mortgage on which an owner gradually makes payments. The ‘house’ does not need to be paid off in full today, just as PERA does not need to have today all of the funds it promises to pay out over the next thirty years. Many of those who will receive a benefit from PERA are 5, 10, 20, and 30 years away from retirement so there is time to allow investment returns to help correct the problem.”

    (My comment: Remember that as recently as 15 years ago PERA’s maximum amortization period was twice its current level of 30 years. This policy shift was a move toward fiscal responsibility, but also artificially stressed the PERA Trust Funds.)

    “PERA has been fully funded only two years in its 75-year history – in 1999 and 2000. When it was fully funded, Governor Owens immediately pursued cutting the employer contribution rate and unwisely pushed the Board of Trustees very strongly to reduce the cost to purchase service credit. This action resulted in a very large unfunded liability increase to the fund. When PERA tried to pursue legislative changes to remedy the situation, Governor Owens vetoed the legislation because it did not include a ‘defined contribution option’ for state employees.”

    (My comment: Yes, PERA has been fully-funded, that is, it has achieved a 100 percent actuarial funded ratio, only twice in its 81-year history. This fact alone sufficiently demonstrates the overreach of SB 10-001. The bill seizes fully-vested PERA retiree COLA benefits until the PERA Trust Funds again reach an actuarial funded ratio level that has occurred once every four decades of PERA’s existence. This threshold, set in Colorado law by SB 10-001, is so absurd that in all likelihood every current PERA retiree will be long dead before an opportunity arises at which their contracted, fully-vested COLA benefit might be restored.)

    Also, in the statement above, FOP emphasizes the fact that former Colorado Governor Bill Owens bears primary responsibility for the mismanagement of the PERA Trust Funds at the turn of the century. This gubernatorial mismanagement indisputably “resulted in a very large unfunded liability increase to the fund.” PERA retirees who have fully-vested, contractual pension COLA rights had nothing to do with this state-level mismanagement. They will not be forced to bear the burden resulting from the past ineptitude of the Colorado General Assembly and Colorado PERA in managing the defined benefit pension plan.)

    “PERA benefits are actually lower than private industry and other public plans that have Social Security plus a pension.”

    (My comment: Thus, the taking of the contracted PERA pension COLA benefit from retirees is rendered so much more egregious.)

    “Benefits are approved by the Legislature and enacted by the Governor. Laws passed in 1999 and 2000 to reduce the cost to purchase years of service and to provide for earlier retirement were initiated by Governor Owens’ office and legislators who wanted to encourage long-term state employees to retire. At the same time that the benefit rules were made better, the employer contribution rates were reduced and the rate employees paid remained the same. These changes were made by the Executive and Legislative branches, not by the PERA board.”

    (My comment: As I recall, the Colorado PERA Board of Trustees voted to support these statutory amendments to the PERA pension plan.)

    “PERA reports annually to the Legislative Audit Committee, the Joint Budget Committee, and to the House and Senate Finance Committee.”

    (My comment: PERA should report annually to a statutorily-created legislative committee or commission dedicated to the oversight and prudent management of the defined benefit pension plan. PERA’s annual reports to separate legislative committees do not allow members to develop sufficient expertise in defined benefit pension administration and contractual pension obligations necessary for the provision of adequate legislative oversight of the pension plan.)

    “There is a misconception that the ‘taxpayers’ are owners of the fund; the trust fund is owned by the beneficiaries of the fund . . .”

    (My comment: The beneficiaries of the PERA Trust Funds who have the most significant proprietary interest in the trust funds are those PERA members whose contractual pension rights have “fully-vested,” i.e., have “ripened into a full contractual obligation.”)

    “Small, incremental and thoughtful changes are appropriate . . .”

    (My comment: The breach of fully-vested pension rights is akin to taking a meat axe to the contractual pension rights of Colorado PERA retirees. There is nothing “small,” or “incremental” about state confiscation of the contracted PERA COLA benefit. Admittedly, the seizure of the contracted COLA was “thoughtful” in that the COLA taking was conducted with malice aforethought.)

    “PERA reacted promptly to the market downturn in 2001. In 2002, it developed a proposal that would have saved PERA millions of dollars in payments and brought in millions of dollars in additional revenue. This plan was passed unanimously by the General Assembly in 2003 but was vetoed by Governor Bill Owens (R). He vetoed this bill because of a political desire to include defined contribution plans as an alternative option to PERA, even though no other organization in the state offers a ‘choice’ in retirement plans.”

    (My comment: Again, PERA retirees have no “fiduciary duty” regarding the PERA Trust Funds and bear no responsibility for the past mismanagement of Colorado PERA. They will not relinquish their fully-vested pension rights in order to compensate for this past mismanagement.)

  10. Al Moncrief says:

    COLORADO PERA’S FUNDED RATIO WAS ONLY THREE PERCENT BELOW THE AVERAGE AMONG THE STATES AT THE TIME OF THE COLA TAKING, SO WHY IS PERA ATTEMPTING TO BREACH ITS PUBLIC PENSION CONTRACTS? BY THEIR LOGIC, HALF THE STATES SHOULD BE BREACHING PENSION CONTRACTS.

    When I read this National Association of State Retirement Administrators (NASRA) testimony (excerpts below) it makes me wonder why the breach of fully-vested retiree pension contracts was necessary in Colorado, after all Colorado PERA’s actuarial funded ratio (AFR) was a mere 3.1 percent lower than the average AFR for 57 state retirement systems reporting to Wilshire Associates at the time of the taking of the contracted PERA COLA.

    In light of this fact, why have we not seen 25 public pensions systems attempt to breach their pension contracts in the last few years?

    Here are the excerpts of last year’s NASRA testimony before Congress:

    February 14, 2011

    Subcommittee on Courts, Commercial and Administrative Law, Committee on Judiciary, House of Representatives, Testimony of Keith Brainard, Research Director, National Association of State Retirement Administrators.

    “Only 30-40 years ago, most public plans were financed primarily on a pay-as-you-go basis.”

    “Even after the most recent and unprecedented financial downturn, most state and local government pension trusts have plenty of assets to continue to pay promised benefits for years, and values already have rebounded sharply since the market low.”

    “The percentage of all state and local government spending on pensions has hovered around three percent during the last decade.”

    (My comment: Colorado’s is about 2.16 percent.)

    “While the impact of the financial crisis on state and local pensions will likely require spending to increase, the most recent studies find that the share of state and local budgets dedicated to pension contributions would likely need to rise to about five percent on average, and to about eight to 10 percent for those with the most seriously underfunded plans. (Alicia H. Munnell, Jean-Pierre Aubry, and Laura Quinby, “The Impact of Public Pensions on State and Local Budgets,” Center for Retirement Research, October 2010).”

    “Assuming a rate of asset growth consistent with historic market norms, most funds will never run out of money. The Center on Retirement Research at Boston College said last October, ‘even after the worst market crash in decades, state and local plans do not face an immediate liquidity crisis; most plans will be able to cover benefit payments for the next 15-20 years’ (Alicia H. Munnell, Jean-Pierre Aubry, and Laura Quinby, ‘Public Pension Funding in Practice,’ NBER Working Paper 16442, October 2010).”

    “Although some states have accumulated significant unfunded liabilities, pension benefits are paid out over many years, not all at once. These are long-term funding issues, and most thorough analyses by those familiar with governments and public finance find patient and measured responses are required: In a 2008 report, the Government Accountability Office said, “[U]nfunded liabilities are generally not paid off in a single year, so it can be misleading to review total unfunded liabilities without knowing the length of the period over which the government plans to pay them off.” (U.S. Government Accountability Office, “State and Local Government Pension Plans; Current Structure and Funding Status,” July 2008 GAO-08-983T).”

    (My comment: The breach of fully-vested pension contracts does not seem “measured” to me.)

    “State and local government retirement systems do not require, nor are they seeking any Federal financial assistance, which is neither needed nor warranted and would only inhibit recovery efforts already underway at the state and local levels.”

    (My comment: They can just breach their fully-vested pension contracts instead.)

    http://judiciary.house.gov/hearings/pdf/Brainard02142011.pdf

  11. Al Moncrief says:

    “GIRARD MILLER’S ‘HOW-TO’ GUIDE FOR THEFT BY GOVERNMENT.”

    Girard Miller of Governing Magazine addresses the subject of state and local government taking of contracted pension COLA benefits in a recent column. The title of the article is “COLA Freezes: Pension Reform’s Third Rail.” Although I admire Girard Miller’s knowledge of public defined benefit pension administration, I’m disappointed that he is the author of what is essentially a “how to steal from public sector retirees” guide. The article makes scant mention of the morality of governmental entities breaching their contracts with retired public employees.

    Girard appears to be arguing that a governmental entity may simply choose to ignore its annual required contributions to a pension fund until the pension fund is in distress, and then use the underfunded condition of the pension as a justification for the breach of pension COLA contracts.

    Should Governing Magazine breach its contract with Girard Miller if the magazine’s management decides that other “discretionary” expenditures are a higher priority?

    Here are a few of Girard’s comments and my reaction:

    “In this context, the three federal court threshold conditions are essential to any rational discussion and defense of COLA freezes and impairment of contracts. (1) The change must be proven to be necessary. This requires fiscal analysis, usually a multi-year financial forecast of the employer’s fiscal capacity as well as the pension plan’s projected assets, liabilities, costs, contributions, investment returns and funding ratios.”

    (In the case of the taking of the contracted Colorado PERA COLA benefit, the pension’s actuarial funded ratio [AFR] was a mere 3.1% below the average AFR for 57 state retirement systems reporting to Wilshire Associates at the time of the COLA taking. The PERA AFR was 9.1% below its 40-year average AFR at the time of the COLA taking.)

    “The change must represent the minimum change required to sufficiently remedy the problem, which requires that other remedies must be considered and complementary measures implemented where feasible.”

    (In the case of the taking of the contracted Colorado PERA COLA benefit, fully-vested retiree benefits were targeted first. Most of the burden of the pension legislation was directed at retirees. There was no consideration of alternatives such as: pension obligation bonds, legal prospective pension reforms under consideration in other states, new dedicated sources of funding for pensions [such as natural resource extraction assessments, or casino assessments under consideration in other states], statutory requirements for payments of ARCs, extension of retirement dates for active PERA members who have partially-vested pension rights, or prospective limitation of rates of benefit accrual for current, active PERA pension members.)

    “Finally, the remaining or replacement benefit must be a ‘reasonable benefit.’ Federal courts have been remarkably consistent in referring to these criteria.”

    (According to a 2010 Ritter Administration letter to GASB, the taking of the contracted, fully-vested retiree COLA will cost an average retiree $165,000 over the coming decades. That is not a “reasonable” breach of contract.)

    “In federal court, these three conditions require a facts-and-circumstances hearing and determination, and are entirely situational: there is no formulaic solution set or a presumptive safe harbor.”

    (The “safe harbor” in Colorado is simple avoidance of having the case heard in court.)

    “For example, if it is possible to shore up a pension plan with increased contributions from employees who can usually work another year before retirement, there would be no justification for freezing COLA benefits for retirees who have no way to make up for the loss of their promised benefits.”

    (In the Colorado COLA taking case, the partially-vested pension rights of current, active PERA pension members to the existing statutory retirement eligibility provisions were untouched.)

    “Likewise, if the employer’s immediate and longer-term financial condition and its regionally competitive taxing authority are sufficient to absorb higher costs of the plan at taxpayers’ expense, there won’t be many judges who will uphold a COLA freeze.”

    (Colorado ranked 13th in the nation in per capita income in 2009, at the time of the taking of the contracted COLA benefit.)

    “To defend a COLA freeze that clearly violates a contractual obligation and a moral obligation to retirees, public employers must first demonstrate that the pension plan is distressed to the level that its costs of funding cannot be reasonably paid by the employer.”

    (In Colorado’s case, for the entire decade of the 1970s, the PERA pension’s AFR was lower than it was at the time of the taking of the contracted COLA benefit, and yet there was no campaign to breach retiree contracts.)

    “The employer must also demonstrate that its projected financial condition is incapable of absorbing the mounting pension costs. Typically this requires a pension funding ratio well below the national average, rapidly escalating employer contribution requirements, and a stagnant budgetary projection for the next five years.”

    (Again, at the time of the taking of the contracted Colorado PERA COLA benefit, the pension’s actuarial funded ratio [AFR] was a mere 3.1% below the average AFR for 57 state retirement systems reporting to Wilshire Associates. The Colorado economy is cyclical, and improving. In 2008, Colorado state and local governments dedicated 2.16 percent of all spending to meet pension obligations, versus a national average of 2.89 percent.)

    “A balanced approach to pension reform should take into account benefits reductions for incumbent employees, as well as reform of the COLA benefit. This should include higher employee contributions and reductions of prospective benefits accruals where legally allowed.”

    (Again, reductions in prospective benefit accruals for current, active Colorado PERA members were not considered prior to the taking of the contracted PERA COLA benefit. What court will “legally allow” the breach of fully-vested pension contracts prior to the breach of partially-vested pension contracts?)

    “It’s generally not equitable to penalize retirees only, and one should expect counsel for retirees to challenge an employer’s or plan’s assertion that it has exhausted all other remedies if the COLA freeze is the central feature of the plan restructuring.”

    (In Colorado’s case, the taking of the COLA was the central feature of the pension reform legislation. As the proponents of the bill admitted, most of the cost savings to Colorado PERA employers were attributable to the taking of the contracted COLA benefit.)

    “Equity requires that other prospective reductions in future service accruals by active employees should precede a COLA cut.”

    (Again, there was no consideration of reductions in future service accruals prior to the taking of the contracted PERA retiree COLA.)

    “A COLA freeze should be undertaken as a last resort and presented in court as unavoidable in light of legal restrictions on other modifications of participants’ vested rights. Of course, as Willie Sutton famously said about robbing banks, ‘that’s where the money is.’)

    (In Colorado’s case, the COLA taking was a first resort. These very words, “that’s where the money is” were spoken by the Chairman of the House Finance Committee while considering the COLA-theft bill, SB 10-001.)

    “But for purposes of COLA restoration, we need to set a standard somewhere, and 80 percent is probably a reasonable static level for this specific purpose.”

    (In Colorado’s case, the contracted COLA benefits will be seized until Colorado PERA’s AFR exceeds 100 percent . . . a clear and unnecessary overreach. Only twice in the 81-year history of Colorado PERA has this 100 percent threshold been reached. Colorado’s taking of the contracted COLA benefit guarantees that Colorado PERA retirees will subsidize Colorado state and local governments into the future. Remember that the State of Colorado is near the bottom of the barrel in per capita state tax burden.)

  12. Al Moncrief says:

    SEARCHABLE COLORADO PERA CAFRS (Financial Statements.)

    FYI, I know that many of you enjoy perusing the old PERA CAFRS. As you know, Colorado PERA has disabled the search function on the PERA CAFRs available on its website (why?)

    Well, you have another option. There are many PERA financial reports (including CAFRs) stored on the website of the Colorado State Auditor at the link below . . . and the search function remains enabled. So, surf the PERA CAFRs at your pleasure!

    (Unfortunatley, only financial reports from the last decade are available on the OSA site.)

    http://www.leg.state.co.us/OSA/coauditor1.nsf/ReportPublicDept?OpenForm&Start=1&Count=900&Expand=32&Seq=1

  13. Al Moncrief says:

    FINALLY, INCONTROVERTIBLE PROOF THAT THE COLORADO PERA COLA IS AN “AUTOMATIC” COLA OF 3.5%.

    It has been so ridiculous that in the case Justus v. State, Colorado PERA has denied that the contracted 3.5% PERA COLA is an “automatic” COLA. Why haven’t they just been up front about it, and said “yes, the contracted 3.5% retiree COLA is an ‘automatic’ COLA, however, we still want to try to take it.” That way, they would not have had the burden of trying to write all of their legal briefs without using the words “automatic” or “ad hoc” COLA. They were forced to employ other terms to avoid the use of standard jargon in public defined benefit pension administration. They chose to use the word “frozen” as a red herring. I can just picture them all sitting around in a conference room, discussing how to circumvent this problem. That is so dishonest. I am really shocked that government would do this. I have apparently been naïve about how the world really works for many years.

    (A person who was a bit more discerning than myself would have found this proof earlier. It was just sitting there.)

    Well, anyway, onto the incontrovertible proof.

    The Governmental Accounting Standards Board (GASB) is the regulatory body for public defined benefit pensions in the United States. GASB issues regulations for financial reporting by public pension plans, called the “Governmental Accounting Standards Series.”

    I want you to take a look at GASB Statement No. 25: “Governmental Accounting Standards Board Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans.”

    GASB Statement #25 can be read at the link below. When you get to this main GASB page, scroll down to view GASB Statement #25. (GASB requests that persons wishing to view the statements approach through this main link, in order that they become familiar with limitations on the use of the GASB documents. GASB requests that links to the individual statements not be transmitted.)

    Here’s the link to the page with GASB Statement #25:

    http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391#gasbs25

    Again, GASB Statement #25 sets forth financial reporting standards for state and local public sector defined benefit pension plans, as well as for notes to the financial statements of the plans. GASB Statement #25 became effective on June 15, 1996. So, in order for the public defined benefit pension plan administered by Colorado PERA to remain in compliance with GASB Statement #25, it must disclose the nature of its COLA in all PERA financial reports since that date.

    Page 14 of GASB Statement #25 requires the notes of financial statements of public sector defined benefit plans to include a short description of the pension plan’s benefits, including the “postretirement benefit increase,” whether it is “automatic” or “ad hoc.”

    Page 48 of GASB Statement #25 provides a definition of the term “postretirement benefit increase.” Take a look at it. It essentially defines the term as an increase that is granted to retirees to compensate for inflation. It uses the term “cost-of-living adjustment.” It notes that “ad hoc” COLAs are given to retirees at the “discretion” of pension boards or state legislatures, etc., in regard to both whether to give the increase, and its size.

    The definition of “postretirement benefit increase” also notes that “automatic” COLAs are periodic increases that are “specified” in the terms of the pension plan, and describes these “automatic” COLA increases as “nondiscretionary.” Check it out if you want to see the precise language.

    Now, let’s look at Colorado PERA’s certified annual financial statements over the years. PERA’s actuaries include the 3.5% PERA retiree COLA in the actuarial assumptions used to produce PERA’s financial statements. They do so because the PERA COLA is “automatic.” It has been “automatic” since HB 93-1324 became law. They would not include the 3.5% COLA in their actuarial assumptions if it were an “ad hoc” COLA.

    Page 60 of the 2002 PERA CAFR provides one example. On this page, one finds the sentence “Benefits are assumed to increase at a rate of 3.5% after payments begin,” reported in compliance with GASB Statement #25.

    Here’s a link to the 2002 CAFR:

    http://www.copera.org/pdf/5/5-20-02.pdf#page=78

    Now, if you look at page 71 of the 2003 PERA CAFR you find the statement: “Benefits are assumed to increase at a rate of 3.5% after payments begin.”

    2003 PERA CAFR:

    http://www.copera.org/pdf/5/5-20-03.pdf#page=71

    We could look through all of them.

    In the 2004 PERA CAFR, on page 68 you find the statement in a letter from Buck Consultants “We also believe the assumptions and the actuarial methods meet the requirements of the Governmental Accounting Standards Board Statement #25.”

    Then on page 72, in the Actuarial Section of the 2004 PERA CAFR, are found the words “Each March, benefits are increased 3.5% compounded annually.”

    2004 PERA CAFR:

    http://www.copera.org/pdf/5/5-20-04.pdf#page=67

    PERA is also required to publish “five-year actuarial assumption studies” like the one we looked at earlier by Buck Consultants:

    http://www.nctr.org/pdf/coloradodcdbstudy.pdf

    This Buck Consultants report makes reference to:

    “PERA’s automatic 3.5% per year COLA feature”;

    “the guaranteed lifetime income provided by PERA”;

    “COLA – Automatic 3.5%” as opposed to an “ad hoc” COLA;

    “PERA guaranteed benefits at retirement”;

    “Colorado PERA vesting requirement – five years.”

    Further, the report notes that:

    “Effective March of 2001, the cost of living adjustment was set at an annual fixed rate of 3.5%”;

    “PERA provides inflation protection to retirees with a 3.5% annual COLA,” and

    “Post-Retirement Benefit Increases: Each year on March 1, benefits which have been paid for at least three months are increased. The increase is 3.5% compounded annually for each year of retirement.”

    We could go through every PERA CAFR since 1994, and every one of PERA’s required “five-year actuarial assumption studies,” but you get the point.

    Now that this question of the nature of the Colorado PERA contracted 3.5% retiree COLA has been settled, it’s up to PERA to prove that the taking of the COLA was “actuarially necessary,” even though the General Assembly has skipped paying its ARC for a decade, and that there were many “less drastic alternatives” to breaching fully-vested Colorado PERA retiree pension contracts available, like the issuance of pension obligation bonds, or prospective legal pension reforms being adopted across the country.

    Whew!

    • deborahapy says:

      Thank you Al Moncrief for your continuing thorough, precise and persuasive explanation of the history and facts regarding the guaranteed COLA. I too am shocked that our government would try to take back our money. I also remained stunned that Judge Hyatt chose to dismiss this case last year. I simply don’t understand that thinking.

      I appreciate everyone’s efforts to not let this issue drop.

      • saveperacola says:

        Appellants’ briefs (that’s us) were due today. When they become available, we will post them for you to read. Mr. Moncrief’s erudite and well researched articles should motivate every PERA retiree to learn what absolute power to cut our benefits even more will accrue to the state if we lose this case. Contributions are sorely needed to meet our financial obligation to our law firm. Donate at http://www.SavePERACOLA.com/support

  14. Al Moncrief says:

    THE COLORADO GENERAL ASSSEMBLY HAS NOT RESERVED THE RIGHT TO MAKE RETROACTIVE CHANGES TO THE PERA PENSION PLAN.

    I was thinking today about statements that have been made (in the press) by Heidi Dineen, Colorado Assistant Attorney General regarding the fact that the Colorado General Assembly has not reserved the right to make retroactively applicable changes to the Colorado PERA pension statutes.

    Ms. Dineen was one of the authors of the Attorney General’s opinion addressing the constitutionality of retroactive changes to PERA pension benefits, including the contracted 3.5 percent COLA benefit.

    I looked again at the article in the Silver and Gold Record (May 12, 2005) where she is quoted along those lines:

    https://www.cu.edu/sg/messages/4405.html

    “At its most recent meeting on April 15, the (Treasurer’s) commission heard from Assistant Attorney General Heidi Dineen on state case law regarding pensions and the legal tests required for reducing benefits.”

    “Dineen explained that in the 1980s, the Colorado Supreme Court ruled on a case involving fire and police pensions, and that ruling established what is known as the Peterson test. The plaintiff in that case argued that no changes could be made to public employees’ pension plans after being hired. The court rejected that argument, Dineen said, and decided to allow adverse changes that meet one of three conditions. “

    “Under the Peterson test, any adverse change to a partially vested pension plan must: be balanced by a corresponding change in benefits, be a change that is ‘actuarially necessary’ or be a change that strengthens or improves the pension plan, according to Dineen.”

    “However, under the definition of ‘partially vested’ in the Peterson test, the plan also must have unfunded liabilities and not be meeting the current costs of pension benefits, she said.”

    It seems odd to me that the Attorney General’s Office relied so heavily on this Peterson case relating to public pensions in its testimony before the Treasurer’s Commission to Strengthen and Secure PERA in 2005, but more recently in the case Justus v. State, relies on what I believe is an insurance case.

    “The group also discussed other options, such as offering reduced benefits to new employees. Former Lt. Gov. Sam Cassidy, a commission member, suggested that PERA could alter benefits for new plan members. Dineen agreed, noting that at one end of the continuum, reduced benefits could be offered to new members, but at the other end, pensioners would get the pension benefits they had been promised. ‘You can reduce the pension for a person you haven’t even hired, [but] you can’t reduce the pension for a retiree,’ Dineen said, adding that the middle of that continuum is where changes can be made.”

    “Thom Williams, president and CEO of the investing and consulting firm Williams Group LLC, asked if there is a way to change benefits ‘without losing a lawsuit to people who are retired and collecting benefits, or those who expect to retire in the near future.’ Dineen hesitated to give a formal legal opinion, stating that she would have to see supporting documentation that would allow the proposal to pass the Peterson test.”

    Here’s where Ms. Dineen notes that Colorado law lacks a “reservation of rights” clause, and that Colorado law has created a “never-ending contractual obligation” to pay a pension of [a certain] amount.”

    “Dineen also addressed the legality of increasing member contributions. In her opinion, PERA statutes have an implied ‘reservation of rights’ clause that says the General Assembly may change contribution rates. But Colorado law needs a stated reservation of rights clause, Dineen said, that would state, ‘We are not creating a never-ending contractual obligation to pay you a pension of [a certain] amount. We’re going to reserve the right to change that and amend that.’”

    “Strengthening PERA will be ‘painful and unpopular, and be prepared to defend the decision in court,’ she said, adding that PERA is the entity likely to be sued if benefits are reduced.”

    “During the meeting’s public comment period, PERA Executive Director Meredith Williams asked for time at a later meeting to rebut some of Dineen’s remarks, stating that some of those remarks are based on fact and others are opinions.”

    (We should listen to Meredith’s opinions on this subject in 2005. It’s also interesting that the defendants in Justus v. State disagree regarding the constitutionality of various changes to public pension laws. How did they resolve these differences in order to submit legal briefs that are not in conflict?)

    I also seem to recall that some other PERA officials have also pointed out the fact (in the press) that the Colorado General Assembly has never reserved the right to make retroactive changes to the PERA pension plan. I reserve the right to seek out those comments and discuss this subject further.

  15. Al Moncrief says:

    THE RITTER ADMINISTRATION’S VIEWS ON THE LIKELIHOOD OF THE STATE AVOIDING ITS LEGAL OBLIGATIONS TO MEET THE CONTRACTUAL AUTOMATIC PERA PENSION COLA OBLIGATION. Part 1 of 2.

    To recap, I came across this eleven-page letter, dated August 2, 2010, from the Ritter Administration (Office of the Colorado State Controller) to the Governmental Accounting Standards Board, GASB, (the national regulator for public pension plans.)

    The letter provides the views of the Ritter Administration on Colorado state and local pension accounting and financial reporting.

    (Remember Governor Ritter signed SB 10-001, taking the contracted 3.5% PERA COLA benefit.)

    You can read the entirety of the letter on the GASB site here:

    http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157387791

    According to the National Association of State Retirement Administrators (NASRA), “GASB requires public pension plans to disclose assumptions regarding COLAs including whether the COLA is ‘automatic’ or ‘ad hoc’ and to include the cost of the COLAs in projections of pension benefit payments.”

    Thus, Colorado PERA’s assumptions regarding the contracted PERA retiree COLA over the decades are on file at GASB. There is no need for Colorado courts to speculate regarding the nature of the COLA, since the nature of the COLA has been submitted to the national public pension regulators for many years. Every national survey I have seen identifies Colorado’s 3.5% COLA as an “automatic” COLA.

    The Ritter Administration letter clearly addresses Colorado PERA’s pension obligations. On page 2 of the letter you may find the following sentence: “This view is consistent with Colorado statute regarding the pension plan for employees of various local and state government entities in Colorado, which states that ‘If the Colorado Public Employees Retirement Association (PERA) is partially or fully terminated for any reason, State law provides that the rights of all members and benefit recipients to all benefits on the date of termination, to the extent then funded, will become nonforfeitable.’”

    I have excerpted portions of the Ritter Administration letter that provide particular insight into the administration’s positions on a number questions relating to the legal obligations of pension plan sponsors and public pensions . . . such as Colorado PERA.

    Here are the excerpts and a few comments:

    “Neither of these alternative views would be a fair representation of the statutory, contractual, or moral obligations that an employer enters into when offering a defined amount of compensation in the form of payments during retirement, in exchange for the services of the employee over the course of their employment.”

    (My comment: It was the belief of the Ritter Administration that when an employer offers an employee a public pension, that employer has a statutory, contractual, and moral obligation to provide a defined amount of compensation during retirement.)

    “Although COSC agrees with much of the Board’s view that the unfunded portion of an employer’s pension obligation to its employees meets the definition of a liability . . .“

    (My comment: It was the belief of the Ritter Administration that unfunded employer pension obligations are a “liability.”)

    “COSC agrees that an obligation exists since the government entity has entered into a duty, contract, or promise to provide compensation in the form of benefit payments during retirement; and furthermore, we agree that this obligation is a present obligation to the extent that the benefits owed have already been earned through past services, and are legally enforceable once vesting provisions have been met.”

    (My comment: It was the belief of the Ritter Administration that PERA pension obligations are contractual, that PERA benefits owed by the pension plan have been earned, and are legally enforceable for vested PERA members.)

    “At this point in time, the degree of authority that state governments have to enact laws to avoid the sacrifice of financial resources related to pension obligations has yet to be firmly established, and future court decisions may result in different interpretations in different states; but there appears to be some likelihood that this discretion may be more than ‘little or none.’”

    (My comment: The Ritter Administration had doubts regarding the constitutionality of pension reforms, such as SB 10-001. Why are those doubts not mentioned in the State Defendant’s legal briefs? Why did the Ritter Administration not submit an interrogatory to the Colorado Supreme Court to clarify these doubts?)

    “In Colorado, a class action lawsuit has been filed challenging recently passed statutory reductions in annual COLA increases which for an average member would result in $165,000 of reduced benefit over a 20 year period.”

    (My comment: It was the belief of the Ritter Administration that the taking of the COLA benefit in SB 10-001 cost the average PERA retiree with fully-vested PERA benefits $165,000. This amount is “substantial” for nearly every resident of the planet. Again, this letter from the Ritter Administration clearly addresses Colorado PERA’s pension obligations.)

    “Because of the lack of clear precedent in case law regarding public employee pension benefits, the amount of discretion that a government has to avoid pension obligations is difficult to quantify at this time and the answer may ultimately be different in different jurisdictions. However, in the absence of any additional precedent at the date of this Preliminary Views document, COSC will respond based on the Colorado Constitution which at the present time appears to allow some discretion to avoid the sacrifice of financial resources.”

    (My comment: It was the belief of the Ritter Administration that they have only ‘some discretion’ to take contracted pension benefits under the Colorado Constitution. Why did they opt to target “fully-vested” PERA pension benefits first?)

    “At the present time, the primary examples of the discretion that a state may exercise to reduce its obligation appear to be through enactment of changes in annual COLAs, or requirements for additional employee contributions as a percent of current salaries.”

    (My comment: States may also reduce their pension obligations by paying their annual required contributions, and though prospective, legal pension reforms.)

    “Because the exchange transaction which gave rise to this present obligation was made between the employer and the employee who is also a member of the pension plan, a reduction in member benefits (such as COLAs), or an increase in required employee contributions both serve to change the net economic benefit to the employee that was entered into at the time of the exchange transaction agreement.”

    (My comment: It was the clear belief of the Ritter Administration that a reduction in the PERA COLA benefit changes the net economic benefit to the employee under the employee’s “agreement” with PERA.)

    “But we also believe that some amount of pension liability has been incurred at the date of the financial statements, and should therefore be recognized as an accrued liability. Because there is no way to reliably estimate the extent to which the Judicial Branch will allow changes in benefits or contributions, it is likely that governments will record pension liabilities solely based on the then current benefit and contribution provisions of the plan.”

    (My comment: If the Ritter Administration had doubts regarding the legality of taking the PERA retiree contracted COLA, then why did the Ritter Administration not submit an interrogatory to the Colorado Supreme Court addressing this question?)

    “Except as noted in the last paragraph of the response to Question #1, the COSC agrees that the net pension liability is measurable with sufficient reliability to be recognized in the employer’s basic financial statements.”

    (My comment: The Ritter Administration believed that pension liabilities exist, are measurable and have been reflected in financial statements. Thus, PERA’s financial statements reflect PERA’s liability for the contracted COLA benefit.)

  16. Al Moncrief says:

    THE RITTER ADMINISTRATION’S VIEWS ON THE LIKELIHOOD OF THE STATE AVOIDING ITS LEGAL OBLIGATIONS TO MEET THE CONTRACTUAL AUTOMATIC PERA PENSION COLA OBLIGATION.

    Part 2 of 2.

    “We believe that social, legal, or moral requirements would prevent statutory reductions beyond certain limits in a state government employer’s present obligation for future retirement benefits to be made. Since an employer’s discretion to reduce its present obligation is not absolute, we agree that a liability should be recognized,”

    (My comment: The Ritter Administration recognized legal and moral requirements relating to pension obligations.”)

    “ . . . the degree of uncertainty that currently exists regarding the legal aspects of public employer pension obligations.”

    (My comment: It was the belief of the Ritter Administration that uncertainty exists regarding employer pension obligations. Why did the Ritter Administration decide to act first, and take fully-vested pension benefits, instead of initially seeking to clarify the nature of those pension benefits through an interrogatory submitted to the Colorado Supreme Court?)

    “Therefore, COSC agrees that the projection of pension benefit payments for purposes of calculating the total pension liability and the service-cost component of pension expense should include the projected effects of future automatic COLAs . . .”

    (My comment: Clearly, the Ritter Administration recognized the difference between “ad hoc” COLAs and “automatic” COLAs. Recently, Colorado PERA seems to have avoided making this distinction. The Ritter Administration believed that future automatic COLAs are a pension liability.”)

    “Since the accounting and financial reporting for a retirement plan is often more conservative than the funding approach for the plan, we believe that is appropriate to recognize the higher liability associated with projected salaries, service credits, and automatic cost-of-living increases.”

    (My comment: It was the belief of the Ritter Administration that automatic cost-of-living increases are a liability of the PERA pension plan.)

    “COSC recommends that projected changes in employer or employee contributions and ad-hoc COLAs that do not exist in statute or as plan provisions as of the date of the employer’s financial statements should not be included in the accrued liability as of the financial statements date.”

    (My comment: It was the belief of the Ritter Administration that since the cost of the Colorado PERA contracted COLA benefit was included in PERA’s financial statements it constituted an “accrued liability.”)

    “No legal action is required to terminate an ad hoc COLA, and we believe that absent such a legal requirement the government’s ability to avoid the outflow of resources is significantly increased.”

    (My comment: It was the belief of the Ritter Administration that a state cannot avoid the “outflow of resources” needed to provide the Colorado PERA automatic COLA benefit.)

    “As a result, we believe ad hoc COLAs, regardless of the pattern of application, do not meet the Concept Statement #4 definition of a liability.”

    (My comment: It Ritter Administration recognized a clear distinction between “ad hoc” and “automatic” pension COLA benefits.)

    “As stated above, COSC believes that automatic COLAs should only be included in the projection of pension benefit payments as they exist in statute as of the date of the employer’s financial statements.”

    (My comment: It was the belief of the Ritter Administration that since the Colorado PERA COLA has been included in PERA financial statements it is an “automatic” COLA.

    “The criteria suggested as the basis for differentiating these COLAs (automatic) versus ad-hoc COLAs is the statutes that exist as of the date of the employer’s financial statements.”

    (My comment: Colorado PERA retirees have an “automatic” contracted COLA benefit.)

    “Even with a consistent pattern of ad hoc COLAs, a government need not take any legal action to terminate those ad hoc COLAs.”

    (My comment: It was the belief of the Ritter Administration that “legal action” is needed to take an “automatic” PERA COLA.)

    “The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”

    (My comment: The Ritter Administration recognized a clear distinction between “ad hoc” and “automatic” pension COLAs. The Ritter Administration believed that the distinction between the two is critical in determining if PERA will be unable to avoid the surrender of resources needed to meet the PERA contractual obligation for the “automatic” COLA.)

    “In addition, the argument cannot be applied to state governments since they are sovereign entities not subject to Chapter 9 bankruptcy.”

    (My comment: Chapter 9 is an unpleasant option for municipalities.)

    “As they relate to liabilities for inactive (including retired) employees; we agree that such changes (in pension liability) should be recognized as pension expense immediately in the period of change.”

    (My comment: It was the belief of the Ritter Administration that financial reports present pension liabilities.)

    “COSC agrees that each employer in a cost-sharing plan is implicitly primarily responsible for and should recognize as its net pension liability its proportionate share of the collective unfunded pension obligation, and related effects of changes in the unfunded obligation.”

    (My comment: It was the belief of the Ritter Administration that the financial statements of PERA member employers should reflect their PERA pension obligations. Buck Consultants, a firm that has prepared financial statements for Colorado PERA, has described the Colorado PERA 3.5% COLA as “automatic,” and has referred to the “guaranteed (PERA) benefits at retirement,” and the “fixed” COLA, that is “compounded annually for each year of retirement.”)

  17. Al Moncrief says:

    THE TAKING OF THE COLORADO PERA CONTRACTED COLA IN PERSPECTIVE.

    (I expanded this piece for the quantitative retirees out there. Let me know if you have other interesting statistics to add.)

    • $100 million – amount of discretionary tax relief granted by the Colorado General Assembly at its 2012 legislative session.
    • $500 million – amount of revenue the General Assembly has appropriated to pay for pension obligations that are not its legal responsibility (Old Hire Fire and Police Pension Obligations).
    • 13 – Colorado’s rank among the state’s in per capita income in 2009.
    • 22% – Legislative pay raise approved in 2012 by the Colorado General Assembly for non-metro legislators (percent increase in per diem), and signed by the Governor.
    • (54.5% to 105.2%) – 40-year range of the Colorado PERA actuarial funding ratio (AFR), (source, Colorado PERA.)
    • 78% – average PERA AFR over the 40-year period.
    • 68.9% – PERA AFR at time of the taking of the contracted 3.5 % COLA benefit.
    • 9.1% – difference between the PERA AFR at time of COLA taking and the 40-year average PERA AFR.
    • 11.1% – difference between PERA AFR at the time of the COLA taking and an 80% AFR level considered “well-funded” by Fitch Ratings.
    • 72% – average AFR at the end of 2009 for 57 state retirement systems reporting to Wilshire Associates.
    • 3.1% – difference between the Colorado PERA AFR and Wilshire Associates average AFR for 57 state retirement systems at time of PERA COLA taking.
    • 2.16 – percent of Colorado state and local government spending dedicated to public pension support in 2008 (Census Bureau/NASRA).
    • 2.89 – average percent of state and local government spending dedicated to public pension support among the states in 2008.
    • 5.55 – highest percent of state and local government spending dedicated to public pension support among the states in 2008 (Nevada).
    • #32 – Colorado 2008 rank among the states in taxpayer support for public pensions.
    • (For the entire decade of the 1970s the PERA AFR was lower than it was at the time of the taking of the contracted COLA, yet there was no campaign to breach retiree pension contracts.)
    • $___? – millions of dollars of earned, accrued, contracted, fully-vested PERA pension benefits taken from Colorado PERA retirees in SB 10-001.
    • $____ – average loss of PERA retirees to the COLA taking.
    • 90 – percent of the financial burden of SB 01-001 attributable to the taking of the contracted COLA benefit (according to Prime SB 10-001 bill sponsor, Senator Penry).
    • 3 – number of “No” votes that could have stopped the breach of retiree contracts from squeaking through in the Colorado House (it would have died on a tie.)
    • 14 – estimated number of registered lobbyists (PERA staff, PERA hired lobbyists, public sector union lobbyists) engaged in taking the fully-vested, contracted retiree PERA COLA benefit.
    • 5 – number of minutes after a PERA member retires that their PERA retirement benefits become “legally immune from any changes that would reduce their current, or future benefits,” according to Colorado PERA (Ewegen article).
    • 17 – number of years during which the State of Colorado mistakenly adhered to financial restrictions (Arveschough-Bird) artificially limiting its available resources.
    • $____ – billions of dollars of revenue that the State of Colorado failed to receive due to the General Assembly’s faulty legal assumptions concerning the Arveschough-Bird limit.
    • 87% – level of Colorado PERA AFR that Colorado legislators contended was “too well-funded” in 1985 (Silver and Gold Record article).
    • 2 – number of times the Colorado PERA AFR has exceeded a 100% level in the 81-year history of Colorado PERA.
    • 3.75% – Colorado PERA Board inflation assumption.

  18. Al Moncrief says:

    POKING AROUND IN THE COLORADO PERA CAFRS.

    Yesterday, I had an hour or so to stick my nose into some old Colorado PERA financial reports. (I didn’t have access to all of them.) These reports are called “PERA Comprehensive Annual Financial Reports,” (CAFRs). When we get some time we should examine all of the old PERA CAFRs thoroughly. In fact, I recommend that the group behind the Justus v. State lawsuit (saveperacola.com) find some copies, scan them, and put them up all on their website. (Of course, this scanning business would be quite labor intensive.) Perhaps PERA has some digital copies of old CAFRs that are available to the public. I looked at the Colorado PERA website and they only provide CAFRs back to 2001. It would be good to have all of them available on the PERA website. Easy access to historical PERA financial information might prove valuable to members of the public and elected officials considering future PERA reform measures.

    Anyway, in the brief amount of “poking around” time that I had available I came across a few interesting things. Here they are:

    1992 PERA CAFR, page 23.

    “The CLSF (Cost of Living Stabilization Fund) benefit increase amount is paid monthly and the percentage increases HAVE BEEN APPROVED (emphasis added) by the Colorado General Assembly every other year on even numbered years.”
    This language “have been approved” is obviously consistent with an “ad hoc” COLA, that is, a “discretionary” COLA, which the PERA COLA was in 1992 and earlier. It became an “automatic” COLA in 1993 (HB 93-1324) for vested PERA members and retirees when the Colorado General Assembly struck the words “COLA increases shall be made only on the approval of the General Assembly” from Colorado law.

    More from the 1992 CAFR:

    1992 PERA CAFR, page 8.

    “Subsequently in 1993, legislation changed the benefit cost-of-living increases to 3.5 percent compounded annually on the total benefit amount. This will begin in 1994.”

    (To avoid confusion, the 1992 CAFR is able to address 1993 state legislation because the 1992 CAFR was necessarily published in 1993. The CAFRs analyze PERA activities and financial status from the prior year.)

    Note that this description of HB 93-1324 in the 1992 CAFR lacks any mention of “approval” of the COLA by the Colorado General Assembly. (After all, the bill struck that requirement for approval from the statutes.)

    Now, examining later PERA CAFRs (post-1993), again, we find no mention of any need for “approval” by the General Assembly. The failure of post-1993 CAFRs to mention the need for COLAs to be “approved” by the General Assembly is consistent with an “automatic,” or using the synonym PERA now prefers “frozen” PERA retiree COLA. Of course, an “automatic” COLA can be increased without treading on a vested PERA member’s (or retiree’s) contractual pension rights. An “automatic” COLA is not “frozen” in the sense that it cannot be improved. The PERA “automatic” COLA was later, improved, it was increased from [the lesser of 3.5 percent or CPI] to a flat, fixed, “automatic” 3.5 percent COLA (HB 00-1458). This “change” did not harm vested PERA members and retirees, and understandably, they did not object to the change. On the other hand, diminishing an “automatic” COLA for vested pension members is an unconstitutional taking.

    Despite PERA’s wishes, an “automatic” COLA cannot legally, retroactively metamorphose into an “ad hoc” COLA. When a legislative body grants an “automatic” COLA, it relinquishes its discretion to diminish that COLA benefit in the future for vested pension members and retirees.

    This makes sense. You would not want to allow someone to pay perhaps tens of thousands of dollars to a public pension plan to purchase service credit in the plan, based on a “guaranteed” cost-of-living adjustment in retirement, (notably, PERA officials encouraged service credit purchases) and then, after a PERA member has sent in the check (often from their retirement funds), inform them that the terms of the statutory contract have changed to their tremendous detriment. It is unjust (and unconstitutional) to retroactively change the terms of the plan for such pension members buying service credit, as well as for members and retirees who are (as a condition of employment) compelled to pay into a public pension plan. When a PERA member sends money to Colorado PERA she is paying for contracted deferred compensation that she will later receive in retirement.

    As we have observed earlier, PERA’s SB 10-001 scheme was a contrivance designed to permit PERA and its employer members to escape their contractual pension debts.

    OK, off the soapbox, and back onto post-1993 CAFRs, for example:
    1999 PERA CAFR, page 23.

    “The percentage amount of the (annual) increase (in retirement benefits) IS (emphasis added) the lesser of 3.5 percent compounded annually for the number of years the benefit has been in effect since March 1, 1993 . . . “.

    There is no mention here of the General Assembly “approving” a COLA increase. There is no reservation of the right by the General Assembly to return to an “ad hoc” COLA benefit.

    1999 PERA CAFR, page 57, (Actuarial Section).

    Under the heading “Annual Benefit Increases”: “Benefits ARE (emphasis added) increased up to 3.5 percent compounded annually from the date of the initial benefit or the rate of increase for the Consumer Price Index, whichever is lower.”

    Remember, in 1999, the PERA COLA was “automatic” [lesser of 3.5 percent or CPI] at that time. In 2000, under HB 00-1458, the COLA was improved to an “automatic” 3.5%. Colorado PERA would like to exploit the fact that the “automatic” COLA of the [lesser of 3.5 percent or CPI] was “changed” to a flat 3.5 percent, arguing that this “change” means the COLA is really an “ad hoc” COLA.

    The “automatic” nature of the PERA COLA was not altered in HB 00-1458, only the amount of the COLA was “improved.” This is rather complex, and PERA hopes to exploit this complexity. PERA is hoping that any confusion about the matter will work to its advantage in the PERA attempt to “take” contracted retiree COLA benefits. Again, “changes” that improve an “automatic” COLA are not unconstitutional. Changes that diminish an “automatic” COLA are an unconstitutional taking.

    2001 PERA CAFR, page 42.

    Under the heading “2000 Changes in Plan Provisions,” PERA writes in the 2001 CAFR “The annual increase for PERA benefit recipients was fixed at 3.5 percent compounded annually.”

    PERA writes “The annual increase . . . was fixed.” No mention is made of any need for legislative approval.

    The characterization of the PERA COLA in the CAFRs replicates the pattern we find in other PERA publications. The pattern in the PERA CAFRs is consistent with that in the PERA publication “History of Colorado PERA Legislation,” (which as we know lacks a “disclaimer.”) The “History of Colorado PERA Legislation” publication uses the term “ad hoc” to describe pre-1993 COLAs, and the term “automatic” to describe post-1993 PERA COLAs.

    Briefly, onto another topic:

    1992 PERA CAFR, page 62:

    “The period for amortizing unfunded actuarial accrued liabilities is currently under the 60-year limit specified in state law in all divisions of PERA.”
    It is important to note that as recently as 1997, the PERA “maximum amortization period” (MAP) was 60 years. The MAP has been reduced in recent years (in compliance with GASB regulations) from 60 years to 40 years in 1997 (enacted in HB 97-1114), and then subsequently from 40 years to 30 years.

    This reduction in amortization periods on the part of U.S. public pension plans constitutes a significant move toward fiscal responsibility. The Colorado PERA “maximum amortization period” is now half of what is was 15 years ago.
    It should be emphasized that, in recent years, Colorado PERA and other U.S. public pension plans have already taken tremendous strides towards fiscal responsibility. This reduction of the MAP also “artificially” pressured the PERA “actuarial funded ratio,” contributing to PERA’s justification for taking contracted, fully-vested COLA benefits.

    Remember what we heard from Representative Jack Pommer, JBC Chairman, speaking to the JBC on 12-17-09: “Are we not just saying we’re going to pick 30 years (as a maximum amortization period) because if we’re not balanced within 30 years that creates actuarial necessity which then let’s us change retiree benefits?”

    I’ll do some more poking around in the old PERA CAFRs when I get some free time.

    http://www.copera.org/pera/formspubs/reports.htm

    • Tim Hansford says:

      Al,

      What you’ve described is exactly what happened to me. I paid HUNDREDS of thousands of dollars to PERA in 2004 for the purchase of 22 years of service credit. My decision to spend my life savings for this was based on the knowledge that the monthly benefit would be adjusted by 3.5% each year. I’m sure that the cost to me of each year of service credit was determined in part on the value of this adjustment.

      Due to a family emergency, I took the retirement benefit in 2008 before I had intended to. The difference between what I paid for and what I’m getting amounts to about $575,000 over 30 years (using PERA’s own amortization period).

      Thank you again for all of your work on this. I have to believe that the courts will find SB 10-001 unconstitutional.

  19. SeaDee says:

    http://news.yahoo.com/public-employee-pensions-face-rollback-calif-142616255.html

    “SAN DIEGO (AP) — For years, companies have been chipping away at workers’ pensions. Now, two California cities may help pave the way for governments to follow suit.

    “Voters in San Diego and San Jose, the nation’s eighth- and 10th-largest cities, overwhelmingly approved ballot measures last week to roll back municipal retirement benefits — and not just for future hires but for current employees.

    “From coast to coast, the pensions of current public employees have long been generally considered untouchable. But now, some politicians are saying those obligations are trumped by the need to provide for the public’s health and safety.

    “The two California cases could put that argument to the test in a legal battle that could resonate in cash-strapped state capitols and city halls across the country. Lawsuits have already been filed in both cities.”

  20. Al Moncrief says:

    COLORADO PERA BOARD MEMBER STATES LAST WEDNESDAY “IF YOU’RE RETIRED, IN ALL LIKELIHOOD, YOUR BENEFITS ARE SACROSANCT, AND ARE PROTECTED”/THEN SLAMS A FELLOW REPUBLICAN, NO LESS.

    On Wednesday, June 6, 2012, Colorado PERA Board Member, and Colorado State Treasurer Walker Stapleton commented on the results of the recent Wisconsin gubernatorial recall election and on Colorado PERA reform as a guest on the KFKA “Amy Oliver Show.”

    Here’s a link to his interview with Amy Oliver:

    [audio src="http://www.1310kfka.com/audio/amy060612hr2.mp3" /]

    The Treasurer’s Facebook page:

    http://www.facebook.com/Walker.R.Stapleton

    Here’s what our PERA Board Member had to say:

    “I hope that some of the lobbyists on PERA’s payroll, especially those who call themselves Republicans, take a serious look at what happened in Wisconsin as well, and decide that maybe they should go into another line of work, or maybe their employer is not one that they should continue on with. Because, what happens Amy, as we’ve talked about, which is a source of great frustration, consternation, and disappointment, and everything else for me, is that these Republican lobbyists unfortunately, are willing to trade what I believe should be their economic principles and values for their livelihood as lobbyists and they go down to the Capitol and convince legislators to vote a certain way against any PERA reform measures, which is why this issue really is an issue, and I’m sure I made myself really popular by just saying that.”

    Then Amy Oliver responded: “Well, and I’m going to name the lobbyist, because I’ve named that lobbyist before, and that’s Mike Beasley, who used to be a Bill Owens staffer. He was the Legislative Liaison, and he is the lobbyist for PERA.”

    Shortly thereafter our PERA Board Member stated: “If you’re retired, in all likelihood, your benefits are sacrosanct, and are protected.”

    (My comment: Republicans support the right of individuals to sell their skill sets in the marketplace. This PERA lobbyist has knowledge and skills that are marketable, and he has to make a living. That being said, I don’t believe that a lobbyist should support legislation that is prima facie unconstitutional or immoral. As we have discussed, there were probably more than a dozen lobbyists involved in the unconstitutional taking of the contracted, “automatic,” “frozen” PERA retiree 3.5 percent COLA benefit. It isn’t really fair to slam one in particular. Perhaps PERA should have a policy of not commenting on or advocating for any particular legislation, similar to that of many public pension systems in the United States. With such a policy it would not be necessary for PERA to hire so many lobbyists. How many were hired to lobby for SB 10-001? I have no idea what the total is.

    The burden is on the PERA Board of Trustees and the General Assembly to act responsibly in managing PERA, protecting the PERA Trust Funds, and preserving the vested pension rights of PERA members and retirees. They should be able to do this while hearing from groups that are represented by lobbyists. The General Assembly might be better able to accomplish this task of acting as a steward of the PERA Trust Funds if it created a statutory committee to meet during legislative sessions, and more frequently during the interim period between sessions . . . a statutory committee dedicated to public pension oversight. The Legislature could consider using the Ohio Retirement Study Council a model. (Asking the standing House and Senate Finance Committees to serve in this role is not sufficient, doing the job of public pension oversight spreads them much too thinly.)

    Here’s the website of the Ohio Retirement Study Council:

    http://www.orsc.org/

  21. Al Moncrief says:

    COLORADO PERA’S “FIVE MINUTE RULE” COVERED IN A 2006 DENVER POST ARTICLE.

    I just read an interesting article about Colorado PERA that was written by Bob Ewegen, Deputy Editorial Page Editor (at the time) of the Denver Post on March 5, 2006. (Bob Ewegen retired from the Denver Post in 2008 after 36 years at the paper.) The title of the article is: “A 3 Percent Solution for PERA: Rescue Plan for Retirement Groups Finances Might be Simple.”

    You can order the complete article for $3 from the Denver Post here:

    http://www.denverpost.com/archives

    In the article Bob Ewegen writes that “current or retired (PERA) employees are guaranteed a 3.5 percent increase in benefits each year.” It looks like “reasonable expectations” that the 3.5 percent COLA is “guaranteed” and “frozen,” i.e. “automatic” have been ubiquitous in Colorado historically.

    Ewegen also writes that Colorado PERA embraced something called the “five minute rule.” Under the rule, PERA members who are already retired, even for five minutes, are “legally immune from any changes that would reduce their current or future benefits.”

    Here are a few quotations from the article:

    “Those PERA proposals are now reflected in Senate Bill 174 by Sen. Paula Sandoval, D-Denver. Like the rival plan crafted by Owen, it includes a ‘two-tier’ pension plan that would offer employees hired after Jan. 1, 2007, overall benefits about 19 percent less generous than those given guaranteed current employees or retirees.”

    “Additionally, new workers will not receive guaranteed cost-of-living increases. Current or retired employees are guaranteed a 3.5 percent increase in benefits each year. In partial compensation for their lower benefits, future employees would contribute only 7 percent of their pay to PERA, compared with the 8 percent current members contribute.”

    “In excluding any cuts for current retirees and slashing benefits for new hires, PERA and its critics agree on what might be called the ‘five minute rule.’ PERA members who are already retired – even if they left just five minutes ago – are considered ‘fully vested’ and thus legally immune from any changes that would reduce their current or future benefits. In contrast, all analysts agree the state is free to change the benefits of future employees – even those hired five minutes from now – because those future hires do not yet have a legal stake in the retirement program.”

    “PERA itself argues that the law bans any adverse change affecting even future earned benefits for existing employees. But a 2004 opinion by then-Attorney General Ken Salazar says the legislature can give existing employees less generous benefits for future years of service and increase the amount they contribute to their retirement plan if such a change is ‘actuarially necessary’ to ensure that PERA doesn’t eventually run out of money to pay its obligations.”
    ____________________
    Here’s the General Assembly’s fiscal note for SB 06-174 (the bill died) which states that “retirement benefits” for current and pre-7-1-05 employees “automatically increase.”

    “Retirement benefits for current retirees and persons hired before July 1, 2005, automatically increase each year by 3.5 percent per year, while benefits for members hired on or after July 1, 2005, are increased by the lesser of 3% per year or the rate of inflation.”

    http://www.leg.state.co.us/clics2006a/csl.nsf/fsbillcont3/1B13AFBB97E35C16872571010069A04F?Open&file=SB174_00.pdf

    Catch up with Ewegen, now a certified paralegal and director of research and communications at the Law Office of Ellis Wright and Ewegen, here: http://ewellp.com/home/people/bob-ewegen/

  22. Al Moncrief says:

    REQUIRED READING FOR COLORADO ELECTED OFFICIALS – AN EXCELLENT PAPER ON THE FUNDING OF PUBLIC PENSION PLANS.

    I came across this paper “Funding of Public Pension Plans” today. It was written in 2009 by Professor Jonathan Barry Forman, Alfred P. Murrah Professor of Law at the University of Oklahoma.

    Here’s a link to the paper:

    http://jay.law.ou.edu/faculty/jforman/Articles/2010Funding.pdf

    Here are some excerpts:

    “The Government Accounting Standards Board (‘GASB’) has provided general standards for accounting and financial reporting that most state and local government plans follow. Under those accounting standards, state and local governments are generally expected to prefund their pension plans and to issue reports that disclose information about plan assets, liabilities, funding status, and the assumptions used by the plan actuary.”

    “According to the National Association of State Retirement Administrators, over three-fifths of the largest state and local pension plans were at least 80% funded in 2007—a level that many public plan experts say is enough to be ‘healthy.’”

    “According to Wilshire Consulting’s 2009 report on state retirement systems, the funded ratio for the 59 state retirement systems that reported actuarial data for 2008 dropped from 88% in 2007 to 77% in 2008.”

    “As in past market downturns, most observers expect that public pension plans will continue to invest prudently. Their investment losses will have to be made up with additional contributions from employers, employees, or both; however, because of the relatively long duration of their pension liabilities and because they use actuarially smoothed asset values rather than market values, public plans can phase in their corrections over a number of years. In general, public pensions try to have ‘contribution rates that remain relatively level as a percentage of employer payroll from generation to generation of taxpayers.’ Still, it seems likely that contributions will have to increase in coming years.”

    “Public plans are certainly different from private sector plans. In particular, while it is not unusual for private companies to go bankrupt, state and local governments tend to exist perpetually.”
    “Nowhere are these accounting differences more apparent than when one considers the funding status of pension plans. In the public sector, however, many experts believe that public plans are ‘healthy’ if they are at least 80% funded . . .”.

    “Because governments tolerate an 80% funding level and use actuarial valuations instead of market valuations, public pensions are almost guaranteed to be underfunded.”

    “The only reason that anyone thinks that 80% funding may be ‘good enough for government’ is that we all recognize that when public pension plans get anywhere close to 100% funded, bad things happen. First, if a public plan is fully funded or overfunded, beneficiaries will lobby for, and usually get, more generous benefits, thereby restoring the funded ratio from a good level to a bad, but politically tolerable, underfunded level.”

    “The second disadvantage to fully funded or overfunded public pension plans is that governors and legislatures call for contribution cuts and holidays. Politicians would rather spend money on projects that will bring them more immediate campaign contributions and votes.”

    “Most public pension plan actuaries, on the other hand, contend that it is completely appropriate to use those high discount rates because state and local governments will be around for the long haul, they have historically earned those high rates of return on plan assets, and they can reasonably be expected to earn these high rates of return in the future. Public sector actuaries even assert that using the risk-free rate to discount liabilities would lead to an overstatement of the funded status of plans and so result in overcharging current taxpayers to the benefit of future generations of taxpayers. This debate has been raging for years and shows no sign of letting up any time soon.”

    “Through state constitutional provisions and court interpretations of property and contract rights, most states essentially guarantee that their public workers will get the pensions that they were promised when they were hired.”

    “The effect of this ‘anti-reduction’ rule is that public employers can rarely cut pension benefits for current workers or retirees. Instead, pension and benefit changes typically only apply to newly hired workers.”

    “State and local governments were unwise to promise generous pensions without adequately funding them, or at least reserving the right to cut future benefit accruals. But state and local governments did make those generous pension promises, and now they will have to honor them. Integrity and contracts are about doing what you promised to do even when it becomes inconvenient. Still, it would make sense for the states to adopt constitutional amendments or statutes that embrace an ERISA-style anti-cutback rule for new state and local government workers. New workers should be able to count on pension benefits as they earn them, but state and local governments should be free to cut future benefit accruals for those new workers.”

    “Of course, the best way to ensure that public pension plans are fully funded would be to require them to pay the actuarial required contributions (‘ARC’) in full each year.”

    “To be sure, state and local governments should honor the traditional final-average-pay pension promises that they have made to current public employees. Having paid relatively lower salaries to public employees when they were young, state and local governments need to provide the generous pensions that were promised to those workers when they are old.”

    “At the same time, state and local governments need to adopt laws to ensure that they make contributions that are adequate to fully fund their liabilities to current and past workers and to fully fund their benefit promises to new workers.”

    Some information on Professor Forman:

    http://www.law.ou.edu/content/forman-jonathan-b

  23. Al Moncrief says:

    ENTICING TIDBITS FROM THE AUGUST 17, 2005 ROCKY MOUNTAIN NEWS ARTICLE ADDRESSING COLORADO PERA CONTRACTED PENSION RIGHTS.

    Well, I finally obtained the August 17, 2005 article in the Rocky Mountain News in which Heidi Dineen, Colorado Assistant Attorney General, is quoted making statements relevant to the case Justus v. State, and the matter of vested, contracted public pension rights generally. (The article has great coverage of Colorado PERA Interim Executive Director Greg Smith’s views on this topic as well.)

    It turns out that I’m really bad at searching for articles in the Rocky’s paid on-line archive.

    The link for the Rocky’s paid archives is here:

    http://www.rockymountainnews.com/archives/.

    If you go to this link and search on “Dineen,” and limit your search to “2005,” you can buy a copy of the full article for only $2.95 . . . a fair price. You can use this Rocky News Archive to find lots of old interesting Rocky articles and for only $2.95 a pop!

    I’m not going to just give you the article, you all should have to cough up three bucks for it. While you’re at it . . . now that you see that this scheme to take fully-vested retiree pension benefits was a blunder of galactic proportions why not send another $3, or $30, or $300 to Save Pera Cola to help out? Their website explains how to make contributions (saveperacola.com). I wish them luck along with the many other active and retired public employee organizations across the country that are fighting pension COLA theft, (that I have supported in my blog comments over the years.) You simply can’t expect the old PERA retirees to fight Goliath alone . . . they are especially poor these days! Good God, is this NPR! Back to Dineen . . .

    The August 17, 2005 article is the one that quotes Heidi Dineen as follows:

    “Everyone agrees you certainly can make changes for people you haven’t even hired yet,” said Heidi Dineen, a state assistant attorney general retained to explore the issue for the Commission to Strengthen and Secure PERA. “On the other side of the spectrum is pensioners, getting their …”

    Dineen finishes the sentence . . . “pension checks, you cannot take that away.”

    Other reasons why you should buy this Rocky article:

    Greg Smith talks about the “vesting” of PERA benefits, and the article notes that Smith cited two Colorado court cases where limited vesting occurred. There’s more talk of the Greg Smith’s “legal brief” . . . Milstead definitely had a copy. According to the article, Greg Smith thinks the courts have set a “high burden” to meet the “necessity threshold.”

    The article discusses “actuarial emergencies” without noting that if an “actuarial emergency” does exist it is the birth child of the Colorado General Assembly. Failure to pay ARCs. Shortening the investment time horizon. Hello! Milstead! Balance!

    The article notes that Assistant Attorney General Heidi Dineen argued against PERA’s position that increases in active member contributions are an impairment of benefits. Wow, there’s dissension in the ranks! (Apologies for the fit of Schadenfreude.)

    (Question for Colorado’s public sector unions . . . did your organizations not object to the JBC’s plan to hike active PERA member contributions by 2.5 percent for the last two fiscal years because you didn’t want to disturb this PERA vested rights “sleeping dog”? If so, that was not acting in an entirely forthright manner with the membership.)

    Finally, another interesting Greg Smith quotation from the article: Smith says in his briefing paper “there has never been a finding in Colorado that the state has reserved its power to make changes” in PERA’s benefit structure.

    Now what to do? Here’s an engaging project idea. We look at all of these comments from PERA officials and we compare them to the positions that are taken in the Colorado PERA Answer Brief. We identify any discrepancies, and then we ask the PERA officials to explain why they have changed their minds in the last few years. This project could bear fruit.

    You know, many of these PERA people have been “talkers,” but you can’t blame them for speaking their minds in the last decade. They wanted to tell the truth, and that was honorable at the time. Remember, that when all this “talking” was happening, the scheme to try and persuade the entire state that the PERA retiree’s contracted, “automatic” 3.5 percent COLA benefit was really an “ad hoc” COLA was years from being hatched.

  24. Al Moncrief says:

    I THINK COLORADO PERA IS PRETENDING TO NOT KNOW THE DIFFERENCE BETWEEN “AD HOC” AND “AUTOMATIC” PUBLIC PENSION COLAS. PERHAPS YOU’LL AGREE WITH ME THAT PERA IS “PULLING OUR LEG(S)”!

    Have you noticed in PERA’s document “History of Colorado PERA Legislation” that PERA uses the term “ad hoc” in descriptions of bills prior to 1993 (when the COLA became “automatic” in HB 93-1324), and then uses the term “automatic” in their descriptions of bills after 1993? (FYI, Colorado PERA has recently adopted the term “frozen” as a synonym for “automatic,” although this is unprecedented in public pension administration.)

    I hate to say it, but I don’t think PERA is being completely up front with us when they give the impression that they are ignorant of the terms “ad hoc” and “automatic” in relation to public pension COLAs.

    For example, in the PERA publication “History of Colorado PERA Legislation” PERA uses the term “ad hoc” to describe the COLA in HB 75-1364, as well as in their description of COLAs in 1969 PERA legislation.

    Now, look at their use of the term “automatic” in the “History of Colorado PERA Legislation” document. The description of SB 06-235 notes that the COLA will not be “automatic” for new hires. The description of 00-1458 states that the bill established a 3.5 percent annual, “automatic” COLA. There is no appearance of the term “ad hoc” in descriptions of bills addressing PERA COLAs after 1993.

    It looks to me like the folks at Colorado PERA do know the difference between an “ad hoc” and an “automatic” public pension COLA after all.

    It’s also important to note that this PERA document lacks one of those “disclaimers” that have suddenly become so important to Colorado PERA. They seem to be on every written document produced by PERA since SB 10-001 was enacted. (I hear that the bathroom tissue in PERA washrooms is now stamped with a disclaimer.)

    Here’s the link to the “History of Colorado PERA Legislation” document from 2009. Note the differences between this 2009 version of the document and the new, improved, revised version of the document that is currently available on PERA’s website.

    http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251603807998&ssbinary=true

    (If you right click on this document, the “document properties” indicates that it was updated by Karl Paulson of Colorado PERA on 11/30/2009. I think this PERA publication has been published and updated for many years.)

  25. Al Moncrief says:

    WHEN I READ COLORADO ASSISTANT ATTORNEY GENERAL HEIDI DINEEN’S QUOTATIONS, I FEEL LIKE “THINGS JUST DON’T ADD UP.”

    I keep coming across aspects of the case, Justus v. State, that “just don’t add up.” Here’s another one. We know that the Colorado Attorney General’s Office is attempting to defend the taking of the retiree’s contracted COLA benefit in SB 10-001 enacted by the General Assembly.

    Here the defendants refer to the 2004 Colorado Attorney General’s Opinion on PERA pension contractual rights as “off-point.”

    “Even considering Bills, McPhail, and an off-point Attorney General opinion, those authorities do not stand for the proposition argued by Plaintiffs.”

    https://saveperacola.files.wordpress.com/2012/05/2012-05-16-pera-defendants-answer-brief.pdf

    Here the defendants cite “plaintiff’s continued heavy reliance” on the AG opinion:

    “Plaintiffs’ continued heavy reliance on a 2004 Attorney General opinion that expresses general views regarding pension benefit rights does nothing to bolster Plaintiffs’ attempt to create a retirement benefit that has never existed—a COLA frozen at retirement.”

    https://saveperacola.files.wordpress.com/2011/06/2011-05-06-pera-defendants_-reply-in-support-of-summary-judgment.pdf

    They may have mentioned the 2004 AG opinion elsewhere in their responses.

    Now, if you take a look at the 2004 AG opinion, you will find the name of Assistant Attorney General Heidi Dineen at the bottom:

    “HEIDI J. DINEEN
    Assistant Attorney General”

    https://saveperacola.files.wordpress.com/2010/01/changes_to_pera.pdf

    This is what just doesn’t add up for me. Assistant Attorney General Heidi Dineen was quoted in a newspaper stating “you can’t reduce the pension for a retiree.”

    “At its most recent meeting on April 15, the commission heard from Assistant Attorney General Heidi Dineen on state case law regarding pensions and the legal tests required for reducing benefits.” “’You can reduce the pension for a person you haven’t even hired, [but] you can’t reduce the pension for a retiree,’ Dineen said, adding that the middle of that continuum is where changes can be made.”

    “A commission formed by State Treasurer Mike Coffman to examine the status of the Public Employees’ Retirement Association is looking at its legal options for reducing employee pension benefits.”

    “Dineen explained that in the 1980s, the Colorado Supreme Court ruled on a case involving fire and police pensions, and that ruling established what is known as the Peterson test. The plaintiff in that case argued that no changes could be made to public employees’ pension plans after being hired. The court rejected that argument, Dineen said, and decided to allow adverse changes that meet one of three conditions.”

    “Under the Peterson test, any adverse change to a partially vested pension plan must: be balanced by a corresponding change in benefits, be a change that is ‘actuarially necessary’ or be a change that strengthens or improves the pension plan, according to Dineen.”

    “However, under the definition of ‘partially vested’ in the Peterson test, the plan also must have unfunded liabilities and not be meeting the current costs of pension benefits, she said.”

    https://www.cu.edu/sg/messages/4405.html

    Also, according to High Beam Research, Dineen was quoted in an August 17, 2005 Rocky Mountain News article as follows:

    “Everyone agrees you certainly can make changes for people you haven’t even hired yet,” said Heidi Dineen, a state assistant attorney general retained to explore the issue for the Commission to Strengthen and Secure PERA. “On the other side of the spectrum is pensioners, getting their …”

    http://www.highbeam.com/doc/1G1-135210114.html

    When I read these quotations of Assistant Attorney General Heidi Dineen I am left with the impression that she believes PERA retiree’s contracted pension benefits are inviolate. We should ask her about this. Further, I find it odd that the defendants in Justus v. State refer to the 2004 AG opinion as “off-point” and criticize the plaintiffs for their “heavy reliance” on the 2004 AG opinion, when the name of an employee of a co-defendant, an assistant attorney general, is listed at the bottom of that very AG opinion. I find it particularly odd since this assistant attorney general has been quoted stating “you can’t reduce the pension for a retiree.” Can you see why I’m having difficulties getting this all to add up?

    (P.S., we really need to have a look at the rest of the Dineen quotation in that High Beam Research Rocky article. It might alleviate some of my “things just don’t add up” problem. While we’re at it, let’s take a look at the transcripts of her testimony to the Treasurer’s Commission to Strengthen and Secure PERA.)

  26. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 1 of 6.

    Here are the results of my examination of articles available in the Silver and Gold Record on-line archive that are relevant to the taking of the Colorado PERA contracted COLA benefit (articles of interest, 2009 through 1998.)

    https://www.cu.edu/sg/archive.html

    I’ve divided the results into six segments in order that each will be sufficiently short to post on Facebook. First, I provide a few highlights from the excerpted material, followed by the excerpted material itself, with comments, and links to the Silver and Gold Record articles.

    Here are some of the highlights:

    “PERA spokeswoman Katie Kaufmanis told S&GR Tuesday that ‘we know we will have down times. The portfolio is structured to mitigate that.’”

    “Paquette (PERA investment officer) noted during the hearing that when looking at risk, it is important to keep the time horizon in mind. ‘It’s not six months — it’s decades.’”

    “Williams (PERA Executive Director) said that gives PERA time to examine its options. We generally can ride out market cycles,” he said. “We’re built to do that.”

    “Dan Daly of the Colorado Education Association (CEA). Daly asked legislators to take a long-term view when considering changes, and said that making small changes today would make huge differences over 30 to 40 years.”

    “Williams (PERA Executive Director) noted that most people don’t have enough money to pay off their mortgages, and that PERA’s assets have exceeded its total liabilities only twice in its 75-year history. ‘We have 74 percent of the mortgage, but some people are making hay out of that,’ he said. ‘They want to close down your pension fund.’”

    “At its most recent meeting on April 15, the commission heard from Assistant Attorney General Heidi Dineen on state case law regarding pensions and the legal tests required for reducing benefits.” “’You can reduce the pension for a person you haven’t even hired, [but] you can’t reduce the pension for a retiree,’ Dineen said, adding that the middle of that continuum is where changes can be made.”

    “Befort also noted that several years ago, the Legislature and Gov. Bill Owens decided to encourage higher-paid employees to retire early. Payroll expenses went down for the state, but PERA’s costs increased, he explained.”

    “One attendee asked if there was any similar controversy in the 1970s, when PERA’s unfunded liability went as low as 54.7 percent. Williams said former Gov. Richard Lamm, who co-chaired the PERA commission, made that same observation last year when he recalled that there was no outcry when he was governor and the unfunded liability was below its current level. Williams compared the unfunded liability to having a mortgage, and asked how many people have enough money on hand at any one time to pay off all or even half of their mortgages.”

    “JBC members questioned why PERA is asking for an increase in the employer contribution but not asking employees to contribute more. Williams (PERA Executive Director) responded that by law, the association may only ask employees to contribute more if the increase would provide a greater retirement benefit, which is not being proposed at this time.”

    “PERA Executive Director Meredith Williams told the committee that PERA is ‘rock solid, even in the face of volatility and financial insecurity.’ At least one committee member saw no reason to adopt the more drastic changes. Sen. Norma Anderson (R-Lakewood), who said she has been following PERA for many years, told S&GR after the hearing, ‘The plan is solid, one of the best in the nation. Why change it?’”

    “An early retirement bill working its way through the General Assembly may be a true win-win situation: a good early retirement incentive for classified employees, increased health insurance contributions from employers and substantial savings for state government.” “Last week, Rep. Doug Dean (R-Colorado Springs) introduced HB 1458, which would modify retirement benefits for members of the Public Employees’ Retirement Association (PERA).”

    Silver and Gold Record Archives, 2009 PERA Articles:

    “The committee also met with representatives from the Public Employees’ Retirement Association on Monday. PERA Executive Director Meredith Williams pointed out that despite an estimated $11 billion market loss in 2008, the association has enough funds to pay benefits for decades, although perhaps not as many decades as it could have funded in the past.”

    https://www.cu.edu/sg/messages/6594.html

    “At the hearing on Tuesday Morse cited an opinion from Legislative Legal Services issued after the passage of TABOR in 1992. That opinion said the courts would probably conclude that Arveschoug-Bird is ‘a limit on spending’ because spending and appropriations, which is covered by TABOR, are ‘closely related concepts.’ As a result, the General Assembly has viewed Arveschoug-Bird as a constitutional limit on spending that could not be changed.”

    “But that view changed last year, in part as a result of a legal opinion written by former Colorado Supreme Court Justice Jean Dubofsky, president of the board of directors of the Colorado Center for Law and Policy. Dubofsky wrote that while TABOR requires limits on revenue, spending and debt, and may not be weakened without voter approval, repealing Arveschoug-Bird ‘would not increase state revenues or spending,’ and the Legislature could repeal it.”

    (My comment: So, the General Assembly acted in error and artificially limited its available resources for a 17-year period, some of these resources could have been used to meet the state’s contractual PERA pension obligations. Should fully-vested retirees have to pay for the General Assembly’s mistake?)

    https://www.cu.edu/sg/messages/6689.html

    “SB 273 would take $587 million from the reserves of Pinnacol Assurance, the state’s workers’ compensation insurance provider. An accompanying bill, SB 281, would clarify Pinnacol’s role as a political subdivision of the state. Both bills are part of the budget-balancing package that includes the Long Bill.”

    (My comment: the General Assembly has demonstrated creativity in attempts to find new sources of revenue to meet state needs and obligations when it chooses to do so. Where is this creativity when the question of meeting contractual pension obligations arises?)

    https://www.cu.edu/sg/messages/6765.html

    “Gov. Bill Ritter has recommended that higher education get $135 million in federal stimulus money from the $621.9 million state stabilization fund.”

    (My comment: the General Assembly has had occasional large infusions of new revenues in the past decades.)

    https://www.cu.edu/sg/messages/6737.html

    “Williams pointed out that PERA is in the midst of compiling studies of benefits and funding that will estimate the costs of every component of the statutory benefit packages, in a direct response to the declines in the market. Initial models will be reviewed by the PERA board at its July 24 meeting, according to a PERA report provided to the committee. Williams said the board plans to propose legislation in 2010 to deal with the problem.”

    “Williams responded that the decline in market value is a long-term problem that does not call for a short-term fix. ‘We could throw something against the wall and it might stick,’ he replied, but he added that employer and employee contributions are already going up, due to 2004 and 2006 legislation.”

    “In contrast, Rep. Joe Miklosi, D-Denver, told Williams that now ‘is not a time to panic. It’s a time for bold, steady leadership.’”

    (My comment: Does the breach of fully-vested PERA pension contracts qualify as “bold, steady leadership”?)

    https://www.cu.edu/sg/messages/6754.html

  27. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 2 of 6.

    “SB 282, the bill that would merge the Denver Public Schools Retirement System and the Public Employees’ Retirement Association, was approved by the House on a 51-14 vote Monday and now heads to Ritter for signing.”

    https://www.cu.edu/sg/messages/6822.html

    “Still awaiting Ritter’s signature is SB 228, which would repeal the Arveschoug-Bird spending provision in state law, effective July 1.”
    https://www.cu.edu/sg/messages/6841.html

    Silver and Gold Record Archives, 2008 PERA Articles:

    “SB 218 would set up several funds using federal mineral lease revenues and bonus payments, including two that would benefit higher education. The first is a ‘higher education maintenance and reserve fund,’ to be funded with one-time bonus payments from federal mineral leases. Investment earnings from that fund would support controlled-maintenance projects in higher ed. But the principal could be used as a so-called rainy-day fund to cover reductions in higher education general-fund support during a revenue shortfall, as well as a back-up funding source to cover certificate-of-participation payments used for capital construction.”

    (My comment: The General Assembly has demonstrated creativity in attempts to find new sources of revenue to meet state needs and obligations when it chooses to do so. According to this article, a portion of the funds could be used to replace general fund support. Why was this revenue stream not considered as a means of addressing the PERA unfunded liability? The answer is that addressing the PERA unfunded liability was not high enough on the list of priorities.)

    https://www.cu.edu/sg/messages/6114.html

    “Co-sponsor Sen. Josh Penry (R-Grand Junction) said the bill will create an opportunity for the state to invest in strategic needs. He explained that at the time the original tax structure was set up, the state was receiving about $30 million to $40 million per year from federal mineral lease revenues. However, according to Penry, the state is now expected to see $300 million to $400 million per year, reaching a total of $2.7 billion over the next decade.”

    (My comment: I find it strange that Senator Penry has the will to find a new funding source for “strategic needs,” but lacks interest in finding a funding source by which the state might meet its contractual pension obligations. I guess it’s just simpler to breach retiree pension contracts, and two years later Senator Penry served as the co-prime sponsor of a bill to do just that.)

    https://www.cu.edu/sg/messages/6125.html

    “The boards of the Public Employees’ Retirement Association and the Denver Public Schools Retirement System (DPSRS) would be allowed to negotiate a merger under a bill introduced Monday at the Capitol.”

    “Speaker of the House Andrew Romanoff (D-Denver) is the primary sponsor of HB 1403, which would allow a merger as early as Jan. 1, 2009.”

    “The PERA board endorsed the legislation last Friday; Romanoff said the Denver Public Schools and its retirement system also support HB 1403.”

    “The bill says that if the pension plans merge, all assets, liabilities and obligations of each one would become the assets, liabilities and obligations of the other.” (My comment: As I understand it, this provision was later changed, a “true-up” is coming.)

    “The idea of merging the two systems has been around since at least 2002, when the PERA board supported the concept of legislation to authorize a merger with DPSRS and to affiliate with the Boulder County pension plan.”

    “Negotiations on the idea continued at least until 2005, when the General Assembly passed SB 05-171, which was signed into law by then-Gov. Bill Owens and which authorized both negotiation and execution of a merger. But SB 05-171 allowed PERA, DPS or DPSRS to terminate the merger prior to Jan. 1, 2007, and while the bill had been requested by Denver Public Schools, the DPS Board of Education voted against the proposed merger in October 2005, according to PERA’s 2005 comprehensive annual financial report.”

    https://www.cu.edu/sg/messages/6141.html

    “PERA’s board of directors estimates that the rate of return will be at least 8.5 percent annually, and PERA officials pointed out that the 2007 returns exceeded that expectation. According to a PERA presentation at the committee hearing, over the past 25 years, investment returns have averaged 10.8 percent, but over the past 10 years they have averaged 8.1 percent, slightly below the benchmark.”

    “Jennifer Paquette, PERA’s chief financial officer, noted that investment returns have been below the 8.5 percent benchmark in only seven of the past 25 years.”

    “PERA spokeswoman Katie Kaufmanis told S&GR Tuesday that ‘we know we will have down times. The portfolio is structured to mitigate that.’”

    “Paquette noted during the hearing that when looking at risk, it is important to keep the time horizon in mind. ‘It’s not six months — it’s decades.’”

    “Results from the first year of increased contributions, in 2007, show that 12 years have been shaved off the amount of time it will take for PERA to get back to fully funded status.”

    https://www.cu.edu/sg/messages/6281.html

    “In addition, Salazar pointed out that once a PERA member fulfills all the statutory requirements for a pension benefit and retires, that member’s fully vested pension right cannot be reduced by the General Assembly. At the same time, employees should expect that contribution levels will increase from time to time, Salazar wrote, which is permitted under state law.”

    “Armed with that opinion, in 2006 legislators passed SB 235, which took 0.5 percent of the salary pool, beginning in 2008, and put it into a supplemental disbursement to PERA, counting that as an additional employer contribution. The supplemental contribution increases by 0.5 percent annually until it reaches a cumulative total of 3 percent, in 2013. That additional contribution will continue until PERA is fully funded.”

    “’The beauty of a defined benefit plan is that it rolls in a lot of people from different employers and age groups,’” Williams said. ‘We’ve got a much larger segment of people making contributions and employers making contributions,’ and with its current assets PERA will be able to pay benefits for decades to come, he said.”

    “Williams said that gives PERA time to examine its options.”

    “We generally can ride out market cycles,” he said. “We’re built to do that.”

    (My comment: In 2006, the General Assembly enacted legislation relying on the Attorney General’s PERA benefits opinion. Now, a few years down the road, the state is attempting to discredit the very opinion it relied on in 2006.)

    https://www.cu.edu/sg/messages/6546.html

    Silver and Gold Record Archives, 2007 PERA Articles:

    “Wyoming does it. New Mexico does it. And Colorado should do it, a legislator says, because it could make a major difference in addressing higher education’s capital construction needs, which could hit $1 billion in the next five years.”

    “The concept is to take a portion of the state’s severance tax dollars and royalty revenues from federal oil and mineral leases and devote them to capital construction, and the idea is creating buzz at the state Capitol and with higher education governing boards.”

    (My comment: the General Assembly has demonstrated creativity in attempts to find new sources of revenue to meet state needs and obligations . . . when it chooses to do so. Kansas is currently considering the use of casino revenues to meet its contractual pension obligations. Do examples of states that use severance tax dollars to meet pension obligations exist?)

    https://www.cu.edu/sg/020107/news.html

  28. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 3 of 6.

    “Gov. Bill Ritter is expected to issue a proclamation on Monday declaring May 7-11 as public employee recognition week in Colorado . . .”

    “Ritter’s spokesperson, the governor wants “to honor and recognize the valuable public service contributions that our government employees make to the state of Colorado. The governor feels very strongly about recognizing the good work that our public servants do, day in and day out.”

    (My comment: Ritter recognized this good work by breaching public employee pension contracts.)

    https://www.cu.edu/sg/messages/5580.html

    “CU’s problem, however, is the way the law says the deduction must be taken. SB 235 says the contribution should be counted as an employer contribution and must come out of the payroll pool, implying that it is not assessed to any individual PERA member. If it were, it would violate state laws that require that any additional employee contribution to PERA must be accompanied by a commensurate increase in PERA benefits.”

    “Assistant Vice President Mark Stanker of Payroll & Benefit Services told the Total Compensation Team during its June 12 meeting that he has spoken to the CU campuses’ chief financial officers about the issue, and has raised the question of whether it is fair to take the 0.5 percent deduction out of the pool for faculty and exempt professionals, as most of them are not enrolled in PERA. He said the issue will be addressed on a campus-by-campus basis, and would not be noted as a separate deduction in the employee’s paycheck. ‘It depends on how each campus sets up their salary pools,’ Stanker explained. But reducing the pool, as required by law, could affect all employees in that pool, not just the PERA members, Stanker said.”

    (My comment: Were any legal opinions written relating to this provision of SB 235?? By PERA? AG? Office of Legal Services? Let’s take a look at them.)

    https://www.cu.edu/sg/messages/5662.html

    “Williams said the legislation requiring those payments suggests, but does not require, that the amount be taken from employee compensation pools, and that PERA employers are handling it in different ways. Audrey Newman of UCDHSC pediatrics said that if CU is taking that amount out of the general employee compensation pool, ‘that adversely affects faculty and professional exempts who are not PERA participants.’”

    https://www.cu.edu/sg/messages/5781.html

    “The Colorado Association of Public Employees/Service Employees International Union (CAPE/SEIU); the American Federation of State, County and Municipal Employees (AFSCME); and the American Federation of Teachers (AFT) are joining forces to organize state employees. The new organization will be known as Colorado WINS (Workers for Innovative and New Solutions).”

    “In addition, Colorado WINS will have the ‘sole authority to advocate for legislation affecting state employees, including but not limited to legislation affecting PERA [the Public Employees’ Retirement Association], the state personnel system, employee accountability and state employee protections.’”

    “Under the agreement, SEIU will provide 50 percent of the budget for Colorado WINS; AFT and AFSCME will provide the rest.”
    “The agreement also says that funding contributed by Colorado WINS members for political purposes will be divided, with 50 percent going to SEIU/CAPE and 50 percent to the AFT and AFSCME political funds.”

    “A copy of the agreement is available online at http://www.eiaonline.com/coloradowins.pdf.”

    https://www.cu.edu/sg/messages/5895.html

    Silver and Gold Record Archives, 2006 PERA Articles:

    “Dan Daly of the Colorado Education Association (CEA). Daly asked legislators to take a long-term view when considering changes, and said that making small changes today would make huge differences over 30 to 40 years.”

    (My comment: The breach of fully-vested PERA pension contracts does not constitute a “small change.”)

    https://www.cu.edu/sg/messages/4405.html

    “Williams noted that most people don’t have enough money to pay off their mortgages, and that PERA’s assets have exceeded its total liabilities only twice in its 75-year history. ‘We have 74 percent of the mortgage, but some people are making hay out of that,’ he said. ‘They want to close down your pension fund.’”

    “Asked how PERA members can get involved, Williams suggested contacting their legislators. ‘There are 380,000 of us,’ he said. ‘To them, I’m a bureaucrat, and they don’t pay too much attention to me. But you’re a constituent. Five of you contacting your legislator is more powerful than anything I would say. Let your views be known, and you will have an impact.’”

    (My comment: Meredith, why breach fully-vested pension contracts when you have 69 “percent of the mortgage”? By your logic here, the threshold at which the breach of fully-vested pension contracts is acceptable must lie somewhere between 74 percent and 69 percent. Where is it?)

    https://www.cu.edu/sg/messages/4871.html

    “State law says an increased employee contribution can only be made with a concurrent increase in employee benefits. However, PERA officials said the mechanism used in SB 235 does not violate that law because it routes the employee contribution increase through the employer. PERA officials explained that when an employee makes a contribution to PERA, that money goes into the member’s account, and when the employee leaves the entire amount of the account could be withdrawn by the employee, within certain limits.”

    (My comment: Will PERA officials please explain the “state law” that they refer to in this article?)

    https://www.cu.edu/sg/messages/4982.html

    “As for the current shortfall in the fund, in 1999 and 2000, the Legislature and the governor reduced the cost to purchase years of service and provided for earlier retirement while reducing employer contributions. In 2002, reacting to the market downturn, the PERA board offered a proposal to save PERA millions of dollars and bring in new revenue. This was passed by the General Assembly in 2003 and vetoed by the governor. Such actions are the province of the Legislature and the governor, and therefore the ‘funding crisis’ cannot be credited to the board. In fact, there really is no crisis because unfunded liabilities need not all be paid at the present time,” (Comments of Virginia Ross of Boulder.)

    https://www.cu.edu/sg/messages/5054.html

    “One attendee asked if there was any similar controversy in the 1970s, when PERA’s unfunded liability went as low as 54.7 percent. Williams said former Gov. Richard Lamm, who co-chaired the PERA commission, made that same observation last year when he recalled that there was no outcry when he was governor and the unfunded liability was below its current level. Williams compared the unfunded liability to having a mortgage, and asked how many people have enough money on hand at any one time to pay off all or even half of their mortgages.”

    https://www.cu.edu/sg/messages/5245.html

    “He (Meredith Williams) added, however, that since PERA is not permitted to increase member contributions without a commensurate increase in benefits, the money is technically being paid by employers, from their salary-raise pools. Williams said this ‘employer contribution’ will not affect retirees . . .”

    (My comment: On what legal opinion was Mr. William’s belief based?)

    https://www.cu.edu/sg/messages/5245.html

  29. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 4 of 6.

    Silver and Gold Record Archives, 2005 PERA Articles:

    “The Colorado Court of Appeals, in a decision handed down last Thursday, affirmed a Denver District Court ruling last year that 2003 legislation enabling the use of certificates of participation funding for constructing state buildings is constitutional.”

    (My comment: why are pension certificates of participation not an option for the state? $750 million of PCOPs were issued by Denver Public Schools. Certainly, the issuance of PCOPs is a “less drastic” alternative than the breach of fully-vested pension contracts.)

    https://www.cu.edu/sg/messages/4348.html

    “A commission formed by State Treasurer Mike Coffman to examine the status of the Public Employees’ Retirement Association is looking at its legal options for reducing employee pension benefits.”

    “Dineen explained that in the 1980s, the Colorado Supreme Court ruled on a case involving fire and police pensions, and that ruling established what is known as the Peterson test. The plaintiff in that case argued that no changes could be made to public employees’ pension plans after being hired. The court rejected that argument, Dineen said, and decided to allow adverse changes that meet one of three conditions.”

    “Under the Peterson test, any adverse change to a partially vested pension plan must: be balanced by a corresponding change in benefits, be a change that is ‘actuarially necessary’ or be a change that strengthens or improves the pension plan, according to Dineen.”

    “However, under the definition of ‘partially vested’ in the Peterson test, the plan also must have unfunded liabilities and not be meeting the current costs of pension benefits, she said.”

    “Commission members noted that while PERA has unfunded liabilities, it is still meeting its current pension costs, and so would not be able to reduce benefits under the Peterson test.”

    “’You can reduce the pension for a person you haven’t even hired, [but] you can’t reduce the pension for a retiree,’ Dineen said, adding that the middle of that continuum is where changes can be made.”

    “State employee Doug Befort of the Department of Regulatory Agencies also addressed the commission at the meeting. He asked the commission to look carefully at the issue of decreasing benefits, and to take into consideration the impact decreasing benefits would have on employees who are close to retirement. ‘I’ve made career decisions [to remain a state employee] because of the retirement program,’ Befort said. ‘It would be unfair to make changes to benefits when I wasn’t given the option five or 10 years ago to make career changes.’”

    “Befort also noted that several years ago, the Legislature and Gov. Bill Owens decided to encourage higher-paid employees to retire early. Payroll expenses went down for the state, but PERA’s costs increased, he explained.”

    (My comment: So, should PERA retirees with fully-vested benefits be forced to pay for the errors of the state?”

    https://www.cu.edu/sg/messages/4405.html

    “CFPE President Jo Romero said she believes the commission is part of a nationwide scheme to decrease benefits for public employees.”

    https://www.cu.edu/sg/messages/4437.html

    “Rob Gray, PERA government relations director, told S&GR this week that the PERA board has looked at pension obligation bonds and will meet later this week with its regular actuary and an outside actuarial company that did its own review of PERA’s unfunded liability, and which may make recommendations on additional steps PERA could take to cover the liability.”

    “PERA has been approached by investment firms about POBs during the past several years, Gray said this week. He agreed with Doherty’s assessment that POBs could be a useful tool to cover the liability and improve PERA’s funding situation, and Gray noted that the independent actuarial firm also is reviewing POBs as a solution.”

    https://www.cu.edu/sg/messages/4467.html

    “The report does not note that state law prohibits an increase in employee contributions without a concurrent increase in benefits, nor that an assistant attorney general warned the commission during one of its meetings that such an increase would lead to lawsuits. In response to a reporter’s question, Lamm acknowledged those concerns, but added, ‘There probably isn’t a solution to PERA’s problems without lawsuits. We just don’t have enough flexibility to deal with PERA’s problems. I would urge the Legislature to take action, even if it leads to lawsuits.”

    (My comment: Is this the mindset at the State Capitol? ‘We simply don’t want to pay off our debts.’ ‘We don’t have a desire to meet our contractual obligations.’ ‘We don’t recognize our state debts as legitimate.’ ‘We would rather breach our contracts and be sued.’)

    https://www.cu.edu/sg/messages/4569.html

    “Owens’ proposal allocates $296 million in additional spending for transportation in 2005-06, out of $440 million available from Referendum C.”

    (My comment: Again, the General Assembly has periodically had large infusions of new revenues, none of which have been directed to reduction of the PERA pension debt. On the other hand, during the last 20 years the General Assembly has pumped approximately $500 million into pension debts that are not its obligation, pension debts of Colorado local governments, i.e. old hire fire and police pension obligations. How did the General Assembly go about determining that these local government pension debts should be honored, or that the state itself should meet the obligations of these local governments?)

    https://www.cu.edu/sg/messages/4703.html

    Silver and Gold Record Archives, 2004 PERA Articles:

    “The lawsuit claimed that COPs violate TABOR (Taxpayer’s Bill of Rights) restrictions on increasing state debt without voter approval. McMullen ruled on Jan. 7 that the use of COPs does not violate TABOR.”

    “COPs, or lease-purchase agreements, are a financing mechanism similar to a mortgage. The state guarantees the COPs, which are paid back to the investor over a 25-year period.”

    https://www.cu.edu/sg/messages/3339.html

    “Dennis Gatlin of PERA told UCSC members at their retreat on Oct. 7 that while the funding ratio had dropped to 75.6 percent at the end of 2003, PERA and the Legislature have made some modifications that will help shore up PERA’s financial health in the decades to come. Gatlin tried to put the figures in perspective by pointing out that in 1985, PERA’s funding ratio was at 87 percent, and legislators claimed that the association was ‘too well-funded.’ In 1970, the ratio was 54 percent, he added. According to Gatlin, PERA has been overfunded, when its assets equaled more than its liabilities, only twice in its 73-year history, in 1999 and 2000.”

    “If those changes hadn’t been enacted, Gatlin said, projections indicate that PERA’s funding ratio could have dropped to 35 percent by 2030. Instead, he said, PERA officials are expecting the ratio to be about 60.4 percent in 2030, using what Gatlin described as a conservative return rate of 8.5 percent.”

    https://www.cu.edu/sg/messages/3851.html

  30. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 5 of 6.

    Silver and Gold Record Archives, 2003 PERA Articles:

    “HB 1256, which would allow the state to issue certificates of participation (COPs) to finance construction of academic buildings at the Health Sciences Center’s Fitzsimons campus, unanimously passed the House Finance Committee on Feb. 12. On Tuesday, the Capital Development Committee approved the bill on a 5-1 vote, and the House gave preliminary approval to the bill later that day. Yesterday HB 1256 was approved by the House, 41-23.”

    “The bill would grant authority to the CU Board of Regents, on behalf of the state, to issue bonds for $202.8 million for Fitzsimons construction and would authorize the Department of Corrections to issues bonds for $102.8 million to build a high-security prison in Cañon City.”

    (My comment: Over these many years, what prevented the Colorado PERA Board of Trustees from encouraging the Colorado General Assembly to refer measures to the people to issue PCOPs [or differently structured debt obligations] to cover the pension debt? Would it have been necessary to amend the constitution for this purpose? Well, the voters have the power to amend the constitution. They have amended the state constitution to prohibit bear trapping, surely a measure could have been put before the voters to meet the state’s contractual obligations. Amending the state constitution is a less drastic alternative than breaching that constitution’s Contract Clause. This action also would have been much less drastic than the breach of fully-vested pension contracts, and seems to fall within the fiduciary duty of the board. Also, note that TABOR includes an exclusion relating to public pension obligations. What stopped the PERA Board from aggressively pointing out each year, during its meetings with the Legislative Audit Committee or the Joint Budget Committee that the Legislature was ignoring its annual required contributions to PERA?)

    https://www.cu.edu/sg/messages/1635.html

    “The debate over the state budget was often acrimonious, with senators pitting property-tax rebates for senior citizens against cuts to Medicaid. Sen. Dave Owen (R-Greeley), chair of the Joint Budget Committee, was visibly angry Thursday after the 27-8 defeat of SB 265, which would have eliminated the property-tax rebate, for a savings of $55.5 million. ‘Where the hell are you going to get the money?’ he shouted at his Senate colleagues. Sen. Norma Anderson (R-Lakewood) then asked that the Senate reconsider its vote, a parliamentary move that delayed action for two working days.”

    “During those two days, senators met in party caucuses to look at 19 alternatives to passing the property-tax rebate, including changes to Public Employees’ Retirement Association contributions so that state employees would pay a larger share. The PERA ‘flip-flop’ would result in most state employees paying 10.04 percent of their salaries to PERA and employers paying 8 percent, for a savings of $22 million.”

    (My comment: This debate illustrates a standard operating procedure at the Colorado General Assembly. The provision of discretionary tax relief takes precedence over meeting contractual PERA pension obligations. At its 2012 session, the Colorado General Assembly granted $100 million in discretionary property tax relief. Some might argue that this property tax relief was laudable, nevertheless, it was discretionary. The General Assembly, in 2012, granted discretionary tax relief that diminished state resources during a time in which it is attempting to breach its contractual PERA pension obligations.)

    https://www.cu.edu/sg/messages/1784.html

    “As Gov. Bill Owens signed a bill authorizing $305 million in state-issued certificates of participation (COPs) at the Health Sciences Center’s Fitzsimons campus Monday, HSC and CU officials were already moving ahead with plans for new buildings to be financed with COPs. The Board of Regents approved program and financing plans for several COP-funded CU projects at their meeting last Thursday.”

    “COPs, or lease-purchase agreements, are a financing mechanism similar to a mortgage. The state guarantees the COPs, which are paid back to the investor over a 25-year period. The COPs can be used in place of capital construction funding, which has been sliced from the state budget.”

    “The regents also authorized CU Treasurer Judy Van Gorden to plan issuance of up to $75 million in enterprise system revenue bonds to finance four projects: purchase of the Exabyte building for CU-Boulder, a new parking and public safety facility at UCCS, and a new Barbara Davis Center for Childhood Diabetes facility and the Research Complex 1, both at Fitzsimons.”

    https://www.cu.edu/sg/messages/1830.html

    “CU has several projects being funded through cash sources and certificates of participation, such as UCB’s renovation of the old Exabyte building, and the purchase of University Hall from the CU Foundation, a parking garage/public safety facility and a proposed housing project, all at UCCS. In addition, with the approval of COPs this spring, HSC officials will be working on nearly a dozen construction projects at Fitzsimons.”

    https://www.cu.edu/sg/messages/2050.html

    “The lawsuit claims that HB 03-1256, the bill enabling the COPs, should be declared null and void because it combines two subjects — funding for a prison and for new buildings at Fitzsimons. In addition, the suit claims that those COPs violate the TABOR (Taxpayer’s Bill of Rights) restrictions on increasing state debt without voter approval.”

    “The suit also asks for an injunction against the regents and Ortiz to stop them from issuing COPs for Fitzsimons and prison construction.”

    “He said the state attorney general’s office is defending both the University and the Department of Corrections in the suit.”

    “The University needs COPs to move ahead with planned construction,” Wilkerson said. “This is an important source of funding for the University.”

    “Wilkerson said CU officials and lawyers had discussed the legal issues under challenge in detail with legislative legal counsel, legislators, the Governor’s Office and the attorney general’s office when the COP legislation was being drafted last session. ‘We firmly believe the legislation is constitutional,’ he told the faculty. ‘But once in court, it’s an unpredictable process.’”

    “Wilkerson told Silver & Gold Record Tuesday that he could not predict how long the lawsuit might delay issuance of the COPs. He said lawyers in the attorney general’s office are currently answering the claims, and will then file motions to resolve the lawsuit before it goes to trial. However, the TABOR amendment has a provision stating that that TABOR lawsuits ‘have the highest court priority,’ which should expedite the case, he said.”

    https://www.cu.edu/sg/messages/2512.html

    “Williams also noted that PERA’s funding ratio of assets to liabilities peaked in 2000 at 104.7 percent, but that PERA has only had two years in its 70-year history where it had more assets than liabilities, in 2000 and 2001.”

    “JBC members questioned why PERA is asking for an increase in the employer contribution but not asking employees to contribute more. Williams responded that by law, the association may only ask employees to contribute more if the increase would provide a greater retirement benefit, which is not being proposed at this time.”

    https://www.cu.edu/sg/messages/2718.html

  31. Al Moncrief says:

    MINING THE SILVER AND GOLD RECORD FOR PERA NUGGETS, Part 6 of 6

    Silver and Gold Record Archives, 2002 PERA Articles:

    “The House Finance Committee yesterday postponed action on HB 1184, a bill sponsored by Rep. Rob Fairbank (R-Littleton) that would allow new state employees to join a defined contribution plan instead of the defined benefit plan offered by the Public Employees’ Retirement Association. However, prior to postponing the bill yesterday, the finance committee amended it to exempt higher ed. As originally proposed an eligible employee under HB 1184 would have been one ‘who is not eligible to participate in CU’s qualified retirement plan or in an educational employees’ optional retirement plan,’ as well as new state employees hired after Jan. 1, 2003.”

    “A fiscal note on HB 1184, prepared by Legislative Council, had said that the bill would cost the state more than $2 million, and CU would have borne more than $1.8 million of that cost. Most of it would have been for Social Security contributions, according to Jim Topping, associate vice president for budget and finance.”

    https://www.cu.edu/sg/messages/464.html

    “However, PERA officials, who opposed the bill (HB 1184) during finance committee testimony, said it is merely a way to boost low enrollment in the state’s 401(a) plans, operated by VALIC and ICMA. The bill was then sent to the House Appropriations Committee.”

    https://www.cu.edu/sg/messages/411.html

    “If you’re planning early retirement, state Treasurer Mike Coffman would like you to reconsider.”

    “Fewer employees choosing early retirement would mean ‘a more experienced work force, because experienced employees will continue to work for the state and its public schools rather than retiring in their early 50s, as more and more have recently chosen to do,’ Coffman said in a recent Department of Treasury e-mail message.”

    “While Coffman is not stating an official state position, his message reflects a change in philosophy from 2000, when the Colorado General Assembly passed HB 1458, which lowered the cost of service credit from 18.7 percent to 15.5 percent. The law was intended to encourage state employees to purchase service credit and to pursue early retirement.”

    (My comment: The General Assembly enacted legislation to encourage public employees to retire, then, after they retired, enacted legislation to breach their pension contracts.)

    https://www.cu.edu/sg/messages/795.html

    “UCD Chancellor Georgia Lesh-Laurie responded, ‘There are legal questions on whether the governor can order the pay-date shift.’ For example, she said, there is a question of whether missing a month of federal-tax withholding would be acceptable to the federal government.”

    “Rob Gray of PERA told S&GR yesterday the pay-date shift will not affect the calculation of PERA retirement benefits, because salary and service are credited in the month they are earned, not the month an employee’s paycheck is issued. In other words, it doesn’t matter to PERA what day an employee is paid. Gray said the shift may affect 401(k) and deferred compensation plans, however.”

    (My comment: There is a legal question relating to missing a month of federal tax withholding. Is there a legal question relating to the state’s diminishment of federal tax receipts through the breach of fully-vested retiree pension contracts? Senate Bill 10-001 reduced federal tax receipts.)

    https://www.cu.edu/sg/messages/1400.html

    “The JBC also briefly reviewed a proposal by the Owens administration to shift the June 30, 2003, pay date to July 1, 2003, and to move subsequent pay dates to the first day of the month. Myers recommended that JBC members refrain from acting on the proposal until they receive an opinion from their legal counsel, Legislative Legal Services, which is reviewing the proposal to determine if it is constitutional.”

    (My comment: Let’s have a look at this Legislative Legal Services opinion.)

    https://www.cu.edu/sg/messages/1501.html

    Silver and Gold Record Archives, 2001 PERA Articles:

    “PERA Executive Director Meredith Williams told the committee that PERA is ‘rock solid, even in the face of volatility and financial insecurity.’ At least one committee member saw no reason to adopt the more drastic changes. Sen. Norma Anderson (R-Lakewood), who said she has been following PERA for many years, told S&GR after the hearing, ‘The plan is solid, one of the best in the nation. Why change it?’”

    (My comment: Note that former Senator Norma Anderson testified in favor of SB 10-001, the bill that breached PERA retiree pension contracts.)

    https://www.cu.edu/sg/messages/551.html

    Silver and Gold Record Archives, 2000 PERA Articles:

    “’In a defined contribution plan, if everything goes well the benefits increase,’” (PERA Board President) Natale said. ‘In a defined benefit plan, such as PERA, benefits don’t increase in a good economy; the state [and taxpayers] get a reduction. [Under this bill] the state will have to contribute more for faculty at some universities than others. Why should those in PERA be penalized?’”

    https://www.cu.edu/sg/messages/2367.html

    “An early retirement bill working its way through the General Assembly may be a true win-win situation: a good early retirement incentive for classified employees, increased health insurance contributions from employers and substantial savings for state government.”

    “Last week, Rep. Doug Dean (R-Colorado Springs) introduced HB 1458, which would modify retirement benefits for members of the Public Employees’ Retirement Association (PERA).”

    https://www.cu.edu/sg/messages/2229.html

    Silver and Gold Record Archives, 1999 PERA Articles:
    “Over the last three years, legislators have modified PERA rules to allow employees to retire earlier with greater benefits. In 1997, the General Assembly approved an increase in the multiplier in the highest average salary calculation from 1.5 percent to 2.5 percent per year for those with more than 20 years of service. Under the rules prior to 1997, retirement benefits for employees with less than 20 years of service were calculated at 2.5 percent of their highest average salary per year, but at 20 years the multiplier dropped to 1.5 percent. Don Schaefer of PERA noted that under the new rule, employees with 30 years of service would receive 10 percent more in benefits.”

    (My comment: Again, evidence that the General Assembly encouraged early retirement, only later to breach the pension contracts of those who accepted the Legislature’s offer.)

    https://www.cu.edu/sg/messages/2931.html

    Silver and Gold Record Archives, 1998 PERA Articles:

    (Nothing interesting.)

  32. Al Moncrief says:

    COLORADO PERA OFFICIAL: IN 1985 COLORADO LEGISLATORS ARGUED THAT PERA WAS “TOO WELL-FUNDED” AT AN 87 PERCENT FUNDED RATIO.

    In 2004, according to the Silver and Gold Record, “Dennis Gatlin of Colorado PERA (currently Field Education Services Division Director) told UCSC members at their retreat on Oct. 7 that while the funding ratio had dropped to 75.6 percent at the end of 2003, PERA and the Legislature have made some modifications that will help shore up PERA’s financial health in the decades to come.”

    “Gatlin tried to put the figures in perspective by pointing out that in 1985, PERA’s funding ratio was at 87 percent, and legislators claimed that the association was ‘too well-funded.’ In 1970, the ratio was 54 percent, he added. According to Gatlin, PERA has been overfunded, when its assets equaled more than its liabilities, only twice in its 73-year history, in 1999 and 2000.”

    “If those changes hadn’t been enacted, Gatlin said, projections indicate that PERA’s funding ratio could have dropped to 35 percent by 2030. Instead, he said, PERA officials are expecting the ratio to be about 60.4 percent in 2030, using what Gatlin described as a conservative return rate of 8.5 percent.”

    (My comment: How can it be that state legislators considered PERA “too well-funded” at an 87 percent funded ratio in 1985, yet found it necessary to breach fully-vested PERA pension contracts in 2010 to reach a 100 percent funded ratio? It just doesn’t add up.)

    Here’s the article in the Silver and Gold Record:

    https://www.cu.edu/sg/messages/3851.html

  33. Al Moncrief says:

    LOUISIANA LEGISLATIVE SESSSION WRAPS UP – GOV. JINDAL TRUMPETS HIS PROSPECTIVE “CASH BALANCE” PUBLIC PENSION REFORM – COLA THEFT BILL DIES.

    “On retirement, Jindal cast as a major victory approval of a bill that would grant newly hired state workers a 401(k)-style ‘cash balance’ plan, rather than a traditional defined-benefit pension. Senate President John Alario, a Jindal ally, said, ‘The cash balance plan is new start for us, beginning to nudge at solving the problem we have,’ referring to more than $18 billion in future pension obligations.”

    “Jindal failed to win support for any measure that would apply to existing workers. Among them: increasing retirement age and employee contributions, refiguring governance boards of disparate state retirement systems and lengthening the time period used to calculate a retiree’s benefits, a move that nearly always yields a lower payout.”

    “Edwards called those ideas ‘unfair, unwise and unconstitutional.’ He said legal questions remain for the cash-balance plan, which passed with simple majorities. The minority leader argued that it required a two-thirds majority.”

    Article:

    http://www.nola.com/politics/index.ssf/2012/06/everyone_a_winner_as_2012_legi.html

    “Key bills in Gov. Bobby Jindal’s proposed state pension system revamp affecting state employees and retirees headed toward the legislative graveyard Friday.”

    “Also still sitting on the calendar is another Jindal bill that would prevent cost-of-living adjustments in retiree checks for the foreseeable future.”

    “The Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana as well as the Louisiana Retired State Employees Association called the measure unconstitutional because they would break employee contracts.”

    “Executives of the systems said current employees are not responsible for the pension system liabilities that were run up by past administrations that approved benefits but did not fund them.”

    “Senate Bill 740 would effectively stop cost-of-living adjustments, or COLAs, in state employee and higher education retiree pension checks until the pension systems are 80 percent funded.”

    Article:

    http://theadvocate.com/home/2990095-125/jindal-backed-effort-at-pension-revamp

    Article on the Legislative Auditor’s legal examination of vested public pension rights in Louisiana:

    http://thehayride.com/2012/03/uh-oh-could-jindals-pension-reform-package-be-unconstitutional/

    “As currently drafted, each bill, except the one merging two pension systems, retroactively impairs or diminishes accrued pension benefits contrary to the guarantees in Article X, § 29. Courts must determine whether the proposed changes affect plan members and retirees retroactively or only impact future benefits. Case law from other jurisdictions demonstrates that changes to members’ retirement age, contribution rate, and final average compensation formula retroactively affect members who have accrued and vested benefits based on their past service. Consequently, a reasonable likelihood exists that these bills as currently drafted will not survive constitutional scrutiny.”

    The Legislative Auditor’s report:

    http://businessreport.com/editorial-pdfs/LegalAnalysisPensionBills.pdf

  34. Al Moncrief says:

    ANOTHER ROCKY ARTICLE CITES PERA INTERIM EXECUTIVE DIRECTOR GREG SMITH’S “BRIEFING PAPER” ADDRESSING THE TAKING OF CONTRACTED PENSION BENEFITS.

    This “briefing paper” by Greg Smith would make fascinating reading. It troubles me that documents produced by state agencies like Colorado PERA are not readily available to the reading public. I also want to read PERA’s “secret” legal opinion which I believe provided justification for the taking of fully-vested PERA pension benefits. Many people have read this legal opinion. I’m certain it was available to the PERA Board of Trustees and most likely a good number of state legislators.

    Anyway, the Rocky article:

    On August 17, 2005, David Milstead of the Rocky Mountain News wrote an article titled “Legal Issues Could Limit Changes to Plan Any Negative Impact on Benefits May Spur Court Fight, Fund Says.”

    A segment of this article can be found here:

    http://www.highbeam.com/doc/1G1-135210114.html

    Here’s the segment:

    “Byline: David Milstead, Rocky Mountain News

    Public pensions are not like pension plans at private companies, which are covered by federal employment law.

    Can the Colorado Public Employees’ Retirement Association reduce benefits or take more out of workers’ paychecks to shore up the pension fund’s finances?

    Don’t expect PERA to propose any such changes.

    The fund’s board and staff, relying on a briefing paper by General Counsel Greg Smith, think any negative change to the benefits of any PERA member, active or retired, could be challenged in court. That includes an increase in the employees’ contribution rate, unless it’s offset by increased benefits.”

    But there are other views.

    “Everyone agrees you certainly can make changes for people you haven’t even hired yet,” said Heidi Dineen, a state assistant attorney general retained to explore the issue for the Commission to Strengthen and Secure PERA. “On the other side of the spectrum is pensioners, getting their . . . “

    That’s all I have. The rest of the article is behind a HighBeam Research paywall. I haven’t been successful in my searches of the Rocky Mountain News archives for this article.

    Who knows what other fascinating old PERA articles can be found in the Rocky archives, or the Silver and Gold Record archives. (Or, in the Denver Post for that matter.)

    Here’s a link to the free Silver & Gold Record archives:

    https://www.cu.edu/sg/archive.html

    Here’s a link to the fee-based Rocky archives:

    http://m.rockymountainnews.com/news/

  35. Al Moncrief says:

    WHAT ARE COLORADO PERA’S OBLIGATIONS TO THE IRS?

    Don’t think for a minute that because I ask the question, I have the answer. I don’t.

    The answer can be found somewhere in a byzantine mass of federal regulations . . . the realm of tax attorneys. This is a deep pool and I’m only willing to stick in a toe.

    Reading Jennifer Staman’s paper yesterday made me curious about the relationship between public pensions and the IRS. She writes:

    “The Internal Revenue Code grants certain tax benefits to ‘qualified’” retirement plans . . . public pension plans must be qualified so that the plan participants can avoid paying taxes on their pension benefits until the benefits are actually received.”

    “In general, for purposes of this report, a qualified plan generally means an employer-sponsored pension plan that meets the requirements set forth under 26 U.S.C. § 401(a); eligible plans are described in 26 U.S.C. § 457.”

    Apparently, public pension plans are required to report annually to the IRS. One IRS page makes this observation:

    “General Rule:
    Government entities are generally subject to the same information reporting requirements and must file information returns for each calendar year with respect to applicable payments made during the year in the course of its trade or business.”

    http://www.irs.gov/govt/fslg/article/0,,id=110125,00.html

    I wonder what forms Colorado PERA or its state and local government employer members must file with the IRS to maintain the status of Colorado PERA as a “qualified plan”? Must Colorado PERA or its employer members submit materials to the federal government in which they characterize the Colorado statutory pension COLA? If so, how has Colorado PERA characterized the COLA in these materials since 1993, when the COLA became “automatic”? Along those lines, has Colorado PERA submitted materials to organizations conducting surveys of the characteristics of public pension plans in which PERA has characterized the Colorado statutory pension COLA? How has Colorado PERA historically characterized the COLA in these documents . . . as an “automatic” COLA or as an “ad hoc” COLA? The surveys that we have seen identify the Colorado PERA COLA as “automatic.”

    Surfing around the IRS website, I found it intriguing that IRS attorneys state that a qualified “governmental plan” must have “definitely determinable benefits.”

    “Definitely Determinable Benefits/Written Plan Document Section 401(a)(25) provides that the actuarial assumptions used to calculate participants’ benefits must be specified in the plan.”

    “A pension plan within the meaning of section 401(a) is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement. (§1.401-1(b)(1)(i))”

    Reading this, I wondered how an IRS qualified governmental plan can be considered to have “definitely determinable benefits” if the plan sponsors are free to vary an “automatic,” contracted COLA as they please. For example, if a pension plan sponsor reduces its “automatic,” contracted COLA from 3.5 percent to 2 percent or lower, diminishing the value of an annuitant’s lifetime “guaranteed” pension benefits by say, one-third, how could such variable benefits be considered “definitely determinable”? Are qualified governmental plans required to report whether or not their COLAs are “automatic, i.e. “frozen” or “ad hoc,” i.e., discretionary? How can the IRS know what the “definitely determinable” lifetime retirement benefit is without knowing the nature of the plan’s COLA benefit?

    The IRS attorneys also note that qualified plans “must operate in accordance with plan terms,” and “must meet “Pre-ERISA Vesting Requirements in Section 411(e)(2).”

    “Pre-ERISA Vesting Requirements in Section 411(e)(2)

    “A governmental plan shall be treated as meeting the requirements of section 411 if the plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974. “Including “Vesting on Normal Retirement Age.”

    http://www.irs.gov/pub/irs-tege/govt_414d.pdf

    If you want to read more on this subject here are some links. IRS materials relating to state and local governments can be read here:

    http://www.irs.gov/govt/fslg/article/0,,id=96062,00.html

    Filing requirements of state and local governments are covered here:

    http://www.irs.gov/govt/fslg/article/0,,id=110125,00.html

    I also noticed that the Code of Federal Regulations includes rules for governmental plan service credit purchases:

    “(n) Special rules relating to purchase of permissive service credit
    (1) In general
    If an employee makes 1 or more contributions to a defined benefit governmental plan (within the meaning of section 414(d)) to purchase permissive service credit under such plan, then the
    requirements of this section shall be treated as met only if –
    (A) the requirements of subsection (b) are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of subsection
    (b), or
    (B) the requirements of subsection (c) are met, determined by treating all such contributions as annual additions for purposes of subsection (c).”

    For Colorado PERA members who have purchased service credit, the value of this “accrued benefit” derived from their service credit purchase was slashed by the taking of the contracted COLA.

    The Code of Federal Regulations also contains provisions relating to governmental plan COLAs and maximum federally allowable pension benefits. How does the Secretary “adjust the cap” on maximum federally allowable pension benefits unless the Secretary knows what a governmental plan’s COLA is? Why would the Secretary take the trouble to adjust the cap if the public pension plan has an “ad hoc” COLA? What regulations has the Secretary “prescribed” to address such situations?

    More from the CFR, “cost-of-living” arrangements are “qualified:

    “(2) Contributions to provide cost-of-living protection under defined benefit plans
    (A) In general
    In the case of a defined benefit plan which maintains a qualified cost-of-living arrangement –
    (i) any contribution made directly by an employee under such an arrangement shall not be treated as an annual addition for purposes of subsection (c), and (ii) any benefit under such arrangement which is allocable to an employer contribution which was transferred from a defined contribution plan and to which the requirements of subsection (c) were applied shall, for purposes of subsection (b), be treated as a benefit derived from an employee contribution (and subsection (c) shall not again apply to such contribution by reason of such transfer).

    (B) Qualified cost-of-living arrangement defined

    For purposes of this paragraph, the term “qualified cost-of-living arrangement” means an arrangement under a defined benefit plan which –
    (i) provides a cost-of-living adjustment to a benefit provided under such plan or a separate plan subject to the requirements of section 412, and (ii) meets the requirements of subparagraphs (C), (D), (E), and (F) and such other requirements as the Secretary may prescribe.

    (C) Determination of amount of benefit

    An arrangement meets the requirement of this subparagraph only if the cost-of-living adjustment of participants is based –
    (i) on increases in the cost-of-living after the annuity starting date, and
    (ii) on average cost-of-living increases determined by reference to 1 or more indexes prescribed by the Secretary, except that the arrangement may provide that the increase for any year will not be less than 3 percent of the retirement benefit (determined without regard to such increase).”
    ___________________________________________

    The IRS provides these useful definitions:

    “An instrumentality (my comment, for example, Colorado PERA) is an organization created by or pursuant to state statute and operated for public purposes. Generally, an instrumentality performs governmental functions, but does not have the full powers of a government, such as police authority, taxation, and eminent domain.”

    “A wholly-owned instrumentality of one or more states or political subdivisions is treated as a state or local government employer for purposes of the mandatory social security and Medicare provisions. See IRC section 3121(b)(7)(F).”

    “Pension Plan – A plan that provides systematically for the payment of definitely determinable benefits to employees over a period of years, usually for life, after retirement. Retirement benefits are generally determined by factors such as an employee’s years of service, age, and compensation.”

    “Public Retirement System – A pension, annuity, retirement, or similar fund or system established by a state or political subdivision for the purpose of providing retirement benefits to employees. For purposes of determining whether an employee is subject to mandatory social security and Medicare, a ‘retirement system’ in which the employee participates must meet the tests under IRC section 3121(b)(7)(F) and section 31.3121(b)(7)-2(e) of the Employment Tax Regulations.”

    http://www.irs.gov/pub/irs-tege/p963_1111.pdf

    Perhaps a tax attorney out there, or maybe a state legislator, can definitively state Colorado PERA’s IRS obligations.

  36. Al Moncrief says:

    CAN STATE PUBLIC PENSION PLANS FILE FOR BANKRUPTCY?

    It’s clear that Colorado PERA, in its Answer Brief, wishes that dog would hunt . . . but I think he has already gone to doggy heaven.

    PERA argues in their Answer Brief, “the PERA pension system . . . is maintained separately from the state and must be self-sustainable.”

    How can any public defined benefit plan be “self-sustainable”? All public defined benefit plans are “sustained” exclusively by contributions from plan sponsors and active members. Such plans might have excellent investment returns, but these investment returns are earned on the assets of the plan . . . that is, on the past “sustaining” contributions of plan sponsors (state and local governments) and active pension members.

    Colorado law (Section 24-51-201, C.R.S.) currently says that PERA is “an instrumentality of the state.”

    Why do we, in Colorado, put so much effort in trying to escape our debts . . . in attempts to “define away” our debts? We are a relatively wealthy state (our per capita income ranks #13 of the 50 states.) Why don’t we simply pay our debts? That’s what we encourage our children to do.

    http://en.wikipedia.org/wiki/List_of_U.S._states_by_income
    ______________________________

    As we know, state-sponsored pension plans are not eligible to file for bankruptcy under Chapter 9 (which is limited to municipalities.)

    However, one pension plan of a commonwealth, the Northern Mariana Islands Retirement Fund, recently decided to give it a shot.

    Are they going to pull it off?

    The blog Pension Dialog is reporting that “According to a federal judge, the answer is no.”

    Here are the blog posts:

    http://pensiondialog.wordpress.com/2012/04/24/can-a-pension-plan-go-bankrupt/

    http://pensiondialog.wordpress.com/2012/06/01/can-a-pension-plan-file-for-bankruptcy-part-2/

    (Pension Dialog is a collaborative effort of NASRA and the National Council of Teacher Retirement. In one month, our own PERA Executive Director Meredith Williams becomes the Executive Director of the National Council on Teacher Retirement.)

    Meredith article:

    http://www.reuters.com/article/2012/04/05/idUS221652+05-Apr-2012+BW20120405

    Here are some excerpts on this bankruptcy question from
    Pension Dialog:

    “On June 1, Judge Robert Faris of the U.S. District Court ruled that the fund is a ‘governmental unit’ and, therefore, not eligible for relief under Chapter 11 of the Bankruptcy Code. The hearing became a formality as the judge released his initial opinion a couple of days prior.”

    “So has the CNMI pension fund bankruptcy set a precedent as the media headlines in April declared? Again, the answer is no. It’s an unquestionably difficult situation given the Commonwealth’s economy and the government having failed to make its payments to the retirement benefit plan for far too long. But it does not set a trend of bankruptcy filings.”

    (My comment: what does the Colorado General Assembly’s skipped annual required contributions total now? $3.7 billion or thereabouts?)

    “Despite one recent report suggesting that there have been ‘a slew of prominent municipal bankruptcy filings in the U.S.,’ according to Chicago attorney James Spiotto, since 1937, there have been 620 Chapter 9 cases filed. Of these filings, however, most were small special tax district and entities that did not issue municipal bonds.”

    “The development does set a precedent—because, to the best of my knowledge—no state or territorial pension fund has previously filed for bankruptcy protection. Furthermore, it is unprecedented that any pension fund, public or private, could file for bankruptcy separate and apart from its sponsoring government or corporation.”

    “The key difference is that with regard to Chapter 9 bankruptcies, federal law provides that an entity may be eligible as a debtor under Chapter 9 municipal bankruptcy only as such an entity is specifically authorized in its capacity as a municipality.”

    “Chapter 9 is limited to municipalities.”

  37. Al Moncrief says:

    CONGRESSIONAL RESEARCH SERVICE PAPER ON PUBLIC PENSION CLAWBACKS.

    Here’s a good primer on the legality of state and local pension plan clawbacks of accrued public pension benefits. The paper was written by Jennifer Staman, Legislative Attorney at the Congressional Research Service, March 31, 2011.

    The title of the paper is “State and Local Pension Plans and Fiscal Distress: A Legal Overview.”

    Here are some highlights:

    “The Internal Revenue Code grants certain tax benefits to ‘qualified’” retirement plans . . . public pension plans must be qualified so that the plan participants can avoid paying taxes on their pension benefits until the benefits are actually received.”

    “In general, for purposes of this report, a qualified plan generally means an employer-sponsored pension plan that meets the requirements set forth under 26 U.S.C. § 401(a); eligible plans are described in 26 U.S.C. § 457.”

    “While public pension plans have no guarantor of plan benefits, states generally have constitutional or statutory provisions that dictate how pension plans are to be funded, protected, managed, or governed.”

    “Therefore, analysis of the changes that may be made to accrued benefits under a public plan is a state-by-state inquiry. While accrued benefit refers to the amount of benefits earned, vesting occurs under federal law when a plan participant’s accrued benefit is considered to be non-forfeitable.”

    “Vesting, on the other hand, is ‘the process by which an employee’s already-accrued pension account becomes irrevocably his property.’”

    “As discussed below, certain legal parameters may affect the ability of state and local governments to amend their pension plans. These parameters vary by state and depend on each
    state’s laws and constitutional provisions governing its retirement system, what these laws provide with respect to the protection of an individual’s pension benefits, and when any right to a pension benefit attaches.”

    “Public employee pension benefits are generally afforded greater protection under current state and constitutional law. This is, at least in part, because many courts now characterize public plan pensions as deferred compensation—that an employee is entitled to these benefits for work that has already been performed.”

    “In rejecting the gratuity approach to public pensions, many state courts have found that based on common law, state statute, or state constitution, public pension benefit plans create a contract
    between the state and plan participant.”

    (My comment: Recall that the Colorado Supreme Court, told us in Colorado Springs Firefighters v. Colorado Springs, 1989: “Rights which accrue under a pension plan are contractual obligations . . . entitlement to annual pension payment increases is also statutorily determined. These statutory provisions have established a defined benefit contributory pension system in which most public employees are required to participate . . . . . By making these contributions, employees obtain a limited vesting of pension rights, which ripen into vested pension rights upon attainment of the respective eligibility requirements.”)

    “A public employee’s contractual right to an unaltered pension benefit may be protected under the Contract Clause of the U.S. Constitution or an analogous state constitutional provision. The Federal Contract Clause provides, “No state shall … pass any … Law impairing the Obligation of Contracts.”

    “However, in general, instances where the state is impairing a contract for its own benefit invite more judicial scrutiny.”

    (My comments: It is obvious that the Colorado General Assembly enacted SB 10-001 in order to reduce state and local government pension obligations that increased due to the 2008 market downturn and the failure of the state to pay its annual required contributions in the prior decade. Recall that Representative Joel Judd, Chairman, House Finance Committee told us during the hearing on Senate Bill 10-001 (near the end of the hearing) that SB 10-001 must be supported “because that’s where the money is.” Recall that Representative Jack Pommer, JBC Chairman, asked the JBC on 12-17-09: “Are we not just saying we’re going to pick 30 years (as a PERA investment time horizon) because if we’re not balanced within 30 years that creates actuarial necessity which then let’s us change retiree benefits?” Recall that Meredith Williams told us in the ‘Ask Meredith’ column, at this link: http://www.copera.org/pera/about/ask.htm: “The PERA Board of Trustees and PERA staff have been closely monitoring the impact of the decline in the financial markets on PERA. As the markets have continued to decline, the Board directed staff to review all areas for possible ways to improve PERA’s funded status. Benefit payments to retirees and benefit recipients represent over 98 percent of PERA’s expenses. That leaves the benefits being earned by members (active and inactive) as the only area to examine for savings. The Attorney General’s opinion contains the following language: “Once a PERA member fulfills all the statutory requirements for a pension benefit, retires and begins receiving a pension, the member’s fully vested pension right cannot be reduced by the General Assembly.” Recall that PERA told us in “PERA on the Issues” at this link; http://www.copera.org/pera/about/issues.htm: “And these dramatic reforms are working, putting Colorado PERA on a course to recover from the financial downturn and move steadily to a strong financial footing.”)

    “As the Supreme Court has explained with respect to the impairment of public contracts, reasonableness must be considered “in light of the surrounding circumstances.” Necessity depends upon two considerations: first, whether the impairment was essential or whether a less ‘drastic modification’ was available, and also whether a state could have adopted an alternative means to bring about the desired end without impairing contract obligations.”

    (My comment: As has been chronicled on this page, nearly every state legislature that has addressed the issue of public pension reform has honored fully-vested, contractual pension obligations. The few that are attempting to breach fully-vested pension contracts are being sued. Nearly every legislature that is addressing public pension reform has found ‘less drastic’ means of reducing unfunded liabilities than attempting to take fully-vested public pension benefits. Public pensions in many of these states have actuarial funded ratios at or below that of Colorado PERA at the time of the SB 10-001 pension contract breach. If ‘less drastic’ means are available to all of these legislatures, surely ‘less drastic’ means are available to the Colorado General Assembly.”

    “. . . a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives. Similarly, a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”

    “While courts generally find that the pension benefits of individuals who have already retired may not be diminished or impaired, this outcome is not as clear for current employees.”

    “Despite the variation in when a contractual right to a public plan pension benefit begins, as noted above, state courts generally find that the benefits of individuals who have already retired may not be diminished or impaired.”

    Here’s the link:

    http://www.nasra.org/resources/CRS%20state%20and%20local%20legal%20framework%201104.pdf

  38. Al Moncrief says:

    REMEDIAL EDUCATION FOR COLORADO PERA: THE DISTINCTION BETWEEN “AD HOC” AND “AUTOMATIC” PENSION COLAS.

    In my ongoing effort to educate Colorado PERA officials regarding the difference between “ad hoc” and “automatic” pension COLAs, I offer the following document; the April 2011 Issue of GRS Insight, published by the firm Gabriel, Roeder, Smith & Company (they have a Denver office.) This issue is titled “Postemployment Cost-of-Living Adjustments: Concepts and Recent Trends.”

    (Note to PERA staff, I know that you guys are clear on the difference between “ad hoc” and “automatic” COLAs, but bear with me while I mess with the brass.)

    “Gabriel, Roeder, Smith & Company (GRS) is a leading provider of actuarial and benefits consulting services that focuses on services to the public sector.”

    http://www.gabrielroeder.com/

    Here is some helpful material from the April 2011 issue of GRS Insight:

    “A key feature of ad hoc COLAs is that they require the approval of the plan sponsor’s governing body (or in some cases the plan’s board). In contrast, automatic COLAs do not require the governing body’s approval and are often based either on a fixed annual rate (e.g., 3%) or on the CPI – often with an upper limit (e.g., CPI up to 3%).”

    A “fixed rate” COLA is a COLA that is “provided automatically at a fixed rate (e.g., 3%) each year.”

    “Fixed rate,” automatic COLAs “can be relied on to protect some portion of retirees’ purchasing power.” A “fixed rate,” automatic COLA “may be higher than necessary to protect against inflation in some years and lower than necessary in other years.”

    “It should also be noted that in several states, changes in automatic COLAs are being legally challenged by retirees on the grounds that reductions in vested pension benefits violate contract protections included in the U.S. Constitution and many state constitutions.”

    “As discussed in this article, there are a variety of ways that COLAs can be designed and funded. They can be provided on an ad hoc basis, which helps ensure that the COLA is only provided when judged affordable. However, this may also result in the COLA being of¬fered infrequently, and the cost not being prefunded in the actuarially determined contributions. Alternatively, COLAs can be provided automatically, which helps ensure that the cost-of-living adjustments are provided on a regular basis.”

    Here’s a link to the April 2011 issue:

    http://www.gabrielroeder.com/news/pdf_insight/Insight2011_04.pdf

    If you look around the GRS website, you might also find this issue of GRS News Scan interesting:

    “Colorado PERA Proposes Pension Reform Package

    In late 2005, the Colorado Public Employees’ Retirement Association (PERA) proposed a package of legislative reforms intended to protect the benefits of current plan participants while improving the actuarial soundness of the fund. The proposal would limit “spiking” for current (“Tier 1”) members and create a second tier (“Tier 2”) defined benefit plan for employees hired on or after January 1, 2007. In addition, there would be no guaranteed cost-of living increases after retirement, unlike Tier 1 where most participants receive a guaranteed 3.5 percent COLA.”

    My guess is that this issue of News Scan simply quotes Colorado PERA in referring to the 3.5 percent COLA as “guaranteed.”

    Here’s a link:

    http://www.gabrielroeder.com/news/pdf_newsscan/ns2006-03-Final.pdf#search=“Colorado”

    In the May, 2007 issue of GRS News Scan, GRS reports on the decision of the Rhode Island Supreme Court to overturn a taking of a contracted COLA in Rhode Island:

    “Rhode Island Supreme Court Rules City Council Cannot Alter Retirees’ COLAs”

    “The State Supreme Court held that the COLA benefit contained in Ordinance 1991-5 was a bargained benefit that vested at the time the plaintiffs retired. Consequently, the city was not authorized to amend the plaintiff’s COLA benefit in a future ordinance.”

    This Rhode Island Supreme Court decision leads me to believe that Rhode Island Treasurer Raimondo’s recent COLA taking attempt will not withstand court muster. (However, by the time it’s struck down, she may have very well ridden the COLA theft pony to higher office.)

    http://www.gabrielroeder.com/news/pdf_newsscan/ns2007-05-Final.pdf#search=“COLA”

    Thanks to GRS for publishing excellent public pension educational materials!

  39. Al Moncrief says:

    NEW STUDY: U.S. PUBLIC FUNDS HAVE ALMOST NO ABILITY TO SCALE BACK SPENDING . . . BENEFITS PROTECTED IN CONSTITUTIONS, STATUTORY AND COMMON LAW.

    A new study of pension investment risk taking was released a few days ago. “According to ‘Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?’ posted May 29 on the Social Science Research Network, ‘current laws and regulations effectively exempt states and cities from behaving prudently in how they manage and disclose the financing of pension systems of their employees.’”

    “Taxpayers are on the hook when those bets go bad because, unlike private pensions and 401(k) plans, full public pension benefits are guaranteed.”

    The paper is cited at this link:

    http://montana.watchdog.org/2012/06/01/10783/

    Download the paper here:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2070054

    Although the paper is written for pension geeks and is packed with pension jargon, it contains a few passages of interest to Colorado PERA retirees whose fully-vested PERA pension COLA contracts have been breached. Here they are:

    “Eliminating the contractual inflation protection is one of the measures of last resort available to underfunded pension funds, but its implementation is difficult especially in the U.S. context, as pension benefit promises have strong protections.”

    (My comments: Unless you live in Colorado, in that case, you might embrace a contrivance that your state’s pension inflation protection statutory provisions were never contractual, in spite of the fact that they are set forth in the law with the same force and weight as any other pension statutory provision, which by the way, you argue are contractual obligations. The proponent of your Colorado bill, under constitutional scrutiny, might be dismayed since he is on record stating that the COLA provision is contractual. Also, in you live in Colorado, rather than being a “measure of last resort” breaching COLA contracts is a “measure of first resort.”)

    “The results in Table 8 indicate that public pension funds are more generous as they are more likely to promise contractual inflation protection to their beneficiaries.”

    “U.S. public funds have almost no ability to scale back spending if risky assets underperform expectations, as their benefits are often given special protections in state constitutions as well as through statutory and common law (Brown and Wilcox (2009).”

    “Hence, pension promises of both public and corporate funds are well protected, such that there is little uncertainty about whether the promised benefits will have to be paid.”

    “In sum, we argue that U.S. policy pertaining to public pension funds needs drastic reform and to be brought in line with regulations pertaining to U.S. corporate pension funds, as current laws and regulations effectively exempt states and cities from behaving prudently in how they manage and disclose the financing of pension systems of their employees.”

  40. Al Moncrief says:

    PENNSYLVANIA: PROSPECTIVE MOVE TO A 401K UNDER CONSIDERATION, NO ATTEMPT TO BREACH VESTED PENSION RIGHTS IN CURRENT PROPOSAL.

    “The proposed legislation would change the plans from defined benefit to defined contribution pensions, similar to a 401(k), and combine the state’s two pension programs.”

    “The changes would affect employees hired on or after Dec. 1, 2012.”

    “PSERS alone is only funded at 69.1 percent, with an unfunded liability of $26.5 billion.”

    (Note the similarity between this current Pennsylvania actuarial funded ratio and Colorado PERA’s actuarial funded ratio at the time of the Colorado COLA theft.)

    “The idea would be to combine the state’s two pension plans into a new plan called the Public Employees’ Retirement System, which would encompass all members of the current plans. Employees hired after Dec. 1, 2012, would be enrolled in the new plan. No changes would be made for employees hired before that date. The new plan would move from a defined benefit plan to a defined contribution plan, much like a 401(k).”

    “With a defined benefit plan, the state is on the hook to make sure it’s maintained for the duration of the employee’s life,” Arneson said.”

    “Keever (Pennsylvania State Education Association) said Act 120 of 2010, which sought to address years of underfunding by gradually increasing employer contributions over the next decade, is the best solution to the crisis.”

    http://delcotimes.com/articles/2012/05/31/news/doc4fc833a740f53558544346.txt

    “The state can’t legally change existing employees’ benefits, so targeting new hires is the best viable option. Too bad it wasn’t exercised sooner, affecting new hires already and bringing taxpayers greater and earlier relief.”

    http://triblive.com/opinion/1894927-74/pension-state-defined-contribution-hires-pennsylvania-plans-taxpayers-billion-course

    “Brubaker said he supports the idea of reducing future benefits of current state workers because the pension system is not sustainable. But, he said, such a move would almost certainly run into legal obstacles.”

    http://lancasteronline.com/article/local/658679_GOP-wants-pension-reform-.html#ixzz1wf7xlXZo

    “New state employees would get a retirement plan like a 401(k) instead of a guaranteed state pension under legislation Senate Republicans are crafting.”

    http://triblive.com/home/1880796-74/county-defined-plan-system-employees-legislation-retirement-senate-benefit-contribution

    “David Fillman, executive director of the Pennsylvania council of American Federation of State, County and Municipal Employees, a union for public and nonprofit employees.”

    (Fillman said) “by law, the state is locked into paying legacy costs for existing employees.”

    http://watchdog.org/18660/pa-pension-reform-for-future-employees-not-enough/

    “The governor has been quiet as to any viable long-term solution to funding pensions for state employees, teachers and other public workers, but the article also indicates the governor favors a transition to a worker funded 401(k) type of retirement plan. The Pittsburgh Post-Gazette highlights a plan that would impose a $2 per person entry fee to all state casinos, which would send the bulk of the raised funds to cover the state pension system.”

    http://news.yahoo.com/pennsylvania-puts-pension-reform-spotlight-153600447.html

    From the Pennsylvania School Board’s Association:

    “Another reality that bounds this discussion is that pension benefits already enacted for school employees cannot be reduced. Court decisions effectively have precluded any effort to scale back those benefits for active members of PSERS, not just those who are vested. This means, simply stated, that any change – such as a reduction in the multiplier that determines the benefit level or an increase in the vesting period, for instance – only could be enacted prospectively.”

    http://www.psba.org/issues-advocacy/issues-research/funding-finance/PSBAPensionStudyCommitteeReport.pdf

  41. Al Moncrief says:

    ILLINOIS ABANDONS PENSION REFORM FOR NOW – INCLUDING A PROPOSAL TO ATTEMPT A TAKING OF FULLY-VESTED RETIREE COLA BENEFITS.

    A bill that was adopted by the Illinois Senate would have “imposed pension reductions on the General Assembly Retirement System and the State Employee Retirement System. System participants would have to choose between (1) reduced COLA’s and having salary increases apply to their pensions along with access to retiree health insurance; or (2) existing COLA but no pensionable salary increases and no access to retiree health insurance.

    The GA will likely attempt to use this bill as a model to reduce all of our benefits eventually.”

    http://firstresponderpensionfacts.com/

    Here’s a statement from the Illinois AFL-CIO:

    “At the conclusion of the spring legislative session, Illinois AFL-CIO president Michael T. Carrigan issued the following statement on behalf of We Are One Illinois:”

    “We are disappointed that the Illinois Senate voted in favor of legislation that attempts to shift the lion’s share of the burden for Illinois pension debt onto employees and retirees, who have faithfully contributed their share over their working lives. We do not believe that HB 1447 represents a constitutional or fair solution to the problem of pension underfunding.”

    “For months our coalition of unions representing active and retired public employees has made every effort to work with lawmakers to reach a fair solution to the pension funding problem. While we opposed bills that violated the state constitution and placed an unfair burden on working and retired public employees, we remain committed to doing our part to restore solvency to the pension funds on which so many employees depend for their retirement security.”

    http://news.mywebpal.com/news_tool_v2.cfm?show=localnews&pnpID=469&NewsID=1018093&CategoryID=20359&on=1
    _________________
    Colorado public sector unions; in hindsight don’t you regret having sold out retirees? The Illinois AFL-CIO worked to protect both active and retired pension members, and to ensure that the rule of law prevails. As Illinois unions are pointing out, legislation that breaches contracts would be used in the future as a model for further breaches. If the effort to breach fully-vested pension contracts were to succeed in Colorado, you can rest assured that the Colorado General Assembly will obliterate partially-vested rights in the future. That would be the end of any future attention from the General Assembly to paying its annual required contributions, or even considering public pensions an obligation of state and local governments. Pensions would become a gratuity. In Colorado, only a court order has significance, honor and morality are not part of the equation.

    ____________

    The Illinois House Speaker introduced an alternative bill to HB 1447 that would have required school districts to pay for the cost of their employee’s pensions:

    “Both Democrats and Republicans acknowledge that the current pension system is unsustainable, the result of decades of insufficient state tax dollars being pumped into the retirement funds.

    The pension drama started Wednesday night, when Democratic House Speaker Michael Madigan said he would remove himself as the sponsor of pension reform and hand it off to his Republican counterpart, Rep. Tom Cross. The two leaders disagreed on a provision Madigan wanted to shift pension costs for suburban and Downstate teacher retirement from the state to local school districts. Cross said that would result in property tax hikes.

    While the House pension talks collapsed, the Senate sought to politically insulate itself by passing a plan affecting the pensions of themselves and state workers — even though the legislation was not taken up in the House.

    The measure, which would not affect teacher pensions, requires state workers and lawmakers and retirees to accept smaller cost-of-living increases than the current 3 percent level if they want to keep their access to state health insurance.”

    http://www.chicagotribune.com/news/local/ct-met-illinois-legislature-0601-20120601,0,4556433.story

    One Republican went ballistic during the debate, here’s some video from the Sacramento Bee:

    “On Wednesday, Bost explained that the bill’s last-minute introduction in the waning moments of the 2012 session set him off.

    The Chicago Sun-Times reported that Republicans didn’t like the bill “because of a gradual cost shift from the state to suburban and Downstate school systems, which for the first time would have to pay teacher and administrator pension costs instead of the state.”

    http://blogs.sacbee.com/the_state_worker/2012/05/illinois-lawmaker-launches-rant-over-pension-legislation.html

  42. Al Moncrief says:

    THE COLORADO PERA BOARD OF TRUSTEES AND THEIR STRANGE MOTIONS – FEBRUARY 10, 2006 PERA BOARD MEETING.

    Surfing around I came across this really weird motion that was made at the February 10, 2006 PERA Board Meeting:

    “A motion was made by Scott Noller and seconded by Carole Wright that “as it is in the best interest of the members and beneficiaries of PERA that any laws affecting PERA be legally adopted, that staff take appropriate action, including incurring reasonable expenses, to ensure that any laws affecting PERA be legally adopted.”

    The motion was amended to read as follows, and then approved:

    “A motion was made by Scott Noller and seconded by Carole Wright that “as it is in the best interest of the members and beneficiaries of PERA, and in compliance with the fiduciary obligation of the Board of Trustees, that any laws affecting PERA be legally adopted, that staff take appropriate action, including incurring reasonable expenses, to ensure that any laws affecting PERA be legally adopted.”

    This motion was made immediately after the Board recessed a closed, executive session.

    This is one strange motion. What does the Board mean by “any laws affecting PERA be legally adopted”? Or, that it’s the Board’s fiduciary obligation to ensure that “laws affecting PERA be legally adopted”?

    Would such a Board policy preclude the PERA Board from endorsing proposed legislation that might be found unconstitutional? If I were a risk averse PERA Board member, and it was my fiduciary obligation only to support constitutional PERA reform legislation, I would insist on having a legal opinion in hand deeming the legislation under consideration likely “constitutional” before I voted to support it. I would insist on having such a legal opinion, even if the legal opinion was necessarily a “secret” legal opinion.

    Was the Board concerned that “laws affecting PERA” might not be “legally adopted”? What potential laws were they concerned about that might not be “legal” in 2006? In the opinion of the Board what types of laws could ever be illegally adopted? Does this PERA Board motion remain in force? Or, has the Board stricken it from Board policy at some point over the years?

    To answer these questions, I suppose we would have to listen to the tape of this PERA Board meeting, but what an unusual motion this was!

    Here’s a link to the February 10, 2006 PERA Board meeting summary on DocStoc:

    http://www.docstoc.com/docs/61834277/Colorado-Public-Employees-Retirement-Association

  43. Al Moncrief says:

    PERA FILED LEGAL CHALLENGES TO A 2006 PERA REFORM INITIATIVE.

    Yesterday, I came across an old article from the Rocky Mountain News archives that mentions a legal opinion on the constitutionality of taking public pension benefits by Greg Smith, Colorado PERA’s Interim Executive Director and General Counsel.

    So, I was inspired to search through the Rocky archives for more articles that have been written about PERA over the years.

    Unfortunately, it looks like searches of the Rocky on this news archives can only be conducted effectively back through 2006.

    Here’s a link to the searchable Rocky Mountain News archives:

    http://m.rockymountainnews.com/search/

    My search of the archives turned up 20 Rocky articles or letters to the editor of interest that were printed over about a three year period. Reading the articles helps set the stage for the taking of fully-vested retiree benefits that occurred in 2010. During that three year period, Republicans continued to warn of rising PERA unfunded liabilities and advocated policies to curtail PERA employer’s pension obligations, but were blocked by public sector unions wanting to protect their working members. I suspect that the public sector unions realized that the 2008 market downturn would be a catalyst for changes to PERA, and acted to protect their members with partially-vested pension rights. I suspect that a decision was made to proactively advocate PERA reforms that would shift the coming burden onto the backs of unorganized PERA retirees. There are many who know the full story. I imagine that someday we all will know who the prime movers were . . . who originated and sold the idea to hit fully-vested pension rights first. So, a deal was cut. Entering this Faustian Bargain were Governor Ritter, Shaffer and Penry to act as “bi-partisan” prime sponsors, many Democrats (with a few noble exceptions), a relative handful of Republicans, public sector unions, and Colorado PERA. Two years later PERA retirees are still choking on the smoke from that room.

    Colorado PERA quickly changed its tune. The drumbeat of PERA staff warnings about breaches of pension contracts ceased. Who originally approached the PERA Board with this SB 10-001 scheme? Where did the idea to push the cost of reforms onto retirees originate? Were the PERA road show, the “secret” PERA legal opinion, or the actuarial analyses orchestrated from the outset to support the effort? The combined lobbying and political influence of the parties provided the critical mass for SB 10-001 to squeak through the legislative process.

    Let me know if you can correct or elaborate on this narrative.

    Here’s a compelling passage from one of the articles:

    “PERA, which filed legal challenges to the ballot proposal, said in a statement Wednesday that ‘the PERA Board of Trustees has consistently opposed wholesale conversion to defined contribution plans.’”

    It would be worthwhile locating these “filed legal challenges.”

    The “filings” might shed light on the PERA Board’s perspectives on the contractual nature of pension rights.

    The PERA legal challenges addressed a state-wide PERA reform proposal filed by Dr. Barry Poulson of Americans for Prosperity.
    The group later opted against proceeding with the PERA reform initiative. Here’s a news account of the event:

    http://www.americansforprosperity.org/americans-prosperity-withdraws-pera-ballot-initiative-sees-some-gains-and-continued-problems-comprom

    and another news account commenting on the initiative:

    “The staff issued 16 substantive questions to Poulson and Christine Burtt of AFP, including concerns about possible litigation from current PERA members resulting from benefits reductions. Burtt replied there would be litigation no matter what action is taken to address PERA’s problems, and said the ballot initiative doesn’t reduce current retirees’ benefits or increase taxpayer costs.”

    “Joint Budget Commitee member Rep. Bernie Buescher (D-Grand Junction) told S&GR this week that he hopes in the next week to meet with representatives of CAPE, CEA, the Colorado Federation of Public Employees, the Colorado Association of School Executives, PERA and Gov. Bill Owens to work out a PERA solution.”

    https://www.cu.edu/sg/messages/4829.html

    Here are the complete results of the Rocky article search:

    From Rocky Mountain News Archives 2009 through 2006.

    “Most current PERA members get a guaranteed 3.5 percent increase each year. PERA members hired after July 1, 2005, get 3 percent or the actual Consumer Price Index, whichever is lower.”

    http://m.rockymountainnews.com/news/2005/dec/20/pera-proposes-two-tier-pension/

    “Future employees wouldn’t enjoy guaranteed annual increases after retirement. Most current members get an automatic 3.5 percent increase each year.”

    http://m.rockymountainnews.com/news/2005/dec/23/pera-plan-doesnt-go-far-enough/

    “In response, PERA Executive Director Meredith Williams has proposed a tepid rescue plan that doesn’t lay a glove on current PERA members. It’s a joke. Williams claims that any compromises in promised benefits to current employees could be deemed unconstitutional.”

    http://m.rockymountainnews.com/news/2006/jan/13/brosenb-slay-the-pera-dinosaur/

    “The plan also protects current members’ benefits while creating a second tier for employees hired in 2007 or later. Those employees would get a smaller annual benefit and would not be guaranteed a cost-of-living increase.”

    “PERA spokeswoman Katie Kaufmanis declined to comment on the governor’s proposal, saying the pension plan’s board would review any legislation once it’s introduced. PERA’s proposal stabilizes the fund without harming ‘the legally protected benefits that current members and retirees have,’ she said.”

    http://m.rockymountainnews.com/news/2006/jan/13/owens-touts-pera-plan/

    “We believe lawmakers already have that authority, but PERA disagrees. It insists benefits can’t be cut for current retirees and employees, and claims court decisions uphold that view.”

    http://m.rockymountainnews.com/news/2006/jan/18/no-time-to-lose-on-pera-reform/

    “A Public Employees Retirement Association pension is not a government gift. At the beginning of the contract, employee and employer both agreed to pay into it and agree on what the benefits will be upon retirement. Employees can get by on the low starting salaries because saving for retirement is already provided through PERA. If new hires do Social Security and a 401(k) plan, I suppose that’s an option, but it’s too late to change what was promised to current employees and those who have already retired.”

    Alan Sipes

    http://m.rockymountainnews.com/news/2006/feb/03/letters-to-the-editor-february-3/

    “The University of Colorado’s nonclassified exempt professionals opted out of PERA for a defined-contribution plan. CU is contributing 10 percent to this defined-contribution plan and then 6.2 percent to their Social Security for a 16.2 percent total. In contrast, the taxpayer is paying 10.65 percent in total for a PERA member. I urge much study and thought before altering any aspect of the state’s pension program.”

    M.A. Schmitz

    http://m.rockymountainnews.com/news/2006/feb/09/letters-to-the-editor-february-9/

    “A bill that would have scrapped PERA for all future public employees was killed in a House committee Wednesday.
    Rep. Joe Stengel, R-Littleton, had proposed that all new employees be placed in a defined-contribution retirement plan where they invest their own money.

    The bill also would define the conditions under which pension benefits could be reduced for active employees who had not yet retired.

    PERA Executive Director Meredith Williams testified against the Stengel bill, calling it a “gross overreaction to the long-term challenges PERA faces. . . . It’s akin to having a car with a flat tire, throwing it away and buying a new one. PERA suggests we fix the flat tire and keep on rolling.”

    http://m.rockymountainnews.com/news/2006/feb/09/plan-to-dump-pera-dies-in-house-panel/

    “‘This is a window of opportunity that won’t be back for a while,’ Owens said, adding that he’s well-positioned to take the issue on in his final year in office.

    One reform plan, brought forward by PERA itself, creates a new ‘tier’ of benefit recipients hired on Jan. 1, 2007, or later. Those employees would get an annual benefit 16 percent lower than current PERA members. There also would not be an automatic cost-of-living increase, as current members get.”

    “It defines ‘actuarial necessity’ in state law, opening the door for benefit reductions for current PERA members who have not retired.”

    http://m.rockymountainnews.com/news/2006/feb/11/governor-demands-pera-solution/

    “In an e-mailed statement, spokeswoman Katie Kaufmanis said PERA’s funded status at the end of 2004 ‘is the same as the funded status 20 years ago, and there was not a perceived crisis at that time. . . . PERA continues to enjoy positive cash flow and will be able to meet current and future retirement benefit payments for many decades in the future.’”

    http://m.rockymountainnews.com/news/2006/feb/24/peras-red-ink-stains-colorado/

    “’Crisis’ in PERA is politically motivated
    Check the facts!
    • The employer contribution rate to the Colorado Public Employees’ Retirement Association for 2006 is 9.63 percent.
    • The average rate of 11 Colorado public plans is 13.2 percent.
    • Large-state pension plans have an average employer contribution rate of 14.1 percent (this is a 10-state average; Ohio is 9.0 percent while California 22.1 percent).
    • The seven neighboring state plans average 17.2 percent.
    • And the average for private employers (300 Colorado companies) is 14.16 percent.
    Colorado PERA recipients do not receive Social Security benefits. This is a politically motivated crisis (“Teachers union and others oppose PERA reform plan,” April 11). The unfunded portion of PERA assets are no different from a mortgage on a house – payments are made over time.

    PERA benefits are not excessive, but on a par with private employers when Social Security benefits are factored in.”

    Phyllis Stallins

    http://m.rockymountainnews.com/news/2006/apr/14/letters-to-the-editor-april-14/

    “Some of the changes for new PERA hires after Jan. 1, 2007:
    • They will not have the guaranteed 3 percent cost-of-living increase that active members and retirees get. Instead, it will be the lower of 3 percent or the Consumer Price Index. Retirees may have to wait a year or more after retirement to get the increase, and PERA will need to have the COLA money in a special fund before it’s paid.”

    http://m.rockymountainnews.com/news/2006/may/10/bill-leaves-current-pera-benefits-intact/

    May 11, 2006

    “A group trying to scrap the state’s public pension has withdrawn its proposed ballot initiative, deciding it lacks voter appeal now that legislators have found a solution.”

    “PERA, which filed legal challenges to the ballot proposal, said in a statement Wednesday that ‘the PERA Board of Trustees has consistently opposed wholesale conversion to defined contribution plans.’”

    http://m.rockymountainnews.com/news/2006/may/11/group-scrubs-pera-initiative/

    “Adjustments to the benefits for hires as of 2007 – including no guaranteed cost-of-living increase to pension payments – are supposed to make the difference.”

    http://m.rockymountainnews.com/news/2006/jun/17/peras-liabilities-grow/

    “1997: Denver Public Schools becomes the first school district in the nation to pay off a huge pension fund shortfall by borrowing $380 million and using its own buildings as collateral.”

    “2004: DPS again fails to pay the recommended employer contribution rate.”

    “Result: Retirement system officials estimate the chronic underfunding of the plan has resulted in a $64.8 million shortfall as of Dec. 31, 2006 – a figure that continues to grow.”

    “Haven’t other companies cut their employees’ pension benefits? What about Enron and United Airlines?

    “The rules are completely different for public pensions. Benefits are understood to be a contract under state law, and benefits for retirees and active employees can be reduced only when a plan is basically out of money.”

    http://m.rockymountainnews.com/news/2007/jun/25/dps-decade/

    “Decisions to increase retirement benefits were influenced by DPS’ desire to join PERA, the state retirement system, and merging is more likely if the systems offer similar benefits.”

    http://m.rockymountainnews.com/news/2007/jun/25/dps-decade/

    “PERA had led the way in boosting its benefits as soon as the boomtime market returns reversed years of underfunding. DPS felt it had no choice but to follow suit.”

    http://m.rockymountainnews.com/news/2007/jun/27/up-and-down-17th-no-gold-star-for-dps-in-80/

    “PERA was a leader among public pensions to invest significantly in the higher returns of the stock market. That enabled Colorado taxpayers to put less in the plan. It also allowed PERA and the state legislature to repeatedly boost benefits, including making it easier to retire early.”

    http://m.rockymountainnews.com/news/2007/jul/12/pera-rebounding-but-some-funding-troubles-remain/

    “The benefits part is the tricky one, as PERA has suggested in the past that it’s possible that any member with a day of service in the pension system cannot take a cut in benefits without an offsetting reduction in the amount they pay into the plan.”

    http://m.rockymountainnews.com/news/2009/jan/17/pera-faces-30-billion-funding-shortfall/

    “Define an “actuarial necessity” that automatically triggers a legislative response. PERA’s board has long argued that the state constitution may require any benefit cuts to be paired with equal reductions in contributions, unless the changes are ‘actuarially necessary.’”

    http://m.rockymountainnews.com/news/2009/jan/24/lawmakers-must-act-now-on-pensions/

  44. Al Moncrief says:

    PERA FILED LEGAL CHALLENGES TO A 2006 PERA REFORM INITIATIVE.

    Yesterday, I came across an old article from the Rocky Mountain News archives that mentions a legal opinion on the constitutionality of taking public pension benefits by Greg Smith, Colorado PERA’s Interim Executive Director and General Counsel.

    That success inspired me to search through the Rocky archives for more articles that have been written about PERA over the years. Unfortunately, it looks like searches of the Rocky on this news archives can only be conducted effectively back through 2006. Here’s a link to the searchable Rocky Mountain News archives:

    http://m.rockymountainnews.com/search/

    My search of the archives turned up 20 Rocky articles or letters to the editor of interest that were printed over about a three year period. Reading the articles helps set the stage for the taking of fully-vested retiree benefits that occurred in 2010. During that three year period, Republicans continued to warn of rising PERA unfunded liabilities and advocated policies to curtail PERA employer’s pension obligations, but were blocked by public sector unions wanting to protect their working members. I suspect that the public sector unions realized that the 2008 market downturn would be a catalyst for changes to PERA, and acted to protect their members with partially-vested pension rights. I suspect that a decision was made to proactively advocate PERA reforms that would shift the coming burden onto the backs of unorganized PERA retirees. There are many who know the full story. I imagine that someday we all will know who the prime movers were . . . who originated and sold the idea to hit fully-vested pension rights first. So, a deal was cut. Entering this Faustian Bargain were Governor Ritter, Shaffer and Penry to act as “bi-partisan” prime sponsors, many Democrats (with a few noble exceptions), a relative handful of Republicans, public sector unions, and Colorado PERA. Two years later PERA retirees are still choking on the smoke from that room.

    Colorado PERA quickly changed its tune. The drumbeat of PERA staff warnings about breaches of pension contracts ceased. Who originally approached the PERA Board with this SB 10-001 scheme? Where did the idea to push the cost of reforms onto retirees originate? Were the PERA road show, the “secret” PERA legal opinion, or the actuarial analyses orchestrated from the outset to support the effort? The combined lobbying and political influence of the parties provided the critical mass for SB 10-001 to squeak through the legislative process.

    Let me know if you can correct or elaborate on this narrative.

    Here’s a compelling passage from one of the articles:

    “PERA, which filed legal challenges to the ballot proposal, said in a statement Wednesday that ‘the PERA Board of Trustees has consistently opposed wholesale conversion to defined contribution plans.’”

    It would be worthwhile locating these “filed legal challenges.” The “filings” might shed light on the PERA Board’s perspectives on the contractual nature of pension rights.

    The PERA legal challenges addressed a state-wide PERA reform proposal filed by Dr. Barry Poulson of Americans for Prosperity.

    The group later opted against proceeding with the PERA reform initiative. Here’s a news account of the event:

    http://www.americansforprosperity.org/americans-prosperity-withdraws-pera-ballot-initiative-sees-some-gains-and-continued-problems-comprom
    and another news account commenting on the initiative:

    “The staff issued 16 substantive questions to Poulson and Christine Burtt of AFP, including concerns about possible litigation from current PERA members resulting from benefits reductions. Burtt replied there would be litigation no matter what action is taken to address PERA’s problems, and said the ballot initiative doesn’t reduce current retirees’ benefits or increase taxpayer costs.”

    “Joint Budget Commitee member Rep. Bernie Buescher (D-Grand Junction) told S&GR this week that he hopes in the next week to meet with representatives of CAPE, CEA, the Colorado Federation of Public Employees, the Colorado Association of School Executives, PERA and Gov. Bill Owens to work out a PERA solution.”

    https://www.cu.edu/sg/messages/4829.html

    Here are the complete results of the Rocky article search:

    From Rocky Mountain News Archives 2009 through 2006.

    “Most current PERA members get a guaranteed 3.5 percent increase each year. PERA members hired after July 1, 2005, get 3 percent or the actual Consumer Price Index, whichever is lower.”

    http://m.rockymountainnews.com/news/2005/dec/20/pera-proposes-two-tier-pension/

    “Future employees wouldn’t enjoy guaranteed annual increases after retirement. Most current members get an automatic 3.5 percent increase each year.”

    http://m.rockymountainnews.com/news/2005/dec/23/pera-plan-doesnt-go-far-enough/

    “In response, PERA Executive Director Meredith Williams has proposed a tepid rescue plan that doesn’t lay a glove on current PERA members. It’s a joke. Williams claims that any compromises in promised benefits to current employees could be deemed unconstitutional.”

    http://m.rockymountainnews.com/news/2006/jan/13/brosenb-slay-the-pera-dinosaur/

    “The plan also protects current members’ benefits while creating a second tier for employees hired in 2007 or later. Those employees would get a smaller annual benefit and would not be guaranteed a cost-of-living increase.”

    “PERA spokeswoman Katie Kaufmanis declined to comment on the governor’s proposal, saying the pension plan’s board would review any legislation once it’s introduced. PERA’s proposal stabilizes the fund without harming ‘the legally protected benefits that current members and retirees have,’ she said.”

    http://m.rockymountainnews.com/news/2006/jan/13/owens-touts-pera-plan/

    “We believe lawmakers already have that authority, but PERA disagrees. It insists benefits can’t be cut for current retirees and employees, and claims court decisions uphold that view.”

    http://m.rockymountainnews.com/news/2006/jan/18/no-time-to-lose-on-pera-reform/

    “A Public Employees Retirement Association pension is not a government gift. At the beginning of the contract, employee and employer both agreed to pay into it and agree on what the benefits will be upon retirement. Employees can get by on the low starting salaries because saving for retirement is already provided through PERA. If new hires do Social Security and a 401(k) plan, I suppose that’s an option, but it’s too late to change what was promised to current employees and those who have already retired.”

    Alan Sipes

    http://m.rockymountainnews.com/news/2006/feb/03/letters-to-the-editor-february-3/

    “The University of Colorado’s nonclassified exempt professionals opted out of PERA for a defined-contribution plan. CU is contributing 10 percent to this defined-contribution plan and then 6.2 percent to their Social Security for a 16.2 percent total. In contrast, the taxpayer is paying 10.65 percent in total for a PERA member. I urge much study and thought before altering any aspect of the state’s pension program.”

    M.A. Schmitz

    http://m.rockymountainnews.com/news/2006/feb/09/letters-to-the-editor-february-9/

    “A bill that would have scrapped PERA for all future public employees was killed in a House committee Wednesday.
    Rep. Joe Stengel, R-Littleton, had proposed that all new employees be placed in a defined-contribution retirement plan where they invest their own money.

    The bill also would define the conditions under which pension benefits could be reduced for active employees who had not yet retired.

    PERA Executive Director Meredith Williams testified against the Stengel bill, calling it a “gross overreaction to the long-term challenges PERA faces. . . . It’s akin to having a car with a flat tire, throwing it away and buying a new one. PERA suggests we fix the flat tire and keep on rolling.”

    http://m.rockymountainnews.com/news/2006/feb/09/plan-to-dump-pera-dies-in-house-panel/

    “‘This is a window of opportunity that won’t be back for a while,’ Owens said, adding that he’s well-positioned to take the issue on in his final year in office.

    One reform plan, brought forward by PERA itself, creates a new ‘tier’ of benefit recipients hired on Jan. 1, 2007, or later. Those employees would get an annual benefit 16 percent lower than current PERA members. There also would not be an automatic cost-of-living increase, as current members get.”

    “It defines ‘actuarial necessity’ in state law, opening the door for benefit reductions for current PERA members who have not retired.”

    http://m.rockymountainnews.com/news/2006/feb/11/governor-demands-pera-solution/

    “In an e-mailed statement, spokeswoman Katie Kaufmanis said PERA’s funded status at the end of 2004 ‘is the same as the funded status 20 years ago, and there was not a perceived crisis at that time. . . . PERA continues to enjoy positive cash flow and will be able to meet current and future retirement benefit payments for many decades in the future.’”

    http://m.rockymountainnews.com/news/2006/feb/24/peras-red-ink-stains-colorado/

    “’Crisis’ in PERA is politically motivated
    Check the facts!

    • The employer contribution rate to the Colorado Public Employees’ Retirement Association for 2006 is 9.63 percent.
    • The average rate of 11 Colorado public plans is 13.2 percent.
    • Large-state pension plans have an average employer contribution rate of 14.1 percent (this is a 10-state average; Ohio is 9.0 percent while California 22.1 percent).
    • The seven neighboring state plans average 17.2 percent.
    • And the average for private employers (300 Colorado companies) is 14.16 percent.

    Colorado PERA recipients do not receive Social Security benefits. This is a politically motivated crisis (“Teachers union and others oppose PERA reform plan,” April 11). The unfunded portion of PERA assets are no different from a mortgage on a house – payments are made over time.

    PERA benefits are not excessive, but on a par with private employers when Social Security benefits are factored in.”

    Phyllis Stallins

    http://m.rockymountainnews.com/news/2006/apr/14/letters-to-the-editor-april-14/

    “Some of the changes for new PERA hires after Jan. 1, 2007:

    • They will not have the guaranteed 3 percent cost-of-living increase that active members and retirees get. Instead, it will be the lower of 3 percent or the Consumer Price Index. Retirees may have to wait a year or more after retirement to get the increase, and PERA will need to have the COLA money in a special fund before it’s paid.”

    http://m.rockymountainnews.com/news/2006/may/10/bill-leaves-current-pera-benefits-intact/

    May 11, 2006

    “A group trying to scrap the state’s public pension has withdrawn its proposed ballot initiative, deciding it lacks voter appeal now that legislators have found a solution.”

    “PERA, which filed legal challenges to the ballot proposal, said in a statement Wednesday that ‘the PERA Board of Trustees has consistently opposed wholesale conversion to defined contribution plans.’”

    http://m.rockymountainnews.com/news/2006/may/11/group-scrubs-pera-initiative/

    “Adjustments to the benefits for hires as of 2007 – including no guaranteed cost-of-living increase to pension payments – are supposed to make the difference.”

    http://m.rockymountainnews.com/news/2006/jun/17/peras-liabilities-grow/

    “1997: Denver Public Schools becomes the first school district in the nation to pay off a huge pension fund shortfall by borrowing $380 million and using its own buildings as collateral.”

    “2004: DPS again fails to pay the recommended employer contribution rate.”

    “Result: Retirement system officials estimate the chronic underfunding of the plan has resulted in a $64.8 million shortfall as of Dec. 31, 2006 – a figure that continues to grow.”

    “Haven’t other companies cut their employees’ pension benefits?
    What about Enron and United Airlines?

    “The rules are completely different for public pensions. Benefits are understood to be a contract under state law, and benefits for retirees and active employees can be reduced only when a plan is basically out of money.”

    http://m.rockymountainnews.com/news/2007/jun/25/dps-decade/

    “Decisions to increase retirement benefits were influenced by DPS’ desire to join PERA, the state retirement system, and merging is more likely if the systems offer similar benefits.”

    http://m.rockymountainnews.com/news/2007/jun/25/dps-decade/

    “PERA had led the way in boosting its benefits as soon as the boomtime market returns reversed years of underfunding. DPS felt it had no choice but to follow suit.”

    http://m.rockymountainnews.com/news/2007/jun/27/up-and-down-17th-no-gold-star-for-dps-in-80/

    “PERA was a leader among public pensions to invest significantly in the higher returns of the stock market. That enabled Colorado taxpayers to put less in the plan. It also allowed PERA and the state legislature to repeatedly boost benefits, including making it easier to retire early.”

    http://m.rockymountainnews.com/news/2007/jul/12/pera-rebounding-but-some-funding-troubles-remain/

    “The benefits part is the tricky one, as PERA has suggested in the past that it’s possible that any member with a day of service in the pension system cannot take a cut in benefits without an offsetting reduction in the amount they pay into the plan.”

    http://m.rockymountainnews.com/news/2009/jan/17/pera-faces-30-billion-funding-shortfall/

    “Define an “actuarial necessity” that automatically triggers a legislative response. PERA’s board has long argued that the state constitution may require any benefit cuts to be paired with equal reductions in contributions, unless the changes are ‘actuarially necessary.’”

    http://m.rockymountainnews.com/news/2009/jan/24/lawmakers-must-act-now-on-pensions/

  45. SeaDee says:

    A public employee retirement pension fund in US territory has filed for Chapter 11 bankruptcy:

    http://www.npr.org/blogs/money/2012/05/24/153442859/bankrupt-in-paradise

    Under US bankruptcy law, States and Commonwealths cannot file for bankruptcy. So this fund is arguing that it isn’t a governmental entity – that it merely works for the government. If this legal argument prevails, the new precedent will allow State pension funds across America to declare a “crisis,” file for bankruptcy, and pay their retirees pennies on the dollars they were originally promised.

    • Tim Hansford says:

      This case was thrown out last Friday by the bankruptcy court there, in the Northern Marianas islands.

  46. SeaDee says:

    Nice work, Al!

  47. Al Moncrief says:

    LET’S HAVE A LOOK AT GREG SMITH’S LEGAL OPINION ON THE CONSTITUTIONALITY OF PERA PENSION BENEFIT CUTS.

    Last week, I had this vague recollection of having read at one time that Greg Smith, Colorado PERA’s “Interim Executive Director,” or “Chief Operating Officer and General Counsel,” or simply “General Counsel” in recent years (I hope we’re not paying for all of these business cards) had weighed in on the constitutionality of various public pension benefit cuts.

    Well, I came across this old article by David Milestead, former Finance Editor for the (now deceased) Rocky Mountain News.

    http://m.rockymountainnews.com/news/2005/Aug/17/span-classdeeplinksredpart-four-the-pera-puzzle/

    I was pleased to discover that I still have a few functional neurons.

    Here are some excerpts from the Milstead article that are interesting:

    “The PERA board, however, relying on a legal opinion by General Counsel Greg Smith, thinks benefits cannot be cut for any active PERA member. That means not just current retirees and workers who are eligible to retire but the brand-new employee who has put less than a year of contributions into the plan.”

    “Smith argued, however, that there is no precedent for declaring an actuarial emergency unless a pension fund has a serious cash liquidity problem.”

    “PERA’s board does not think it can make any negative change to benefits for any active member without getting sued.”

    “At the time (2002), stock prices had taken a huge hit, and, with interest rates low, bond prices were at historic highs. PERA sold low and bought high in making the move.”

    Are retirees bailing out PERA with SB 10-001?

    “Bruce Mendelson, a 58-year-old retired analyst from the Department of Health, said, ‘They took 8 percent out of my check for 30 years. To me, that’s a contract with the state of Colorado. You serve them well, and this is what you get in return. I kept my part of the bargain, and I expect the state to keep their end of the bargain.’”

  48. Al Moncrief says:

    COLORADO PERA: LITERALLY REWRITING HISTORY.

    Over the years, Colorado PERA has published, and periodically updated a memorandum with a title along the lines of “History of Colorado PERA Legislation.”

    The 2009 version of this memorandum is stored on the website of the Colorado General Assembly at this link:

    http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251603807998&ssbinary=true

    Right clicking on this PDF, and then clicking on “Document Properties” reveals that the memorandum was prepared by Mr. Karl Paulson of Colorado PERA on 11/30-2009.

    This 2009 version of the memo describes the COLAs in HB 00-1458 and HB 93-1324 as follows:

    HB 00-1458

    “Established 3.5% compounded annual automatic COLA effective March 2001.” “Prior to this date, the annual COLA equaled the lower of the actual inflation rate or annual 3.5% cumulative increases since retirement.”

    HB 93-1324

    “Changed annual COLA to 3.5% maximum, compounded annually, based on the CPI, and folded the PERA CLSF into the PERA pension trust funds.”

    If the “document properties” are correct, Karl Paulson of Colorado PERA described the HB 00-1458 COLA as “compounded annual automatic.”

    This 2009 version of the memo lacks a “disclaimer.”

    A new, improved, and reformatted version of the memo called the “History of PERA Benefit Changes” is currently available on Colorado PERA’s website at this link:

    http://www.copera.org/pera/active/benefithistory.htm

    The new, reformatted version of the memo “History of PERA Benefit Changes” eliminates all of the bill numbers, but retains the description of the HB 93-1324 COLA:

    “Changed annual benefit increase to maximum of 3.5% compounded annually and folded Cost-of-Living Stabilization Fund into pension fund.”

    In PERA’s new version of the memo the description of the COLA in HB 00-1458 has inexplicably vanished.

    However, this new version, the “History of PERA Benefit Changes” memo has prudently included a nice disclaimer, whereas the older, 2009 version lacks a disclaimer.

    This strikes me as odd. In the newly formatted version of the History of PERA Benefit Changes memo there was insufficient space to include the description of the HB 00-1458 COLA. However, there was sufficient space to include the nice, new disclaimer.

    We all have to make editorial choices in our writing.

  49. Al Moncrief says:

    THE PERA ANSWER BRIEF DISCUSSES “NEWSLETTERS,” A. MONCRIEF MUSES ABOUT IT.

    It surprises me that just an average Joe with a laptop can identify errors in a state lawyer’s legal brief. In their Answer Brief, the attorneys for the state agency Colorado PERA write:

    “None of the fact sheets or newsletters make any statement as to frozen benefits for retirees or their spouses.”

    The Answer Brief notes that the “fact sheets” have disclaimers, but apparently the “newsletters” do not.

    Why does the Answer Brief make a distinction between these two PERA publications? I suppose we could dig around and find some fact sheets that lack disclaimers. Well, we can’t take the time right now to dig through ALL of the PERA fact sheets and newsletters that have been published over the years, there are hundreds, so let’s just sneak a peek at one of them. This one is a favorite, since it refers to the PERA retiree COLA as “automatic,” and “guaranteed.”

    From PERA Legislative Update, February 2006:

    http://www.copera.org/pdf/Legislation/2006/LegUp2-06.pdf

    “Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

    “PERA members hired January 1, 2007 or later, called PERA Centennial, no guaranteed annual increase after retirement.”

    PERA attorneys, check it out . . . this PERA Legislative Update is an example of a bona fide PERA newsletter that identifies the PERA retiree COLA as “automatic” and “guaranteed,” and it’s “disclaimer free.”

    So, Colorado PERA retirees have a “guaranteed,” “automatic,” “annual increase,” i.e., a “frozen” PERA COLA. In defined benefit pension administration a COLA that is not “frozen” is known as an “ad hoc” COLA.

    I know that some of you are having difficulty grasping the distinction between “automatic” COLAs and “ad hoc” COLAs. (Apologies for the snark. I’m trying to suppress it, but I’m naturally snarky.) I recommend that you visit with any of the 200+ Colorado PERA staff members about this. Even the Front Desk people know the difference (seriously, they are incredibly knowledgeable for employees on the front line of public calls.)

    Some of these PERA employees have worked in defined benefit pension administration for decades, and this distinction could not be plainer to them if it were tattooed on their foreheads.

    Well, I want to do my part, so I’m providing a link to simple, succinct descriptions of “automatic,” i.e., fixed, guaranteed, contracted, COLAs, and “ad hoc,” i.e., discretionary COLAs.

    Pay close attention to the following passage in the description “An automatic COLA means the retiree’s benefit increases automatically every year by a certain percentage. An ad hoc COLA is granted at the discretion of the plan sponsor.”

    This description of “automatic” and “ad hoc” COLAs comes from a recent paper published by the National Institute on Retirement Security (NIRS) at this link:

    http://www.nirsonline.org/storage/nirs/documents/Lessons%20Learned/final_june_29_report_lessonsfromwellfundedpublicpensions1.pdf

    The NIRS Board of Directors has members who are prominent in public defined benefit pension administration in the U.S., including the President of the National Association of State Retirement Administrators, the Executive Director of the National Council on Teacher Retirement, the CEO of the California State Teachers’ Retirement System, and the Executive Director of the Council of Institutional Investors.

    Here are the COLA descriptions:

    COLAs

    “Even if a pension benefit seems adequate at the time of retirement, its value can erode over time without adjustments for inflation. Because of the damaging effects of inflation, most public retirement systems provide COLAs. Especially for the 30% of state and local employees who are not covered by the Social Security—which provides CPI-indexed benefits to all covered Americans—having a COLA in the pension benefit is all the more important.”

    “One key design feature of a COLA is whether it is automatic or ad hoc in nature. An automatic COLA means the retiree’s benefit increases automatically every year by a certain percentage. An ad hoc COLA is granted at the discretion of the plan sponsor, usually when the fund is in a well-funded position and investment gains have exceeded expectation. Another design element of the COLA is whether it is simple or compound. Under a simple COLA, the adjustment each year is calculated based on the employee’s original benefit. This is in contrast to a compounded COLA, which includes past benefit increases in each new COLA calculation.”

    (I’ll try to ferret out a PERA “fact sheet” that lacks a “disclaimer” when I get some time.)

  50. Al Moncrief says:

    MATERIAL FROM SENATOR PENRY’S REPUBLICAN PARTY LEGISLATIVE PREVIEW VIDEO.

    I came across this paper by Jim Alexander, PERA Retiree, that provides extensive quotations from the Penry Republican Legislative Preview (it includes lots of other interesting material). Here is a link to his paper:

    http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

    The Penry “Can’t Miss This Window” comments:

    “Senator Josh Penry, in a videotaped discussion with Representative Mike May, (videocenter.denverpost.com) said ‘we can’t, can’t miss this window.’ And, . . . we have an opportunity to pass something that Republicans have long advocated, a significant increase in retirement age, which the PERA Board embraced, reigning in the cost of living increases . . .”

    “Penry went on to say, ‘I think it is important to pass something because if you lose actuarial necessity, as you know, it becomes extremely difficult to increase retirement age. You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”

    “Senator Penry goes on, ‘The courts have said if the fund itself is in peril, you can go back and change the contract which is why, if the market were to recover over two or three years, we didn’t pass a bill this year, we didn’t pass a bill next year, we couldn’t make those changes.”

    Jim Alexander’s paper also quotes the October 2002, PERA Retiree Report:

    “In 2002, PERA Executive Director, Meredith Williams was asked, because of a downturn in the stock market, if retirement benefits were safe. He replied, ‘First, the ‘loss’ is due to a decline in the stock market. PERA still owns the same stocks that it did before the decline and this ‘loss’ is a result of the value of the stock decreasing. It is not ‘lost’ since we haven’t sold the stocks, and because PERA is a long-term investor, we can ride out the bad times the market experiences. When the market recovers, the value of these stocks will also increase, offsetting this ‘loss.’”

    “Mr. Williams was quoted in the same report as saying ‘Most pension funds are considered sound at 80 percent funding levels.’”

    “Meredith Williams ‘said at the Senate Finance Committee hearing in January that PERA needed to be funded at 100 percent. When the PERA representatives were asked by a member of the committee why in view of the fact that PERA had only been funded at 100 percent for about seven of the past thirty years (my comment, actually two of the last forty years), it was necessary now. The answer was ‘it just makes things easier.’”

    I am flabbergasted.

  51. Al Moncrief says:

    SENATOR PENRY’S REPUBLICAN PARTY PREVIEW VIDEO??

    I have a document that includes this sentence “More likely, it is in some measure a contrived crisis in order to effect major changes in benefits during what Senator Penry calls “this window” of opportunity that may well be gone after the 2009 investment returns are released.” Penry’s “this window” quotation is from the “Republican Party Legislative Preveiw with Mike May and Josh Penry” which used to be available at this link:

    http://videocenter.denverpost.com/services/player/bcpid911353001?bclid=1443717078

    Did anyone save a copy of this video? If not, I’m sure it is available from the Denver Post. It would be interesting to read a transcript of the portions of the video relating to SB 10-001.

  52. Al Moncrief says:

    MUSINGS ON COLA BILLS OF YESTERYEAR, BY A. MONCRIEF

    The Colorado General Assembly has enacted two pieces of legislation of particular relevance to the case, Justus v. State, House Bill 00-1458 and House Bill 93-1324.

    In 2000, the Colorado General Assembly enacted House Bill 00-1458. This bill fixed the PERA pension COLA at 3.5 percent compounded annually.

    Here’s an excerpted summary of the HB 00-1458 COLA provisions from the 2000 Colorado General Assembly Digest of Bills:

    Summary of House Bill 00-1458, (see page 152 at this link):

    http://www.state.co.us/gov_dir/leg_dir/olls/digest2000/00digest.pdf

    “Effective March 1, 2001, makes the annual increase to PERA benefit recipients 3½% of the base benefit rather than the lesser of 3½% of the rate of inflation and redefines ‘base benefit’ for purposes of the annual increase.”

    The attorneys at the Colorado General Assembly who wrote this Bill Digest summary of House Bill 00-1458 made no mention of the PERA COLA being “capped.” They state clearly that the bill “makes the annual increase to PERA benefit recipients 3½% of the base benefit.” HB 00-1458 improved the COLA benefit of PERA retirees, they were not harmed . . . their PERA pension benefits were not diminished. With the enactment of HB 00-1458, rather than the lesser of 3.5 percent or inflation, the retirees were granted a contracted, flat 3.5 percent COLA benefit.

    If the intent of the bill sponsors or bill drafters of HB 00-1458 was to “cap” the COLA at 3.5 percent, the attorneys writing the Bill Digest would have written “capped” instead of writing “makes.”

    If the intent of the bill sponsors or bill drafters was to describe an “ad hoc” PERA COLA, they could have used the identical language in HB 00-1458 that they used in Colorado statute six years earlier: “Cost of living increases in retirement benefits and survivor benefits shall be made only upon approval by the general assembly.”

    Instead, the sponsors and drafters placed a fixed, automatic, compounded COLA of 3.5 percent in Colorado law.

    I wonder, why would a bill drafter prior to 1994 place such an explicit and specific description of the General Assembly’s discretion to diminish the PERA COLA in Colorado law, and then six years later be satisfied to leave the General Assembly’s discretion to diminish the COLA benefit a murky implication? They would not.

    Colorado legislators and bill drafters have written statutes specifying the number of pennies of reimbursement that a Colorado state employee will receive for driving her car one mile on state business.

    The defendants in Justus v. State would have us believe that this legislature would leave the future allocation of hundreds of millions of taxpayer dollars ambiguous . . . that the drafting of Colorado law is wholly erratic.

    Well, it isn’t necessary that we speculate about the intent of a bill sponsor or a bill drafter, we can listen to recordings of these people presenting their bills, or we can simply ask them about their intent!

    If the Colorado PERA COLA was an “ad hoc” COLA in 2000, why did the drafter and sponsors of HB 00-1458 bother putting the figure “3.5 percent” into the Colorado statutes at all? If the “3.5 percent” COLA is meaningless, the drafter may as well have placed a “10 percent” or “20 percent” COLA in the law. Or simply stated: “The General Assembly shall provide PERA COLA benefit increases at its discretion.”

    If the 3.5 percent COLA in HB 00-1458 was intended to draw a line at a “maximum” COLA, then why would the Legislature have bothered to amend the statute? There would have been no point in making the change. Under the existing statute the COLA would already have been “capped” at 3.5 percent.

    Assume for the moment that the legislative intent with HB 00-1458 WAS to change the COLA from the lesser of 3.5 percent or inflation, to a COLA that was “capped” at 3.5 percent, but could drop to 0 at the discretion of the Legislature. How would that change be considered an improvement in the COLA? It would not be an improvement. Such a change would have removed the “inflation” floor from the COLA.

    Perhaps, you might argue that the Legislature intended to diminish the value of the COLA by removing the “inflation” floor in HB 00-1458. If this is true, then why did Governor Owens and PERA state at the time that the intent of HB 00-1458 was to create incentives for early retirement?

    PERA told us:

    From the PERA document “2000 PERA legislation, updated May 4, 2000 (on the web).”

    “The bill was initiated by the Owens’ administration and includes some features to make it more attractive for some long-term employees to leave state service and retire.”

    Why would Colorado PERA consider a legislative change that diminishes the value of the contracted COLA a feature making it more attractive for long-term employees to retire?

    One might argue that other provisions of the bill were “retirement incentives,” but not the COLA change. Then, I might ask what possible motive a bill sponsor has in including provisions in his bill that have conflicting objectives?

    Simple elimination of the “inflation floor” on the COLA in HB 00-1458 would have created a disincentive to early retirement, contrary to the purposes of the bill.

    It seems unlikely that PERA members in 2000 would jump at the chance to retire after having their COLA retirement benefit slashed from “3.5% or inflation” to “3.5% or maybe 0%.”

    The fiscal note for HB 00-1458 reads as follows: “Effective March 1, 2001, the bill provides that the annual increase to PERA benefit recipients is to be 3½ percent of the base benefit rather than the lesser of 3½ percent or the rate of inflation.”

    Why would the legislative employee who wrote this “fiscal note” state that the annual increase in the COLA “IS TO BE 3½ PERCENT OF THE BASE BENEFIT” if he really meant that the COLA was simply to be “capped” at 3½ percent?

    As we have seen, in 2004, in another bill, the General Assembly “grandfathered” in past PERA members at the 3.5 percent COLA level enacted in HB 00-1458. Going forward into 2005 and beyond, new PERA members were granted a COLA of the lesser of 3 percent or CPI. If the Colorado PERA COLA of 3.5 percent enacted in HB 00-1458 was not an “automatic,” “guaranteed,” “fixed” COLA, then why would the Legislature have bothered with grandfathering in 2004? Answer: They would not have bothered. They would have simply reduced the COLA across the board as state legislatures do if their state has an “ad hoc” COLA.

    In March of 1994, HB 93-1324 became law in Colorado. This bill replaced the former “ad hoc” PERA COLA statute in Colorado law with an “automatic” PERA COLA benefit. HB 93-1324 struck the following language from the PERA statutes “COLA increases shall be made only on approval of the General Assembly,” and consequently the discretion of the General Assembly to diminish the COLA benefit for vested PERA members was eliminated.

    Here is the precise language that was REMOVED from the Colorado Revised Statutes by HB 93-1324:

    “(2) Cost of living increases in retirement benefits and survivor benefits shall be made only upon approval by the general assembly. Such increases in benefits shall be calculated in accordance with the provisions of section 24-51-1006 and shall be paid from the cost of living stabilization fund.”

    Here is the language that was ADDED to Colorado law by HB 93-1324:

    (1) The CUMULATIVE increase applied to benefits paid shall be recalculated annually AS OF MARCH 1 and shall be the lesser of:

    (a) The total percent derived by MULTIPLYING THREE AND ONE-HALF PERCENT, COMPOUNDED ANNUALLY, times the number of years such benefit has been effective after MARCH 1, 1993; and

    (b) The percent increase in the consumer price index from 1992, OR the year prior to the YEAR IN WHICH THE BENEFIT BECOMES EFFECTIVE, WHICHEVER IS LATER, to the year preceding MARCH 1.

    (My desire to “muse” is shrinking faster than a Colorado PERA contracted COLA.)

    • Tim Hansford says:

      Thank you, Al, for all of the extensive research that you have done to find the basis that contradicts PERA’s claims. I looked at the language of HB 00-1458 given in your link, and it was so refreshing to see the words “annual benefit” again, and not the ubiquitous “COLA” that has been incorrectly applied ever since SB 10-001 came into being.

  53. Al Moncrief says:

    COLORADO’S SPENDING ON PUBLIC PENSIONS IN 2008 WAS #32 IN THE NATION AT 2.16 PERCENT OF STATE AND LOCAL GOVERNMENT SPENDING.

    QUESTION FOR COLORADO PERA: DOES SUCH A BURDEN JUSTIFY THE BREACH OF FULLY-VESTED RETIREE PENSION CONTRACTS?

    The report:

    NASRA ISSUE BRIEF: STATE AND LOCAL GOVERNMENT SPENDING ON PUBLIC EMPLOYEE RETIREMENT SYSTEMS, January 2011

    http://nasra.org/resources/ERContributions.pdf

    Pertinent excerpts:

    “A closer look reveals that a relatively small portion of all state and local government spending goes to public pensions. According to the latest estimates, less than three percent of all state and local government spending was used to fund public pension benefits (in 2008).”

    “An estimated 30 percent of employees of state and local governments do not participate in Social Security, including substantially all of them in seven states, approximately one-half of all of the nation’s public school teachers, and two-thirds to three-fourths of firefighters and police officers. In most of these cases, employers and employees are contributing to the pension fund in lieu of contributions to Social Security, reducing state and local taxpayer costs by an estimated $15.6 billion annually.”

    My comments:

    In 2008, of the 50 states, Colorado was ranked #32 in the nation in taxpayer support for public pensions. Our contribution that year was 2.16 percent of Colorado state and local government spending. Yet shortly thereafter, this “tremendous burden” forced Colorado to breach its contractual pension obligations.

    The average percentage expenditure of state and local government resources on public pensions in the nation in 2008 was 2.89 percent. The highest percentage of state and local spending devoted to public pensions was in Nevada at 5.55 percent. I’ll check, I’m certain that Nevada must have also breached public pension contracts in 2010, after all, Nevada’s pension burden during that period was 250 percent greater than Colorado’s taxpayer public pension burden.

  54. Al Moncrief says:

    ANOTHER NATIONWIDE COLA SURVEY (PREDATING COLORADO’S COLA THEFT) IDENTIFIES THE COLORADO PERA COLA AS “AUTOMATIC.”

    This 2007 survey by the Wisconsin Legislature clearly distinguishes between “ad hoc” COLAs and “automatic” COLAs with the following description of “ad hoc” COLAs:

    “20 of the 85 plans are either money purchase plans or provide post-retirement annuity increases only on an ‘ad hoc’ basis, where either the Legislature or a decision-making board determines whether, and when, a post-retirement annuity increase is granted.” The survey places Colorado PERA’s COLA squarely in the category of “automatic.”

    I wonder if Colorado PERA has been contacted by the authors of such surveys in the past, and if so, what it is that PERA staff told (or e-mailed) these survey authors that lead them to describe Colorado PERA’s COLA as “automatic.” Colorado PERA, do such e-mails exist? Kindly forward them.

    Colorado PERA Board, why do such surveys invariably identify the Colorado PERA COLA as “automatic,” if it is actually “ad hoc” as you claim (or at least your attorneys claim in your Answer Brief)? Does the Colorado PERA Board dismiss all public pension COLA surveys in the United States in the last decade as mistaken? Isn’t it strange that they all got it wrong?

    PDF:

    http://legis.wisconsin.gov/lc/publications/crs/2006_retirement.pdf

  55. Al Moncrief says:

    MUSINGS ON THE COLORADO PERA ANSWER BRIEF: “FUNDING RATIOS,” ANOTHER ATTEMPTED PERA DECEPTION EXPOSED, BY A. MONCRIEF

    As we have seen, PERA’s Answer Brief attempts to deceive the court by intentionally avoiding the use of the basic descriptors of defined benefit pension structure, “automatic COLA” and “ad hoc COLA.” Is it their hope that the court has no knowledge of pension structure?

    Well, the deception continues when PERA’s Answer Brief turns to the matter of pension “funding ratios,” aka, “funded ratios.”
    Right away you should know that there are two basic funding ratios used to gauge the soundness of public pension plans, “actuarial funding ratios” and to a lesser extent “market-based funding ratios.”

    “Actuarial funding ratios” are commonly used in defined benefit pension administration because they are mandated by financial regulatory agencies.

    Here’s an excerpt from a state actuary’s website:

    “In financial reporting of public pension plans, funded status is reported using consistent measures by all governmental entities. According to the Government Accounting Standards Board (GASB), the funded ratio equals the actuarial value of assets divided by the actuarial accrued liability calculated under the allowable actuarial methods.”

    http://osa.leg.wa.gov/About_Pensions/Glossary.htm

    Here is a description from the website of the National Association of State Retirement Administrators:

    “The most recognized measure of a public retirement plan’s ability to meet current and future obligations is its actuarial funding ratio, derived by dividing the actuarial value of a plan’s assets by the value of its liabilities.”

    The use of “actuarial funding ratios” is the standard practice in public defined benefit plan administration (and this includes Colorado PERA historically.)

    A “market-based funding ratio” is calculated using the market value of pension assets rather than the actuarial value of assets. PERA uses the market-based funding ratio throughout its Answer Brief in an attempt to exaggerate the decline in the funded status of PERA’s trust funds.

    PERA is mixing up apples and oranges, and hoping that the court fails to note the different types of fruit.

    One would think that such a calculating stratagem would irritate the court . . . it confuses the legal investigation unnecessarily.

    PERA cites the “52% funding ratio” three times in the Answer Brief. This “52% funding ratio” cited by PERA is a “market-based funding ratio.” The three citations are: “a 52% funded level at the end of 2008,” “a funding ratio of 52%,” and “to fall to 52% funded at the end of 2008.”

    Throughout PERA’s history is has used “actuarial funding ratios” to measure of the fiscal soundness of the PERA trust funds. It is only since the inception of PERA’s campaign to take fully-vested PERA retiree benefits that PERA began employing “market-based funding ratios.”

    A review of PERA’s publications over the last decade reveals that PERA has rarely employed “market-based funding ratios.” Such an examination of PERA’s communications to members and their publications over the last decade reveals that “actuarial funding ratios” are almost always used as indicators of the financial soundness of the PERA trust funds.

    The very bill that Colorado PERA is attempting to defend, SB 10-001, uses “actuarial funding ratios” as a measure of the PERA trust fund’s solvency. The “100% funded ratio” in the title of SB 10-001 is an “actuarial funded-ratio.” The triggers in SB 10-001 are linked to “actuarial funding ratios.”

    In their Answer Brief, PERA would like us to believe the fiction that the PERA trust funds had a combined funding ratio of 52% at the end of 2008.

    In reality, at the end of 2008, the combined PERA (actuarial) funding ratio stood at 69.8%, according to Colorado PERA’s own reported statistics. (Not quite as scary as the 52% figure PERA would have us believe.)

    It is critical that the court see the PERA trust fund’s combined actuarial funding ratio of 69.8% at the end of 2008 in an historical perspective. Below, I provide that historical perspective.

    During the 40-year period, 1970 to 2009, the PERA “actuarial funding ratio” ranged from a low of 54.5 percent in 1973 to a high of 105.2 percent in 2000. The average actuarial funding ratio over this 40-year period is 78 percent. At the end of 2008, the PERA actuarial funding ratio of 69.8% was mere 8.2% lower than the average PERA actuarial funding ratio over the 40 year period. At the end of 2008, PERA’s actuarial funding ratio of 69.8 percent was 10.2 percent below an 80 percent funded ratio, considered “well-funded” by Fitch Ratings. During an eleven year span, from 1970 to 1981, PERA’s actuarial funding ratio was actually lower than it was at the end of 2008, and yet there was no PERA campaign during those eleven years to take fully-vested, earned, accrued, contracted PERA retiree pension benefits.

    If the PERA trust funds cannot be “sustained” with an “actuarial funding ratio” of 69 percent in 2008, how were the trust funds “sustained” in the past when the actuarial funding ratio approached 50 percent? Obviously, PERA’s trust funds can be “sustained” when their funding ratio is in the 50-60 percent range, since the funding ratio has been there in the past and the pension trust funds still exist . . . the trust funds were “sustained.”

    Relevant to this discussion is the fact that Colorado’s aggregate public pension debt is in the middle of the pack among the states. Colorado’s total public pension debt level is typical of state public pension debt in the United States . . . 8 percent of gross state product versus a national average of 7.3 percent.

    Should all legislatures in states with pension debt levels above a certain threshold be permitted to breach their contractual public pension obligations? What is the threshold level where state contracts become meaningless?

    I realize that there are many well-meaning (but temporarily misguided) people on the other side of this issue. If the defendant’s prevail in this lawsuit, these honest people will want their victory to have been achieved in a forthright manner. I would think that such people (including PERA’s professional staff) would find this type of conduct, intentional deception, disturbing. Perhaps, this is just standard operating procedure . . . anything goes in litigation and I’m just being naïve.

    Let’s take a look at some of the instances in which Colorado PERA has cited an “actuarial funding ratio” over the years:

    Colorado PERA Update – (Spring 2006 – page 4): “See that PERA’s (actuarial) funded status was lower (61.5 percent) 30 years ago than what it is now. You may recall that there was no perceived “crisis” in PERA’s funded status in 1975.”

    Colorado PERA News Archive for 2004 (9-16-2004): “PERA’S funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”

    So, in 2004 the position of Colorado PERA was that an actuarial funding ratio under 60 percent did not constitute a “crisis.” If an actuarial funding ratio below 60 percent in 1970 was not a “crisis” in 2004, then how is it that an actuarial funding ratio of 69.8 percent in 2008 is a “crisis” or an “actuarial emergency”? It just doesn’t add up, does it?

    While we’re on the subject of funding ratios, the PERA Answer Brief cites a provision of SB 10-001, allowing the COLA to increase in the future “when PERA returns to financial soundness and its funding ratio reaches 103%.” As we have seen in recent months, Fitch Ratings, one of the three most prominent ratings firms in the United States deems a public pension plan “well-funded” at an 80 percent funding ratio. The PERA trust funds are financially sound at an 80 percent actuarial funding ratio.

    A legislative attempt to breach the pension contracts of ACTIVE, WORKING PERA members who have PARTIALLY-vested pension rights in order to unnecessarily reach a 100 percent actuarial funding ratio would constitute a ridiculous overreach.

    A legislative attempt to violate the FULLY-vested, contracted, earned, accrued pension rights of CURRENT, RETIRED PERA members to unnecessarily reach a 100 percent actuarial funding ratio truly shocks the conscience.

    The drafter of SB 10-001 made it no further than the title of the bill before stumbling into folly. Can you blame him? He put provisions into the draft bill at the direction of the bill’s prime sponsors. These members of the General Assembly were getting their marching orders from PERA lobbyists. These legislators did not bother conducting their own legal research into the contractual nature of pension rights, they held no interim investigations of the matter, and they did not conduct due diligence. As Senator Lundberg said on the Senate floor during the SB 10-001 debate: “This bill is a deal that was cut before this body met.”

    Clearly, reaching a 100 percent pension actuarial funding ratio is not a “legitimate” governmental interest. Public pension plans and their governmental sponsors exist in perpetuity. They need not entirely “pay off” their unfunded liabilities . . . ever. If it happens that public pensions reach 100 percent actuarial funding levels, that is all well and good. However, these pensions are “well-funded” at an 80 percent funding level. I have excerpted a few passages from the website of the National Association of State Retirement Administrators that are instructive:

    “Although a pension plan that is fully funded is preferable to one that is underfunded, other factors held equal, a plan’s funded status is simply a snapshot in a long-term, continuous financial and actuarial process. A plan’s funding level is akin to a single frame of a movie that spans decades.”

    “The fact that a plan is underfunded is not necessarily a sign of fiscal or actuarial distress; many pension plans remain underfunded for decades without causing fiscal stress for the plan sponsor or reducing benefits to current beneficiaries.”

    “Because the sponsors of public pensions (i.e., states, cities, etc.) are “going concerns,” operating essentially as perpetual entities, there is nothing particularly important about a public pension plan being fully funded at any particular point. Likewise, the fact that a plan is underfunded does not necessarily present a fiscal or actuarial challenge to the plan sponsor.”

    “Attaining full funding of a pension plan has been likened to a mortgage: at the end of the process, when fully paid, the mortgage would be considered fully funded. Although at any point during the 30-year mortgage, part of the outstanding obligation may be considered an unfunded liability, more relevant considerations are a) whether the mortgage holder has the resources to continue making payments until the obligation is resolved; and b) whether the obligation is indeed being amortized.”

    Colorado PERA has more to say on this matter of funding ratios, (note that these past communications to PERA members exclusively cite “actuarial funding ratios.”)

    From: Shareholders Meeting Fall 2006 document:

    http://www.copera.org/pdf/Shareholder/ShareholderPresentation06.pdf

    “Note that PERA was over 100% funded in only two years of our 75 year history.”

    From, Meredith Wiliams, CAFR Summary to Members, 2002, December 5/21 (REV 6/03)

    http://www.copera.org/pdf/5/5-21-02.pdf

    “PERA directs its efforts at keeping the funding ratio, (the ratio of assets to accrued liabilities) for the three divisional retirement funds at a minimum of 80 percent. A funding ratio over 80 percent is considered good.”

    Well, Colorado PERA, then why try to take fully-vested retiree benefits until the trust funds reach a 100 percent actuarial funding ratio? Why has the goal post been moved?

    From, PERA’s Funding Status, 2002 document:

    http://www.copera.org/pera/about/newsarchives2002.htm

    “Those members who are planning on retiring should not be alarmed by the underfunded status of PERA. Retirement benefits will be calculated and paid, in the same manner, regardless of PERA’s funded status.”

    From, PERA Shareholders Meeting Presentation, Fall, 2005 document:

    “Note that PERA’s funded status was lower 30 years ago than it is now. You may recall that there was no perceived “crisis” in PERA’s funded status in 1975.”

    “What the PERA Board and staff would like is for the funded status curve to be flat or stable at around 80 percent. Why? Because not all benefits are due and payable today or tomorrow . . . PERA can weather the ups and downs in the markets.”

    http://www.copera.org/pdf/Shareholder/ShareholderPresentation05.pdf

    The National Association of State Retirement Administrators has published research that helps to place Colorado PERA’s taking of fully-vested pension benefits in perspective.

    According to the NASRA, at the end of 2009, the average actuarial funding ratio of major US public funds was 80 percent. “The second sharp decline in the value of equities this decade caused public pension funding levels to also go down, to 80 percent in FY 09 from 85 percent in FY 08.”

    “An April 2010 issue brief authored by the Center for Retirement Research at Boston College found that for the public pension community as a group, receiving the full ARC (annual required contribution) would require additional pension contributions of two percent of payroll, an amount that varies by plan.”

    Here are the PDFs:

    http://www.publicfundsurvey.org/www/publicfundsurvey/SummaryofFindingsFY10public.pdf

    http://www.publicfundsurvey.org/publicfundsurvey/pdfs/Summary%20of%20Findings%20FY09.pdf

    At the end of 2009, the median “actuarial funding ratio” among public pension funds in the NASRA survey was 76.4 percent. At the time of the taking of the PERA retiree’s contracted COLA benefit, the actuarial funding ratio of the PERA trust funds stood at 68.9 percent, a difference of 7.9 percent. (Remember that this 7.9 percent difference was the result of the Colorado General Assembly skipping out on $3.5 billion of its PERA actuary identified annual required contributions during the prior 8 years.) (Also, recall that fully-vested members of public pension plans bear no “market risk.”)

    In light of the taking of the contracted COLA benefit, I find the Colorado PERA Board’s inflation assumption of 3.75 percent damning. Recognizing this 3.75 percent board inflation assumption, the Colorado PERA Board essentially wants to inflate away retiree contracted benefits as de facto board policy.

    To ensure that the State of Colorado continues to have the lowest per capita state tax receipts in the nation, and retains the option to grant further discretionary tax relief (for example, last month), the fully-vested, contracted retirement benefits of PERA retirees should be inflated away with a COLA of 0 percent to 2 percent.

    Colorado PERA wants to do this to retired public employees who, as a condition of employment, were prohibited from participating in one of the “three stool legs” of retirement security, the federal Social Security system.

    Colorado PERA’s Executive Director has comforted us during past market volatility:

    From, Meredith Wiliams, CAFR Summary to Members, 2002, December 5/21 (REV 6/03)

    http://www.copera.org/pdf/5/5-21-02.pdf

    “While the investment markets will always have ups and downs, PERA is a long-term investor and we can ride out the bad times the market experiences. “

    Meredith Wiliams, CAFR Summary to Members, 2001, December 31, 2001

    http://www.copera.org/pdf/5/5-21-01.pdf

    “Be assured that your PERA account is safe, and that the benefit you receive when you retire is not affected by PERA’s short-term return on investments.”

    Meredith, PERA retirees are not feeling all that “safe” these days.

    (I tell you, it’s quite burdensome being a guardian of the truth.)

  56. Al Moncrief says:

    A CHASTENED LOUISIANA LEGISLATURE OPTS AGAINST ATTACK ON FULLY-VESTED PENSION BENEFITS. CONTRIBUTION INCREASES/PROSPECTIVE CASH BALANCE PLAN CONSIDERED.

    “The Louisiana House refused Thursday to give final legislative approval to the Jindal administration’s proposed new 401(k)-type pension plan for future state employees.”

    “The House voted 49-43 to concur in state Senate changes to the so-called “cash balance” legislation — four votes shy of the majority needed to send House Bill 61 to the governor’s desk for signing into law.”

    “The legislation now goes to a House-Senate conference committee to try to iron out differences as the June 4 end of session looms. The conference committee has three House and three Senate members.”

    Article:

    http://www.lanewslink.com/

    “A bill that would close three of Louisiana’s state defined benefit plans to new employees and create a cash balance plan for them will be renegotiated by a conference committee after the state House rejected amendments previously passed by the state Senate.”

    “The bill in its current form would apply to employees hired after July 1, 2013, and affects the $13.7 billion Louisiana Teachers’ Retirement System, the $9.3 billion Louisiana State Employees’ Retirement System, and the $1.4 billion Louisiana School Employees’ Retirement System, all of Baton Rouge. The bill exempts K-12 employees, according to Louisiana state Senate communications director Brenda Hodge.”

    Article in Pensions and Investments:

    http://www.pionline.com/article/20120525/DAILYREG/120529925/louisiana-cash-balance-bill-in-negotiations

    “A state House panel on Wednesday altered, then endorsed a Senate-passed bill aimed at increasing the pension system contributions of more than 50,000 state employees.”

    Article in theadvocate.com:

    http://theadvocate.com/home/2910096-125/pension-bill-goesto-house-floor

    This report from the Louisiana Legislative Auditor cooled Governor Jindal’s heels:

    http://businessreport.com/editorial-pdfs/LegalAnalysisPensionBills.pdf

  57. Al Moncrief says:

    MUSINGS ON THE COLORADO PERA ANSWER BRIEF: THE FLAVORS OF COLA, BY A. MONCRIEF

    OK, here’s the deal. Prior to 1994, Colorado PERA’s pension COLA was “ad hoc.” It read like this: “COLA increases shall be made only on approval of the General Assembly.” In March of 1994, the Colorado PERA COLA became “automatic,” the discretion of the General Assembly to diminish the COLA benefit for vested PERA members was removed from Colorado law.

    In 2004, the General Assembly “grandfathered” in past PERA members at the 3.5 percent COLA level. Going forward, new PERA members were to receive a COLA of the lesser of 3 percent or CPI. Attention PERA and General Assembly! This is how one reforms a public pension. You have done it in the past. It is called “prospective,” “legal,” pension reform. Nearly every state in the nation is taking this prospective, legal approach to reforming their public pensions. We have done it before, we can do it again!

    Here’s an important question. In 2004, the General Assembly grandfathered in current PERA members at the 3.5 percent COLA level. If the Colorado PERA COLA was not an “automatic,” “guaranteed” COLA, then why would the Legislature bother with grandfathering? Answer: They would not have bothered. They would have simply reduced the COLA across the board as state legislatures in the U.S. do if their state has an “ad hoc” COLA.

    I am struck by the fact that PERA’s Answer Brief and the other briefs from the defendants never use the terms “automatic COLA” and “ad hoc COLA.” It’s as if the defendants want to court to be ignorant of the basic structure of public defined benefit pension plans.

    Colorado PERA’s retiree COLA is an “automatic COLAs” as opposed to “ad hoc COLAs” (which exist in about a dozen states and can be periodically altered.) Colorado’s COLA of 3.5 percent is guaranteed in Colorado law in an identical fashion to the base retirement benefit itself.

    Here is an AARP survey of public pension COLAs in the US (predates the PERA COLA theft). As with all other such surveys, this survey identifies Colorado’s COLA as “automatic.” It identifies the Colorado COLA as automatic to distinguish it from an “ad hoc” COLA.

    http://assets.aarp.org/www.aarp.org_/articles/NRTA/2004cola.pdf

    Once a COLA has been fixed in statute as an “automatic” COLA it cannot be diminished by a legislative body without impairing the contractual rights of the PERA members who have paid into the pension after the conversion, and the contractual rights of PERA members who have entered contracts for the purchase of PERA service credit based on the “automatic,” fixed, guaranteed COLA rate. The cost of the purchased service credit was determined based on this guaranteed 3.5 percent COLA. Despite PERA’s wishes, it is not legally or morally possible for an “automatic” COLA to retroactively metamorphose into an “ad hoc” COLA.

    Recognizing the distinction between “ad hoc” COLAs and “automatic” COLAs would facilitate the defendant’s understanding of the breach of contract that has occurred. “Ad hoc” COLAs may legally be adjusted by a legislative body. “Automatic” COLAs may not legally be diminished by a legislative body.

    From an issue of GRS Insight is published by Gabriel, Ro¬eder, Smith & Company.

    At this link:

    http://www.vermonttreasurer.gov/sites/treasurer/files/pdf/retirement-all/GRS_Pesnio__Insight2009_10.pdf

    “Under most state laws, accrued benefits may not be reduced once vested. As a result, efforts to control costs by changing benefits usually involves: changing ad hoc cost-of-living ad-justments (i.e., non-guaranteed COLAs); changing benefits for newly hired employees; or changing benefits for current employees in some manner.”

    “In other cases, the COLAs are ad hoc and granted by a decision of the plan’s board of trustees. Because ad hoc COLAs are not part of the guaranteed benefit, they may be reduced or eliminated as circumstances warrant.”

  58. Al Moncrief says:

    MUSINGS ON THE COLORADO PERA ANSWER BRIEF: CONTRACTED COLA, BY A. MONCRIEF

    Like one of our favorite former Congressmen I occasionally find myself in a mood to muse. So last night I took a look at the PERA Answer Brief that was just posted on the saveperacola website. It offers limitless musing opportunities.

    Straight away I have to point out that the central argument of the PERA Answer Brief has a fatal flaw.

    The brief argues that “no contract was created by the PERA statute granting retirees the right to a particular COLA formula for life without change.”

    Here’s the flaw. Even the prime sponsor of the bill that PERA is trying to defend, Senator Penry, disagrees with them.

    As we recently discovered, Prime SB 10-001 Sponsor Senator Penry’s stated position on this question is as follows:

    “what the courts have said with the case law and opinions have said is that you can’t (take the 3.5 percent guaranteed COLA), it is a contract unless there is actuarial necessity . . .”

    The PERA Defendants Answer Brief stresses the importance of legislative intent. Well, the intent of the sponsor of the bill is that PERA retirees have a contractual right to the 3.5% COLA and that “actuarial necessity” is needed to take it. PERA should have “got the story straight” with all of the key players at beginning of their effort to take the contracted COLA.

    Penry says “it is a contract.” Now that’s my kind of legislative intent!

    Senate Bill 10-001 included a provision requiring PERA to provide written notice to its members, that in the event of an actuarial emergency, the General Assembly may alter member benefits provided by the plan. Why did the Legislature feel compelled to put this provision in the law? It appears that they agree with the bill sponsor that they are limited in altering pension benefits short of an actuarial emergency.

    Essentially, the PERA Answer Brief is attempting to establish a legal distinction between statutory pension COLA provisions and statutory pension base benefit provisions. This attempt is a contrivance designed to permit defined benefit plan sponsors to escape their debts. There is no reason to believe that the COLA provisions somehow enjoy a lesser legal status than the other PERA provisions. Improvements that have been made to the COLA over time are not a breach of contract, no vested pension rights were trampled. The pension contract is breached when an automatic COLA benefit is diminished. The fact that something has been given to a person in the past does not grant the entity offering the benefit the legal right to take something from that person in the future.

    PERA is arguing that the pension COLA benefit is a gratuity. This opinion flies in the face of the historic evolution of pension rights in the United States establishing statutory public pension provisions as contractual.

    Recall that the Colorado Supreme Court, told us in Colorado Springs Firefighters v. Colorado Springs, 1989: “Rights which accrue under a pension plan are contractual obligations . . . entitlement to annual pension payment increases is also statutorily determined. These statutory provisions have established a defined benefit contributory pension system in which most public employees are required to participate . . . . . By making these contributions, employees obtain a limited vesting of pension rights, which ripen into vested pension rights upon attainment of the respective eligibility requirements.”

    It also seems that PERA’s General Counsel does not buy PERA’s central “no contracted COLA” argument:

    Greg Smith, Colorado PERA General Counsel: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.”

    (Link: http://www.denverpost.com/news/ci_11105271#ixzz0eEZGoxly)

    Why is PERA changing its tune now? They have argued for years that the pension benefits are contractual and that the COLA is guaranteed.

    Meredith Williams, Colorado PERA Executive Director: “The AG’s opinion states that when a PERA member retires and begins receiving pension benefits such member’s pension rights have fully vested and such pension benefits may not be reduced.”

    Colorado PERA: Retirees “will receive an automatic increase of 3.5 percent in their monthly retirement benefit to help keep up with the cost of living.”

    Colorado PERA: “If you began PERA membership on or before June 30, 2005, you will receive an annual increase of 3.5 percent.”

    PERA told us in their 2004 PERA News Archives:

    http://www.copera.org/pera/about/newsarchives2004.htm

    “The fact is that benefits guaranteed to PERA members are of a contractual nature, and that means that unless benefits are increased, contribution rates for members cannot be increased.”

    “PERA’s legal research concluded that employee contribution rates could not be raised absent a showing of fiscal necessity.”

    From PERA Legislative Update, February 2006:

    http://www.copera.org/pdf/Legislation/2006/LegUp2-06.pdf

    “Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

    “PERA members hired January 1, 2007 or later, called PERA Centennial, no guaranteed annual increase after retirement.”

    So, Colorado PERA, retirees have a “guaranteed annual increase.” Thanks for that.

    From “Colorado PERA Fund Secure, Board of Trustees Seeks to Improve Funded Status.”

    http://www.copera.org/pera/about/newsarchives2003.htm

    “PERA believes that state constitutional provisions that prohibit the reduction of benefits to existing retirees and restrict the changes which can be imposed on vested members of PERA further limit alternatives.”

    “PERA Benefits being paid are guaranteed . . .”

    “In any event, members and retirees with fully vested rights and entitlements provided by the PERA Statutes will not suffer any impairment of those rights and the Board of Trustees will continue to fight to protect the PERA membership.”

    From: http://www.copera.org/pdf/Misc/AALetter.pdf

    “As a comprehensive retirement plan, PERA benefits are guaranteed for life.”

    I’m beginning to suspect that PERA officials secretly believe that the COLA is contractual, and accordingly they do not believe the central argument of their Answer Brief.

    I think we should continue to explore the strength of PERA’s stated conviction that the COLA is not contractual.

    Here’s what I propose. First, we obtain a copy of PERA’s “secret” legal opinion that they commissioned before the campaign to take the COLA began. During the PERA political and lobbying campaigns PERA officials mentioned on numerous occasions that they were acting to take the COLA based on a confidential legal opinion. Where is this “secret” legal opinion? Why has it not been mentioned in any of the defendant’s briefs? It was the basis for taking the COLA, it must have relevance. What mortals have actually read it? Why is a public agency able to order legal opinions and keep them secret for years?

    I propose that we make public policy in Colorado in an open process, perhaps public pension policy options might be considered by an interim study committee of the Legislature . . . the public could be invited to attend.

    Also helpful in discovering if PERA believes its central argument that the COLA is not contractual would be its 2004 legal research regarding “fiscal necessity” that is mentioned in PERA’s 2004 news archives.

    Further, I think that PERA’s General Counsel, Greg Smith, should provide any writings or legal opinions he has authored throughout his career that are germane to this question of the contractual nature of pension benefits. I seem to recall reading that he has done some writing on this topic in the last decade.

    Any formal or informal opinions that were given to PERA officials or legislators by the Colorado Office of Legislative Legal Services that are germane to the question of contractual pension rights should be acquired.

    Can you now see why summary judgment in this case was a mistake? There is truly a boatload of pertinent information and documents that are relevant to the case that have not seen the light of day.

    While we’re at it, let’s listen to these tapes of PERA board meetings:

    (The PERA Board extensively discussed financial remedies including changing COLAs for new hires at this meeting:

    http://www.copera.org/pdf/Board/Minutes/2003/Minutes10-03.pdf)

    (The PERA Board discussed an Oregon Retirement System case with contract law implications which staff is “looking at as a possible case model” at this meeting:

    http://www.copera.org/pdf/Board/Minutes/2004/Minutes9-17-04.pdf)

    Finally, it appears that Judge Hyatt has previously ruled that the statutory PERA COLA provisions are a contractual obligation of PERA plan sponsors? Let’s explore this further.

    A comment from “Alan B” was posted in the on-line version of the Denver Post regarding his divorce case. If Alan’s post is authentic and accurate it makes one wonder whether or not Judge Hyatt believes the COLA (aka, annual benefit increase) is contractually protected. In any event it’s worth checking out.

    Here’s what Alan wrote:

    “What truly confounds me in this case is that Judge Hyatt ruled the opposite in my divorce case. Which only shows what I have read before that it takes the courts 5 to 10 years to figure something out. He ruled that my wife was entitled to her share of PERA discounted at the legal rate assuming that PERA would pay my pension compounded at 3.5 percent for the rest of my life. Her lawyers argued that her social security could not be guaranteed yet the PERA could be. Judge Hyatt ruled for her and in this case he ruled the opposite of what he had ruled in the current case. Is the 3.5 percent annual adjustment guaranteed or not, Hyatt has spoken on the record, yes and no.”

    More musings to come.

  59. Brett Clark says:

    Thanks! Keep up the good work.

    • Thomas J Thielemier says:

      Thanks Al: Your research shows exactly why every PERA retiree should support saveperacola.com My retirement WAS based on the benefits offered at the time including the 3.5% annual increase. Retirees knew they had a contract with PERA but were scared by official comments that the plan would go broke if the annual benefit was not reduced. Although the die had been cast, I recommended to PERA’s traveling road show that non-vested participants should be moved to a vesting schedule similar to Social Security’s. Any way to get the retirees together to bring greater clarity to this travesty regarding contract law?

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