We Have A Contract for COLA!!!

The Colorado Court of Appeals ruled Thursday that PERA retirees have a contract with PERA that includes their annual benefit increases (aka COLA.) The unanimous court wrote:

We agree with plaintiffs, subject to certain limitations explained below. Specifically, we conclude that plaintiffs have a contractual right, but that the court must still determine whether any impairment of the right is substantial and, if so, whether the reduction was reasonable and necessary to serve a significant and legitimate public purpose. Therefore, we reverse the summary judgment and remand the case to the district court for further proceedings. You may read the 37 page decision at this link:


Plaintiffs will now confer with their attorneys as to how to proceed in the case. While we have won a significant battle, we expect PERA and Colorado to now vigorously defend their claim that there was “actuarial necessity” for reducing the COLA.

Thank you to the hundreds of donors to Save PERA COLA’s legal fees. We could not have gotten this far without you. We have far to go. If you can, please send another check. Visit our website at
www.SavePERACOLA.com/support .

43 Responses to We Have A Contract for COLA!!!

  1. Al Moncrief says:




    The Colorado General Assembly has been the primary contributor to the creation of Colorado PERA’s unfunded pension liabilities in recent decades. For this body, the author of the PERA pension underfunding “problem,” to argue that the existence of this “problem” should somehow justify its breach of contractual public pension obligations is simply . . . outrageous.

    Colorado is a relatively wealthy state. There are sixty-four counties in Colorado. Ten of these counties are among the 100 richest counties in the nation. According to the U.S. Department of Commerce, Colorado now has the 15th highest per capita income in the nation. I consider any attempt to breach contracts by a state that ranks 15th in the nation in per capita income to be outrageous.

    As we have chronicled at saveperacola.com, the Colorado General Assembly has traditionally and intentionally slashed its available revenues . . . revenues that would otherwise have been available to the General Assembly to meet its contractual pension obligations. The General Assembly has ignored its PERA pension contractual obligations. It has directed one-half BILLION dollars to fund public pensions that are not its responsibility. It has repeatedly and inexplicably made $100 million discretionary grants from its purportedly “tight” revenues.

    Further, over a 17-year period, the Colorado General Assembly has artificially reduced its available financial resources through its own faulty legal reasoning. The Colorado General Assembly’s own ineptitude (a 1992 OLLS legal opinion’s misinterpretation of the Arveschough-Bird fiscal limitations) artificially diminished revenues available to the State of Colorado for a 17-year period. How much damage has this legal blunder done to state coffers over this 17-year period? How much revenue did the state lose as a result of this faulty legal analysis? Tell me why a relatively small group of Coloradans, PERA pensioners, should have their contracts with the state discarded due to the General Assembly’s claims of insufficient revenues. Particularly, when the General Assembly’s actions have significantly reduced these available resources. Why should PERA pensioners bear the burden of the Colorado General Assembly’s past legal mistakes?

    As we have seen, the Colorado General Assembly: has ignored $4.3 billion of its annual required contributions to the PERA pension in just the last decade, has ignored legal pension funding options adopted by other states, and has succeeded in transforming the State of Colorado into a “tax haven.” Over the decades, the General Assembly has given Coloradans one of the lowest tax burdens in the country, and in doing so, has intentionally cut available revenues that might have shored up the PERA pension plan. The General Assembly has voluntarily made grants from its General Funds for purposes of discretionary property tax relief, while simultaneously claiming that it faces fiscal strife. Who cannot see that this claim defies logic?

    Many members of the Colorado General Assembly have supported the severe restriction of public resources available to the state. Many supported the adoption of the TABOR constitutional amendment in 1992, and continue to support TABOR’s extreme restriction of public financial resources. Indeed, the author of 1992 TABOR constitutional amendment has served as a member of the Colorado General Assembly.

    In 1999 and 2000, the Colorado General Assembly, at the prompting of Governor Bill Owens, enacted tax cutting measures that significantly reduced the state’s future revenue stream. This constituted a nearly criminal disregard for the ability of the state to meet its contractual obligations over time. A Colorado General Assembly that has, by design, decimated its tax base, now beseeches the courts to license the abandonment of its contractual obligations.

    The General Assembly has slashed the pension contributions of PERA-affiliated employers over the years. A quotation from the Colorado Statesman:

    “PERA’s troubles date back to 1999-2000, when the pension plan peaked at 104.7 percent on its ratio of assets to obligations (liabilities). The Legislature was feeling flush, and passed bills reducing the employer contribution.”



    The group “Friends of PERA” tells us on their website:

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

    Ten years ago, the Governor of Colorado allowed his own political preferences to harm the fiscal soundness of the PERA trust funds. From the Silver and Gold Record archives:

    “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.”

    How much damage to the PERA trust funds was caused by Governor Owens veto of this bill? PERA retirees will not relinquish their vested pension rights in order to compensate for past pension mismanagement by politicians.

    In 2009, the Colorado General Assembly could not be bothered to appoint a commission to study pension funding options prior to breaching pension contracts. So it abdicated this policy-making responsibility to pension administrators and lobbyists. Colorado PERA is one of the public pension plans in the United States that actively lobby its sponsoring governments, spending $400,000 for that purpose each year. PERA pension administrators have used the trust funds of pension beneficiaries in a long-running and continuing program to influence members of the Legislature. This fact alone should give pause to elected officials.

    One should also remember that the Colorado PERA Board determines the asset allocation for the PERA trust funds. The PERA Board determined the portion of PERA’s portfolio that was exposed to equities prior to the most recent equities market downturn. In lieu of increasing equity exposure in the PERA trust funds, the PERA Board had the option of requesting that the State of Colorado and other PERA-affiliated employers provide additional resources to invest in less volatile securities. Has this ever occurred to the PERA Board? Have they ever made this request?

    Why should PERA pensioners, who bear no market risk, be forced to relinquish their property to compensate for asset allocation decisions made by the PERA Board? The PERA Board intentionally places a significant portion of PERA trust funds into volatile common stocks and then is surprised that common stocks are volatile. Then, the PERA Board argues that this volatility should permit their breach of contracts?

    At the core of a defined benefit public pension plan is the assumption of market risk by the public pension plan sponsor. This fact draws workers to the public employer members of the pension plan as part of the employment exchange transaction. Will PERA’s administrators deny the very nature of public pension plans?

    Further, administrators of public pension plans cannot reasonably claim ignorance of market volatility, even extreme market volatility. They have experienced extreme market volatility on a number of occasions in just the last decade. Public pension plan administrators are paid to manage this volatility, not to shift the consequences of their unsuccessful investment strategies onto others through the breach of contracts. To paraphrase the author of a recent law review article: “The unanticipated severity of an anticipated event does not justify unilateral modification of a contract.”

    Instead of adopting legal, prospective pension reforms (as have been adopted by numerous states) the Colorado PERA Board insisted that PERA pensioner contracts be breached. This decision could ultimately delay true PERA pension reform in Colorado by 4-5 years. These are years during which the PERA trust funds might have been on the road to financial strength through legal reform.

    Make no mistake: Colorado taxpayers will eventually be forced pay billions of dollars in additional costs resulting from the Colorado PERA Board of Trustees’ decision to delay true, legal pension reform and instead pursue fruitless litigation.

    A commentator in another state that is addressing public pension liabilities put it well:

    “ . . . a short-lived pension reform that is invalidated by court order after protracted litigation . . . would be a disservice to the taxpayers.”

    Gino L. DiVito, Tabet DiVito & Rothstein LLC, Chicago, ILL

    Colorado law allows the Governor to submit questions to the Colorado Supreme Court regarding the constitutionality of proposed legislation. This option was available to Governor Ritter and (through him) it was available to the General Assembly. The Denver Post editorial board encouraged the General Assembly to make this request prior to enacting SB 10-001. In addition to the Denver Post editorial board, Colorado PERA itself encouraged the General Assembly to send an interrogatory to the Colorado Supreme Court regarding the constitutionality of its proposed pension reforms. The General Assembly failed to do so. From the Colorado Statesman:

    “PERA also is hoping the Legislature will ask the Colorado Supreme Court to review the matter through interrogatories before the end of the session.”



    Question: If the Colorado PERA Board of Trustees possessed such confidence in its SB 10-001 pension reform proposal, why did the PERA Board of Trustees encourage the General Assembly to check the constitutionality of the proposal with the Colorado Supreme Court? Obviously, the Colorado PERA Board of Trustees lacked confidence in the constitutionality of the proposal (contained in SB 10-001.) If the PERA Board had complete confidence in the proposal . . . if the PERA Board had complete confidence in their 2009 outside legal opinion supporting the proposal . . . if the PERA Board had complete confidence in the legal advice they received from internal and external attorneys, then the PERA Board would not have desired that the Colorado Supreme Court check their work before they plunged headlong into litigation.

    Question for the PERA Board and administrators: How did the leadership of the Colorado General Assembly explain their decision to forego a Colorado Supreme Court interrogatory on the constitutionality of SB 10-001’s provisions? Who communicated this decision to you? Senate President Brandon Shaffer? What was the rationale?

    Colorado is a Wealthy State, and . . . Colorado is a “Tax Haven.”

    Should one of the wealthiest states in the nation (and a state that also enjoys one of the lowest tax burdens among the states) be permitted to breach its contractual pension obligations in order to further reduce that tax burden?

    The Colorado Fiscal Policy Institute publishes a “Colorado Tax Fact Sheet.” The source of much of the data in this fact sheet is the staff of the Colorado General Assembly. The fact sheet is available at this link:


    What does a “tax haven” look like? The Colorado Tax Fact Sheet shows us:

    – Colorado’s state tax collections are the second lowest in the nation.
    – Colorado’s combined state and local taxes are the seventh lowest in the nation.
    – Total Colorado taxation per $1000 of income has decreased over the past ten years.
    – Colorado’s corporate income tax rate is 4.63%, the same as the individual income tax rate.
    – Colorado ranks 42nd of 46 states in corporate income tax collections.
    – Twenty-nine states have a flat corporate income tax rate. The lowest is Utah. Colorado’s is the second lowest.
    – In 2001, Colorado’s sales tax rate was lowered from 3.0% to the current rate of 2.9%.
    – Colorado taxes the fewest number of services of any state.
    – There are a total of 71 exemptions from state sales and use taxes in Colorado law. In 2009, Colorado’s exemptions accounted for $1.8 BILLION in lost revenue.
    – Colorado ranks 44th of 45 states in sales and use tax collections.
    – All other states include more services in their sales tax mix than does Colorado.
    – Colorado ranks 32nd out of the 50 states in fuel tax collections.
    – When the combined state severance tax and the local property tax is considered, Colorado ranks 4th of 5 western states (Wyoming, New Mexico, Oklahoma, and Utah).
    – Colorado has no statewide property tax. It was repealed by the legislature in 1964. (My comment: In the decade following the repeal of the statewide property tax Colorado PERA’s actuarial funded ratio hit a low of 54.5 percent, yet there was no call to breach the state’s pension contracts.)

    Colorado’s Public Expenditures Per Capita are 62 Percent Below the National Average.

    The Colorado Fiscal Policy Institute also publishes a “Colorado Tax Primer.” A PDF of the Colorado Tax Primer published on January, 2011 is available at the following link:


    Below I provide a few relevant excerpts from the Colorado Tax Primer:

    “Adequacy Compared to Other States:”

    “ . . . adequacy is measured by whether the system generates
    sufficient revenue to fund legislatively-enacted priorities.”

    “Certain states (such as Colorado with the implementation of the Taxpayer Bill of Rights) have ignored the fundamental principle that the need for public services should drive the collection of tax revenue. Instead, these states have flipped the principle on its head by capping tax revenue based on a formula that attempts to define the need for public services based on allowable revenue.”

    (My comment: Recall that the constitutional TABOR amendment recognizes Colorado public pension obligations as “debt.”)

    “There are multiple ways of measuring the adequacy of revenue as it translates into services. One such measure is state rankings. Colorado consistently ranks low on expenditures when compared to other states. Overall, in 2009 Colorado ranked 47th in spending per $1,000 of income. A recent analysis shows that in order for Colorado to reach the national average in total spending per $1000 in income, the state’s General Fund spending would need to grow by $4.9 billion or 62 percent.”

    “The amount of taxes paid by Colorado taxpayers is low compared to other states. Colorado’s state taxes, per $1,000 of income, rank second from the bottom (49th) in the nation. Alaska has the highest and New Hampshire the lowest.”

    “The income tax rate was subsequently reduced to 4.75 percent for calendar year 1999 and 4.63 percent beginning on Jan. 1, 2000. This is the current tax rate. Referendum C, adopted by the voters in 2005, allows the income tax rate to decline to 4.5 percent under specified circumstances after 2010.”

    “Colorado ranks 42nd out of 46 states for corporate income taxes per $1,000 of income. The national average for all 46 states is $3.29. Colorado businesses pay $1.55 per $1,000 of income.”

    “In addition, many more income tax exemptions and special deductions are not reported at the state-level since they are applied to the calculation of federal taxable income.”

    “There were a total of 71 exemptions from state sales and use taxes in Colorado in 2008. In 2009, Colorado’s exemptions accounted for $1.8 billion in revenue.”

    “Colorado’s sales tax ranks 44th of 45 states per $1,000 of personal income. Five states have no state sales tax. The average amount of sales tax paid by all states is $19.68 per $1,000 of income. Colorado taxpayers pay $10.86.”

    “Colorado is one of only four states in which the state government generates less tax revenue than the local governments. Revenue collections by Colorado state government rank 47th per $1000 of income. However, revenue collections by state and local governments combined move Colorado to 44th per $1000 of personal income.”

    Observations From the Colorado Legislative Staff Regarding Colorado’s Level of Taxation:

    “Since 1935, Colorado has enacted 71 sales tax exemptions. For FY 2009-10, estimates show that the total revenue impact of these exemptions was over $1.86 billion.”

    Source: Colorado Legislative Council Staff:



    “Colorado’s combined state and local taxes were the seventh lowest in the nation —$95.53 per $1,000 of income, which was 14.7 percent below the national average of $111.99 in FY 2007-08.”

    “Colorado had the second lowest state tax collections ($40.89) per $1,000 of personal income in FY 2008-09 in the country. The state tax burden was nearly the same (the state ranked 47th ) ten years ago in FY 1997-98, although collections were higher at $54.68 per $1,000 of income.”



    Clearly, over the decades, the Colorado General Assembly has obliterated its tax base . . . it now seeks to obliterate its contractual pension obligations. Nevertheless, the Colorado General Assembly is the creator of the Colorado Public Employees’ Retirement Association. The Colorado General Assembly freely entered into contractual relationships with all PERA members. Having created these contracts, the General Assembly must now honor them.

    “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”

    • Stan Brown says:

      I believe PERA administrators, Williams and Smith, understood they were on shaky legal ground in breaching retiree contracts or annuities. However, they saw PERA retirees as a passive group who would not put up a fight. For various reasons, retirees are busily engaged in enjoyable pursuits postponed during their working lives, or dealing with health issues, and are somewhat disengaged from advocating for themselves, placing too much trust on the fiduciary benevolence of the PERA administration and the state general assembly. Indeed, retirees rarely attend PERA board meetings open to the public, even meetings that directly affect them. An example is the November 2009 meeting where the board discussed and voted on what would become SB10-001. There were only a couple retirees in attendance at that particular meeting.

  2. Al Moncrief says:




    Admittedly, my trust in Colorado PERA has worn thin.

    Nevertheless, given: Colorado PERA’s track record in its attempt to escape its contractual obligations,

    – its apparent indifference to all moral, and legal restraints,
    – its disregard for an on-point Colorado Attorney General opinion,
    – its disavowal of unmistakable, adverse legal authority,
    – its cavalier abandonment of the rule of law,
    – its creative interpretations of the term “fiduciary duty,”
    – its habits of deception and demonstrated desire to mislead,
    – its lack of good faith and fair dealing with PERA pensioners,
    – its eagerness to “change the ground rules in the middle of the game,”
    – its use of trust fund beneficiary assets to finance litigation to breach the contracts of those beneficiaries,
    – its use of trust fund beneficiary assets to finance PERA propaganda, as well as political, and lobbying campaigns to breach PERA pensioner contracts,
    – its unabashed manipulation of elected officials to achieve desired policy outcomes,
    – its summary rejection of legal, prospective, “less drastic” alternatives to the breach of pensioner contracts (that have been adopted across the nation),
    – its hypocrisy in placing a 100 percent funding threshold into pension reform legislation in light of its own past policies of underfunding the pension,
    – its complicity in creation of the “problem” it now uses to justify pension contract breach,
    – its ridiculous boasts of “transparency,”
    – its willingness to use a position of power and trust to take earned benefits from elderly, powerless pensioners,
    – its historical failure to emphatically and regularly implore the General Assembly and other PERA-affiliated employers to meet their annual required contributions,
    – its disingenuous characterization of market volatility as a rationale for pension contract breach,
    – its employment of the complex and confusing nature of public pension administration as a means to mislead,
    – its construal of what is in essence a “crime” as something laudable . . . a “model” for other states,
    – its desire to inflate away legitimate government debts through seizure of contracted COLA benefits,
    – its attempt to shift the public debt onto the backs of a relatively small group of pensioners,
    – its pride in having successfully breached pensioner contracts,
    – its use of tactics to breach contracts that shock the conscience,
    – its casual preference to welch on the public debt, and most reprehensible of all,
    – its betrayal of the trust of PERA pensioners who held up their end of the bargain,

    . . . given the countless misdeeds of Colorado PERA that we have documented here, I do not believe that raising legitimate questions regarding the motives of Colorado PERA’s board members and administrators is unwarranted.

    2010 PERA Board: We had to breach contracts due to the market downturn.

    Yet Meredith Williams, Colorado PERA’s former Executive Director assured PERA retirees in the past that market volatility has no impact on their contracted pension benefits:

    “The value of your PERA benefit is based on highest average salary and years of service (a “defined” formula) and does not fluctuate based on market performance.”



    And yet again in 2010, State Treasurer and PERA Board member (at the time) Cary Kennedy tells us that SB 10-001 was enacted as a result of market volatility:

    “Responding to this unprecedented drop, some states, including Colorado, took steps to shore up the solvency of their pension funds.”



    The Colorado PERA Board claims credit for SB 10-001 as well as for the “100 percent” actuarial funded ratio threshold in SB 10-001:
    Colorado PERA, “The Colorado PERA Board’s recommendation largely became SB 10-001.”



    From the PERA website:

    “The work of the Colorado PERA Board culminated in the crafting of Senate Bill 10-001 (SB 10-001.) The Colorado PERA Board supported the recommended bipartisan changes to the bill by Senate President Brandon Shaffer and Senator Josh Penry since the changes still accomplished the Colorado PERA Board’s goal of reaching 100 percent funding levels for each of Colorado PERA’s divisions in 30 years.”



    Again, will the members of the PERA Board please explain how the decision to place a 100 percent actuarial funded ratio in SB 10-001 was reached in light of the PERA Board’s historical policy of capping the actuarial funded ratio of the PERA Trust Funds at a 90 percent level? Did no board member take note of the hypocritical nature of this recommendation? It has historically been Board policy to maintain a degree of PERA pension underfunding (10 percent), and yet it is now Board policy to breach retiree contracts to the point that a 100 percent actuarial funded ratio is achieved. As we have seen, the 1999 George K. Baum study performed under the auspices of Colorado PERA (it’s on PERA letterhead) for State Treasurer Mike Coffman asks:

    “Why does PERA appear to have a policy to keep a 10% unfunded liability?”

    Colorado PERA’s propaganda has emphasized that the Colorado Legislature requested that the PERA Board of Directors make recommendations to shore up the PERA trust funds. I ask if this Colorado PERA assertion is an attempt to mislead.

    Colorado PERA went so far as to emphasize the General Assembly’s “legislative mandate” in a Response Brief submitted to the Denver District Court:

    “By LEGISLATIVE MANDATE the PERA Board extensively studied the underfunding and consulted with its members . . . before proposing a solution to the General Assembly.”



    I ask: Did Colorado PERA plant this request language into SB 09-282 at the end of the 2009 legislative session in order to lend a patina of legitimacy to what was in fact a premeditated attempt to breach pension COLA contractual obligations?

    Recall Senator Lundberg’s statement on the Senate floor during the SB 10-001 debate: “This bill is a deal that was cut before this body met.”

    Was Colorado PERA’s ostensible, impartial examination of pension reform options in 2009 in reality an elaborate ruse constructed by PERA lobbyists to add legitimacy to a process with a predetermined conclusion? To falsely portray a preordained conclusion to breach pension COLA contracts as the result of an extensive, deliberative process?

    We should know the answers to these questions. (If Colorado PERA is such a “transparent” organization as it boasts, why do we not know the answer to these questions?)

    I wonder, did the request for a PERA study actually come from the Colorado General Assembly? Was this request the product of SB 10-001 co-prime sponsor Senator Josh Penry’s mind? Did he conceive this idea to request PERA recommendations? Or, was this idea planted in the Penry brain by PERA’s lobbyists?

    After all, if you intend make extreme recommendations . . . that the State of Colorado, and PERA-affiliated employers breach their contractual pension obligations, would it not be useful to later claim that the state Legislature requested that bold recommendations be made? That such recommendations should be sufficiently extreme to restore the PERA trust funds to a 100 percent actuarial funded ratio? (In spite of the fact that the PERA Trust Funds had visited this lofty 100 percent perch only twice in its 81-year history? And, that the PERA Board had historically sought to cap the PERA Trust Fund AFR at a 90 percent level?)

    Would that not provide useful cover? “They told us to make the recommendation!”

    Where was the scheme to breach PERA contracts actually born? Will we ever know?

    Does the genesis of SB 10-001’s COLA theft provisions lie in the minds of a pension administrator? Or, in the hopeful heart of a self-interested lobbyist?

    Did the PERA Board of Trustees conceive the idea to take contracted COLA benefits? If so, which PERA board member gets the credit? Or, was the idea to breach pension COLA contractual obligations brought to the PERA Board by an outside organization? A public sector union lobbyist perhaps?

    Well, it should be possible to discover the answer.

    In 2009, the Colorado General Assembly enacted legislation (SB 09-282) to merge Denver Public Schools with Colorado PERA (specifically, to merge the assets and liabilities of Denver Public Schools into Colorado PERA.)

    A provision of SB 09-282 required that the PERA Board of Trustees submit recommendations to the Colorado General Assembly regarding methods of responding to the decrease in the value of the association’s assets on or before November 1, 2009. Here’s the language in the bill:


    Note that this language asks for “possible methods” to respond to the decrease in the value of PERA’s assets. The General Assembly did not ask that the PERA Board dictate a plan that would breach PERA’s contractual pension obligations. Implicit in the request from the General Assembly was the fact that the requested “possible methods” would be constitutional.

    On April 21, 2009, Senator Penry, the co-prime sponsor of SB 10-001 amended SB 09-282 on the floor of the Senate.

    His prepared amendment to the bill required the PERA Board to make recommendations to the Legislature regarding “possible methods” to respond to the decrease in the value of PERA’s assets. His amendment required that this report be provided to the Legislature by September 1, 2009. Two days later, Senator Sandoval amended the bill (SB 09-282) to move the deadline for submission of the report from September 1, 2009 to November 1, 2009. (The PERA Board wanted more time? It looks like the PERA Board may claim some ownership in the statutory language requiring the “study.”)

    Questions for Senator Penry: Did you originate the idea to require the PERA Board to make recommendations to the General Assembly regarding possible methods to respond to the decrease in PERA assets of your own accord? Or, did you offer this amendment on behalf of a PERA lobbyist? Another lobbyist? Another legislative member?

    The drafter of SB 09-282 was a lawyer from the General Assembly’s Office of Legislative Legal Services. Her name is Nicole Myers.

    Questions for Ms. Myers: Who asked you to draft the amendment requesting that the General Assembly make recommendations regarding methods to respond to the decrease in PERA assets? A lobbyist? A PERA lobbyist? Did a PERA lobbyist make this request on behalf of Senator Penry? Did a PERA lobbyist provide a draft of their desired language in this regard? Please check your records.

    It would be interesting if, after years of emphasizing that the Colorado General Assembly requested that the PERA Board of Trustees make recommendations to address the decrease in PERA assets, it turned out that it was in fact PERA’s lobbyists who actually put this language into SB 09-282. It would be interesting to learn if this language was placed in SB 09-282 in order to provide cover for a premeditated attempt to breach PERA retiree contracts.

    Questions for Senator Sandoval: Did you decide to move the deadline for the PERA Board to report out by two months of your own accord? Or, was this a request from Colorado PERA lobbyists?

    It would be worth listening to the recordings of hearings on SB 09-282 by the House and Senate Finance committees. (For that matter, it would be worth listening to all of the committee discussion from 2009 on PERA bills adopted or postponed indefinitely that year.)

    Here are a few excerpts from a summary of the Senate Finance Committee hearing on SB 09-282 on April 14, 2009:

    “03:28 PM

    Mr. Williams responded to questions about the contribution rates for the retirement plans. He stated that the PERA Board is committed to presenting a proposal to the General Assembly that addresses retirement benefit issues for Colorado PERA.”

    “05:20 PM

    Ms. Kennedy continued discussing the timing of when to bring the DPS system into PERA’s plan. She also responded to questions about the management of the current pension systems and retirement benefits. Discussion ensued about solvency issues.”

    This fact jumps out:

    On April 14 at 3:28 PM, Meredith Williams (Colorado PERA’s Executive Director at the time) testified to the Senate Finance Committee that “the PERA Board is committed to presenting a proposal to the General Assembly that addresses retirement benefit issues for Colorado PERA.”

    Meredith Williams made this statement one week BEFORE the requirement to report to the General Assembly was even in the bill.

    That requirement was placed in the bill on the Senate floor one week after Meredith William’s testimony (on April 21, 2009.)
    I suppose that listening to the tape of this bill hearing before the Senate Finance Committee on April 14, 2009 might provide some insights.

    Alternatively, we could put the question to Senator Penry, or bill drafter Nicole Myers, or Senator Sandoval.


    • Al,
      You are precisely on point. As I read the most recent PERA newsletter, (October, 2012) in which a “fond farewell” is bid Meredith
      Williams, former Executive Director at PERA, who presided over the PERA Board’s cooperative “fleecing” of the PERA membership, through the enactment of Senate Bill 10-001, I couldn’t help but think that we wish Williams the same kind of fond farewell that a homeowner wishes a burglar, on his way out!

      Please continue with your razor sharp, critical analyses of our situation, and excellent commentary!

      John A. Dunaway, PhD

    • Gary says:

      PERA: Oh what a web you weaved when you wanted to deceive your retirees in the breech of their constitutional and legal contract rights. Shame on you ! Denver District Chief Judge Robert S. Hyatt will see thru your thinly veiled web of deceit !!

  3. Al Moncrief says:


    According to the periodical Pensions and Investments, four finalists have been named to replace Meredith Williams as Executive Director of Colorado PERA:

    “The finalists are:

    • Gregory Smith, interim executive director of Colorado PERA and the pension fund’s chief operating officer and general counsel;

    • Michael Nehf, executive director of the $62.6 billion Ohio State Teachers’ Retirement System, Columbus;

    • Maureen Westgard, director of the $13.7 billion Louisiana Teachers’ Retirement System, Baton Rouge; and

    • Thomas Williams, executive director of the $6.5 billion Wyoming Retirement System, Cheyenne.”

    Full article at P&I:


    Wyoming has “ad hoc” pension COLAs. Louisiana has automatic COLAs. Ohio has automatic non-compounded COLAs. There have been some rumblings about an attempt at COLA-theft in Ohio.

    Here’s an article regarding an investigation of the Louisiana State Auditor into the vested nature of public pension rights:


    From the Louisiana Legislative Auditor’s legal examination of vested public pension rights:

    “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:


    A municipal reduction of COLA benefits in Cincinnati has resulted in litigation:

    “Suits filed in both state and federal courts challenging massive reduction in pension and COLA benefits in Cincinnati.”


  4. Al Moncrief says:


    The Winter 2012 issue of the American Bar Association Journal of Labor and Employment Law includes an article titled: “Public Pension Benefits Under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Benefits of Public Servants?” The article’s author is Eric Madiar J.D., Chicago-Kent College of Law, currently Chief Legal Counsel to Illinois Senate President John J. Cullerton.

    (Note: This ABA Journal article was written prior to the recent Colorado Court of Appeals ruling that Colorado PERA pension COLA benefits are indeed contractual obligations of Colorado PERA and Colorado PERA-affiliated employers.)

    Below I provide excerpts from the article of relevance to the 2010 breach of PERA pension contracts by the Colorado General Assembly, (and of course, some of my own observations relating to the excerpted material.)


    From “Public Pension Benefits Under Siege”:

    “Rahm Emanuel’s statement after the 2008 election aptly described the current climate: ‘You never want a serious crisis to go to waste . . . [because it] provides the opportunity . . . to do things that you could not do before.’ Thus, for proponents of pension reform the window of opportunity is open.”

    (My comment: It is uncanny how closely these remarks from Rahm Emanuel in 2008 track the comments of Josh Penry in 2009 [they both like the word “window.”]

    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.”)

    Link to Penry comments:



    From “Public Pension Benefits Under Siege”:

    “Second, a legal calculus does not motivate changes portrayed as ‘pension reform.’ Rather, as Eden Martin of Chicago’s Commercial Club candidly explained ‘[this is] not about the law at all, it’s about the politics and arm-wrestling over money.’”

    “These two points are significant because they frame our larger discussion of whether the law provides states with a means to achieve a particular political objective: the unilateral reduction of public pension benefits to avoid painful tax increases, service cuts, or both. In Illinois, the answer is unequivocally ‘no’”.

    “ . . . the article concludes with a prediction that courts in Colorado . . . are likely to invalidate pension reform efforts . . .”

    “Most states follow the contractual approach based on court decisions or specific constitutional or statutory provisions.”

    “One issue common to all reform efforts is whether those reforms violate the Contract Clause of the U.S. Constitution or its state equivalent. This issue is paramount because pension benefits are essential components of compensation and largely determine whether public servants and their dependents may live with a modicum of economic independence upon retirement.”

    “On its face, the (Contract) Clause provides in absolute terms that ‘No State shall . . . pass any . . . Law impairing the Obligation of Contract.’”


    From “Public Pension Benefits Under Siege”:

    “In 1977, however, the (U.S.) Supreme Court clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE’S SELF-INTEREST IS AT STAKE. As the court bluntly stated:

    A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”

    (My comment: Precisely.)


    From “Public Pension Benefits Under Siege”:

    “An impairment is unreasonable if it targets a known problem that existed at the time of contract formation UNLESS THAT PROBLEM HAS CHANGED IN KIND, not merely in degree. Impairment is permitted only if there are no less drastic alternatives available for safeguarding the important public purpose.”

    (My comment: Colorado PERA has always been well aware of the “problem” of dips in securities markets. Colorado PERA employs investment professionals who have made a life-long study of market volatility. Having testified before legislative committees for years regarding potential pension reform measures to address the bursting of the “dot-com” bubble in 2001 it is not reasonably possible for Colorado PERA officials to claim ignorance of the “problem” of market volatility. The problem grew a bit larger in 2009, but it did not change “in kind.”

    Less drastic alternatives? Here at saveperacola.com dozens of “less drastic” alternatives to the breach of public pension contracts are on the record.

    Finally, it should be noted that PERA pension contracts are formed every day of the year under any vesting scenario that PERA might espouse . . . each day many PERA members reach five-year vested status and many PERA members retire.)


    From “Public Pension Benefits Under Siege”:

    “(The Colorado case also raises) . . . the question whether cutting benefits is a reasonable and necessary means to protect the pension system when, for decades, the state failed properly to fund the system.”

    (My comment: It is satisfying to have the Colorado General Assembly’s habitual failure to meet its obligations to the PERA pension published in a law journal of the American Bar Association. The entire American legal community should be made aware of the negligence of the Colorado General Assembly.
    As we have seen, the Colorado General Assembly has skipped $4.3 billion in annual required contributions to the PERA pension fund [as identified by PERA’s actuaries] in just the last decade.

    News accounts from the 1990s reveal that the General Assembly also traditionally underfunded the pension during that decade. As we have seen, it has been PERA Board policy in the past to underfund the pension [90 percent ceiling on AFR.] Moreover, [and incredibly] members of the Colorado Legislature have, in the past, criticized the PERA pension as “overfunded” when its actuarial funded ratio was at 87 percent.

    To wit, in 1985 Colorado PERA’s Field Education Services Division Director Dennis Gatlin stated that: “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 [My comment: now 81-year] history, in 1999 and 2000.”

    Here’s a link to Dennis Gatlin’s comments in the Silver and Gold Record:


    “The Colorado Supreme Court in the McPhail case . . . observed that ‘a cardinal principle of justice and fair dealings between government and man, [is that] the parties shall know prior to entering into a business relationship the conditions which shall govern that relationship.’”

    When all of this is taken into consideration, how is it possible that the Colorado General Assembly might consider its breach of pension contracts in SB 10-001 to be in any way “reasonable”?)


    From “Public Pension Benefits Under Siege”:

    “The (Colorado) retirees sued under the Contract Clause of the U.S. and Colorado Constitutions to retain the higher COLA rate that was in place when they retired or became eligible to retire. Colorado case law appeared to support their position.”

    “ . . . a 2002 Colorado Supreme Court decision may have indirectly modified it (McPhail.) In Estate of DeWitt, the court held that the Contract Clause of the U.S. and Colorado Constitutions only protects a contract affording a plaintiff ‘a vested right.’”

    (My comment: As we know, the Colorado Court of Appeals recently found that Colorado PERA retirees do have a vested right to their PERA pension COLA benefits. Colorado Court of Appeals: “We consider McPhail and Bills dispositive [indisputably bringing to a conclusion a legal controversy] of whether plaintiffs here have a contractual right to a particular COLA.”)

    “The deferred compensation analogy (construal of public pension benefits as ‘deferred compensation’) exists as a means to achieve a specific objective. That objective was best explained long ago: ‘Whether it be in the field of sports or in the halls of the legislature it is not consonant with American traditions of fairness and justice to change the ground rules in the middle of the game, [Hickey v. Pittsburgh Pension Board, 1954; accord Colorado Supreme Court, Police Pension and Relief Board v. Bills, 1961.])”


    From “Public Pension Benefits Under Siege”:

    “ . . . public employees have diligently and faithfully paid their contributions while their government employers have failed to pay their required share. Indeed, for decades, states have treated pension systems as a credit card to pay for government services and avoid tax increases or service cuts.”

    “Public pensions are under siege because the current fiscal climate in most states presents a political opportunity for change. For lawmakers, it is simply politically more palatable unilaterally to cut pension benefits for public employees and retirees than to raise taxes, cut services, or both.”

    (My [extended] commentary: The Colorado General Assembly cannot legitimately blame the constitutional TABOR amendment for limiting their revenue and pension funding options. Nothing prevented the General Assembly from referring a constitutional amendment to the people to address PERA pension funding. Why did the General Assembly not take this step before embracing the breach of its contractual pension obligations? This would have demonstrated “good faith.” Nothing prevented the General Assembly from enacting legislation that would properly place the costs of any pension reform measure on PERA-affiliated employers [who are after all contractually obligated to fund pension benefits.] Instead, as the prime sponsor of SB 10-001 has told us, the bill asked these PERA-affiliated employers to pay a mere 10 percent of the costs of the 2010 pension reform. Nothing prevented the General Assembly from exploring options for increased revenues that could be directed toward pension obligations, from sources beyond TABOR’s restrictions. Why did the General Assembly fail to appoint a study committee to explore potential sources of revenue by which it could meet its contractual pension obligations? Instead, the General Assembly abdicated this role to the lobbyists. One should note that a preponderance of PERA-affiliated employers have already exempted themselves from TABOR restrictions through “de-Brucing.” Most PERA-affiliated employers cannot claim that TABOR presented an obstacle to their ability to raise funds. In fact, just a few weeks ago dozens of Colorado governmental entities succeeded in raising new revenues through ballot measures. Nothing has prevented the General Assembly from historically choosing to place expenditures to meet its contractual obligations above its discretionary expenditures. Nothing prevented the General Assembly from retaining all of its revenues, and directing more of these revenues to meet contractual obligations, instead of making annual $100 million discretionary grants for property tax relief. Further, the General Assembly has been under no legal obligation to historically direct $500 million of its revenues to local government public pensions while ignoring its own PERA pension obligations. Nothing prevented the General Assembly from exploring the issuance of pension certificates of participation and taking advantage of historically low interest rates. The General Assembly was under no obligation to enact legislation under Governor Bill Owens slashing its revenue stream. Nothing prevented the General Assembly from asking its own lawyers to provide a legal opinion regarding the constitutionality of their pension reform proposal [or did they?] Nothing prevented Governor Ritter and the General Assembly from sending an interrogatory to the Colorado Supreme Court regarding the constitutionality of their proposed pension reforms. The Denver Post editorial board encouraged the General Assembly to take this step. Why did the General Assembly ignore this advice? Did the General Assembly simply not want to hear the answer? Or, perhaps it was the lobbyists who did not want to hear the answer?)


    From “Public Pension Benefits Under Siege”:

    “The adoption of the contractual approach by Colorado . . . however, make(s) it more likely that pension reform efforts (the COLA provisions of SB 10-001) will be found unconstitutional.”

    A PDF of the Madiar paper is available on the website of the National Conference of State Legislatures at the following link:


  5. Al Moncrief says:



    Former PERA Executive Director, Meredith Williams, is now the head of the National Council on Teacher Retirement. While at Colorado PERA, Meredith Williams presided over the breach of pensioner contracts and justified that contract breach by claiming that it was necessary due to a (My comment: temporary) downturn in (My comment: historically volatile) securities markets.


    The volatility of securities markets is normal and expected. If courts permitted the parties to a contract to use market volatility as a tool to escape their contractual obligations, would the idea of a “contract” retain any meaning?

    Meredith Williams used the market downturn to rationalize the breach of pension contracts, in spite of the fact that courts have found that market volatility is no justification for contract breach. As we have seen: “Courts . . . sit to determine questions on stormy as well as calm days, and the Constitution was upheld during the Great Depression.”

    Here are a few of Meredith William’s past statements relating to public pension funding:

    “Most pension funds are considered sound at 80 percent funding levels.”

    “Meredith Williams ‘said at the Senate Finance Committee hearing in January (2010) 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 eighty-one years), it was necessary now. The answer was ‘IT JUST MAKES THINGS EASIER.’”

    “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.’”

    Here’s the link to these comments:


    But now, having “cut and run,” Meredith offers his “leadership” to the National Council on Teacher Retirement (NCTR).

    I wonder, how do the organizational beliefs of the NCTR relating to public pension funding differ from those of its new Executive Director? If a disparity of beliefs exists, which set of beliefs does Meredith Williams currently espouse? The beliefs he held in the early years of his tenure at Colorado PERA? The beliefs that were adopted for the attempt to breach PERA retiree pension contracts? Or, the current set of organizational policy positions of the NCTR?

    What are the policy positions of the NCTR relating to acceptable levels of public pension funding? What does the NCTR think about the impact of market volatility on public pensions?
    In the opinion of NCTR officials, how much of a “burden” on state and local governments are public pensions?

    I found answers to my questions in an article written by the Director of Federal Relations for the NCTR, Leigh Snell. His article, “Setting the Record Straight About Public Pensions,” was published in the February 2011 issue of Government Finance Review.

    Below, I have excerpted some portions of the article relevant to the breach of PERA pensioner contracts by the Colorado General Assembly (and as usual included a few of my own observations.)

    From “Setting the Record Straight About Public Pensions”:


    “Is there really a public pension crisis of this magnitude? And what can — and should — be done to address legitimate concerns about the sustainability of the pension benefits of public workers? Before any productive discussion can occur, it is necessary to agree on some basic facts, distinguish reality from hyperbole, and set the record straight.”

    “ . . . the aggregate public pension funding level is still at approximately 80 percent for fiscal 2009, a level that is believed by many experts and government officials to be acceptable for public plans, according to the U.S. Government Accountability Office.”

    (My comment: the NCTR believes that an 80 percent pension actuarial funded level is “acceptable.” So, does Meredith Williams now agree with the NCTR position on “acceptable” public pension funding levels, in conformance with his position on public pension funding prior to Colorado PERA’s attempt to breach public pension contracts? Or, does Meredith believe that the inclusion of a 100% public pension funded level threshold in the bill he supported, SB 10-001, is appropriate? Which is it?)


    “Nevertheless, some critics of public pensions are using these underfunded percentages to support their arguments that states are about to run out of pension money in as few as six years. This is simply not true, and the research used to support these claims is seriously flawed. It is based on asset values from the end of a 12-month period when the S&P 500 had a return of -26.2 percent, and prior to many of the increases that have taken place since then; the assumption that, going forward, state and local governments will contribute nothing to amortize their past pension liabilities; and the idea that public pension funds will generate rates of return on their investments as if they were invested in bonds alone, rather than in the diversified portfolios these plans actually use. This makes a huge difference in the numbers: From 1871 to 2008, the mean real return on stocks was 6.3 percent, compared to 2.5 percent on bonds.”


    “Although the largest public plans’ median investment return for the year ended June 30, 2009, was -19.1 percent, the median investment return was 32.6 percent for the year ended March 31, 2010. This example underscores how it can be misleading to judge investment return assumptions based on relatively brief timeframes during periods of market volatility, and why the long-term investment experience of public plans provides a much more reliable basis for evaluating the validity of this important assumption.”

    (My comment: Here, Leigh Snell succinctly articulates Colorado PERA’s strategy in its attempt to breach public pension contracts: “judge investment return assumptions based on relatively brief timeframes during periods of market volatility.”)


    “In fact, for the last 15 years, plan sponsors’ pension contributions have accounted for less than three percent of all state and local government spending.”

    “Furthermore, even when the 2008-2009 collapse in equity prices is included, paying off the total unfunded liability over the next 30 years would require employer contributions to increase to only about 5 percent of state and local governments’ budgets, generally speaking. For jurisdictions that have been better about funding their pensions, the increase will be smaller. However, those that were already significantly underfunded going into the recession could see the percent of their budgets devoted to pensions rise to about 8 percent.”

    (My comment: Colorado PERA addresses this matter on its website: “Indeed, the National Association of State Retirement Administrators issued a recent study that showed that, on average, pension costs represent only about 3 percent of total state and local government expenditures. In Colorado, state and local government expenditures to fund retirement benefits totaled only 2.16 percent.”



    Recognizing that Colorado state and local governments contribute only 2.16 percent of their total expenditures [well below the national average] to support retirement benefits for public employees, is it reasonable that these governments should be permitted to breach their contracts with pensioners?)


    “Furthermore, most of this trust fund money is made up of employee contributions and investment earnings. For example, according to the U.S. Census Bureau, from 1982 to 2008, 72 percent of pension fund receipts came from these two sources, and contributions from employers accounted for the remainder.”

    (My comment: So, 72 percent of the public pension “burden” is borne by public employees. Was it reasonable for Colorado PERA to scheme to push almost the entire cost of the SB 10-001 pension reforms onto the backs of public employees who were already covering 72 percent of all pension costs?

    Senator Brandon Shaffer, prime sponsor, SB 10-001, addressed the shift of costs under SB 10-001 onto public employees in a (4-17-11) Denver Post article:

    “I sponsored last year’s legislation, known as Senate Bill 1, to protect PERA. The bill required shared sacrifice, but frankly most of it — 90 percent of the burden — falls on the shoulders of PERA’s current and future members and retirees.”




    “Governments must be able to compete with the private sector for talented employees. However, state and local employers are not able to offer stock options, profit-sharing plans, or higher
    salaries to attract well-qualified workers. Instead, governments use employee benefits as important tools in attracting and retaining the skilled workforce they need.”

    Here’s a link to the full NCTR article “Setting the Record Straight”:


    • Gary says:

      Denver District Chief Judge Robert S. Hyatt should really be upset after he reads your articles of the deception of PERA and their co-horts. I hope the Truth is enough for a righteous person to correct the harm done to all the retirees . Justice will prevail ! Thank You once again Mr. Moncrief for your abillity to communicate to all of us with such clarity and understanding. Your words give us all hope.

    • You are cutting off the text on the right side of the page. Please adjust your settings?

  6. Al Moncrief says:



    Associate Professor of Finance Joshua Rauh of the Stanford Graduate School of Business has been criticized in the past for exaggerating the extent of pension underfunding in the United States; however, he recently made an interesting proposal to assist states that have historically underfunded their public pension plans (like Colorado.)

    You will likely find some aspects of the Rauh proposal unpalatable. You may also find some aspects of the proposal innovative and promising; particularly in light of the fact that we are currently in an environment of historically low interest rates in the United States.

    Joshua Rauh:


    The Rauh proposal for federally tax-subsidized public pension funding bonds should be added to the long list of “less drastic” options that are available to state legislatures in lieu of the breach of public pensioner contracts. In 2009, nothing prevented the Colorado General Assembly from adopting a resolution recommending such federally authorized public pension bonds to the Colorado Congressional delegation and the rest of Congress. Such a resolution would have demonstrated the General Assembly’s “good faith” in seeking solutions to the PERA funding problem the General Assembly itself created.

    Instead, the Colorado General Assembly summarily adopted extreme and illegal legislation to intentionally breach its PERA pensioner contracts. Was it simply easier and more politically palatable to ignore all “less drastic” alternatives to the breach of pensioner contracts?

    In 2009, the Colorado General Assembly asked the PERA Board of Trustees to make recommendations for pension reform; implicit in this request was the understanding that the PERA Board would make LEGAL pension reform recommendations. The General Assembly relied on PERA’s expertise here.

    Under TABOR, Colorado State and Local Pension Obligations are “Debt”:

    I have always found it interesting that our Colorado TABOR constitutional amendment recognizes public pension obligations as “debt” of Colorado state and local governments, and goes further in creating a constitutional exception for such “debt”:

    “For example, the Colorado Constitution’s ‘TABOR’ limitation requires voter approval of ‘creation of any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocable and held for payments in all future fiscal years,’ but it excepts ‘adding new employees to existing district pension plans.’”

    Here are some comments on the Rauh proposal published in Kellogg Insight at the Kellogg School of Management:

    “To counter this problem, Rauh outlined an innovative plan. It notes that fundamental state reform is essential, and underscores the urgent need for a federal program that offers incentives to stop the growth of unfunded liabilities. He recommends that states be allowed to issue tax-subsidized pension funding bonds for the next 15 years if they agree to a specific program of major pension reforms. To get the subsidy, states must agree to close defined benefit plans to the approximately one million new workers who take state jobs every year, and instead to offer the new hires a defined contribution plan similar to the federal Thrift Savings Program, as well as guaranteed access to Social Security.”

    “’Right now only a quarter of all public workers contribute to Social Security,’ said Rauh. ‘While the cost for the pension security bonds over 15 years would be about $250 billion, under this plan the Social Security system would see a net gain of over $175 billion. All told, the cost to the federal government for such a program would be around $75 billion, far less than the minimum $1 trillion it could risk if the state pension fund system is left in disrepair.’”

    “Rauh’s plan offers a cogent solution for the tens of millions of police officers, firefighters, teachers and other public service and state employees who will enter the workforce over the next decade, while maintaining consistency for workers already in the system.”

    “’Existing pensions would become more secure and new workers would get more than an empty promise, while the country would avoid another massive taxpayer-financed bailout,’ he concluded. ‘It is imperative that we act today to give states the incentives they need to put themselves back on a path to fiscal sustainability.’”



    A PDF of the complete Rauh proposal is available here:


    Here are some excerpts from the Rauh proposal for federally tax-subsidized public pension bonds:

    Rauh suggests 401Ks for new public sector employees:

    “A key reform for states in pension trouble would be the closing of defined benefit pension plans to new workers, an arrangement called a ‘soft freeze.’ Current employees would continue to earn traditional pension benefits under the existing programs, but retirement benefits for future work come under a new defined contribution plan. These changes must be enacted with an eye towards giving new public employees adequate retirement benefits. Those that are not in Social Security must be brought into Social Security, and the new defined contribution plan must be adequate for supporting the retirement of public employees. Like the Federal Thrift Savings plan, the new plan must have automatic enrollment, matching employer contributions, low fees, good investment choices, sensible default allocations, and reasonably priced offers for annuities at retirement.”

    “Once a state or municipal government has stopped pension benefits from growing, it becomes more feasible for the state to issue debt to finance the existing liabilities. The goal is to get over the big hump in benefits owed coming in the next 10 to 15 years. If states can claim to have put their futures on a more economically sustainable path, they can use debt responsibly to get them past this difficult period.”

    The federal government should incentivize states to act responsibly:

    “It therefore falls to the federal government to give states incentives for pension reform, so that US taxpayers do not ultimately bear a massive burden to bail out profligate states. We therefore propose the following program. The federal government should cut a deal with the states. They should offer tax subsidies for the debt needed to fund legacy liabilities, but only to states willing to close their defined benefit pension plans to new workers. Under current law, bonds floated by states to fund pensions are taxable and enjoy no federal subsidies. As a result, issuing debt to fund pension plans is considerably more expensive than issuing regular tax exempt municipal bonds, or the federally subsidized Build America Bonds, on which the federal government reimburses 35% of all coupon payments directly to the state. The federal government’s deal with the states would work as follows. They should allow a state to issue tax subsidized bonds for the purpose of pension funding for the next 15 years — if and only if the state government agrees to take three specific measures to stop the growth of unfunded liabilities:

    – The state must close its defined benefit plans to new employees under a ‘soft freeze’ and agree not to start any new defined benefit plans for at least 30 years.

    – The state must annually make exactly its actuarially required contribution (ARC) left over from the existing underfunded plans; only the amount of that ARC will be tax deductible.

    – The state must include its new workers Social Security, and provide them with an adequate defined contribution plan, again for at least 30 years. To this end, the federal government should start a Thrift Savings Program for state workers and operate it alongside the existing Thrift Savings Program for federal workers.

    The tax subsidies for these new Pension Security Bonds would work like Build America Bonds, with the federal government paying 35% of all coupon payments directly to the state.”

    Most of the cost of the federal tax subsidy would be offset by savings from adding new workers to Social Security:

    “How much will this plan cost? Employer actuarially required contributions for fiscal 2008 were approximately $67 billion, so the federal government is allowing potentially this much of new tax exempt borrowing for each of the next 15 years. This brings $1.0 trillion in new debt to the municipal market.

    Assuming states issue 30‐year bonds, this tax subsidy would cost around $250 billion. However, a large fraction of these costs are offset by the fact that new state workers would be in Social Security. According to estimates by Peter Diamond and Peter Orszag, if all newly hired state and local government workers were on Social Security, it would eliminate 10% of the program’s 75‐year actuarial deficit, which today stands at $5.3 trillion. A little over two‐thirds of state and local workers are on state‐sponsored defined benefit pension plans, so bringing these workers into Social Security would save 7% of that deficit, or $370 billion. If guarantees by the state to bring new workers into Social Security are only valid for half of the 75 years, the savings from the Social Security expansion would still be over $175 billion. Including these gains to the Social Security system, the net cost to the federal government of the entire stabilization program would be only $75 billion.

    What about the cash flow of the states themselves? Social Security costs 12.4% of pay and is divided equally among employer and employee. A typical defined contribution plan might cost 9% of pay, the division of which varies. Total costs would therefore be 21.4% of pay. In comparison, the Illinois teachers plan cost 26.4% of pay in 2009. The CalPERS plans cost anywhere between 21.6% of pay for the least expensive workers to 40.1% of pay for the highway patrol plan. Our proposal would allow states to borrow to meet their share of those costs for existing workers, while establishing more sustainable systems for new workers.”

    The most important take-away here is that there are numerous “less drastic” options available in the United States to the breach of public pension contracts.

  7. Al Moncrief says:




    In July of this year, Paul Volker and Richard Ravitch released a study addressing the fiscal condition of the states.

    “Former New York Lieutenant Governor Richard Ravitch and former Federal Reserve Board Chair Paul Volcker created the State Budget Crisis Task Force because of their growing concern about the long-term fiscal sustainability of the states and the persistent structural imbalance in state budgets, which was accelerated by the financial collapse of 2008.”

    “A Statement From the Task Force Co-Chairs (Richard Ravitch, Paul Volker), July 17, 2012, Our purpose in assembling the State Budget Crisis Task Force has been to understand the extent of the fiscal problems faced by the states of this nation in the aftermath of the global financial crisis.”

    Below are a few excerpts from the Volker/Ravitch study relevant to the Colorado PERA/Colorado General Assembly attempt to breach PERA pensioner’s contracts:




    “Legislation directed to retirees, on whom most pension funds are expended, is the hardest to achieve because retirees have fulfilled their employee obligations and earned the entitlements they were promised. Legislation affecting current employees, who can generate the most political resistance, is of varying difficulty. In virtually no state can changes in pension rules and benefits be achieved where rights have been vested or accrued. For rights yet to be accrued, change may be possible. In 43 states, pension statutes are deemed by constitution, explicit statutory language, or implication to have created a binding legally enforceable contract between employer and employee, vesting either at the time of hire (California, Illinois, New York), at a point during the employee’s tenure, or potentially at retirement. The significance of a pension’s being deemed a contract is that it thereby enjoys protection under Article One, Section Ten of the U. S. Constitution, which provides that no state may pass any law that diminishes or impairs a contract. Usually state constitutions also provide, in words or substance, a similar non-impairment protection for contracts. Of the non-contract states, which include New Jersey, only two – Texas and Indiana – retain the theory that a pension is a gratuity not entitled to any specific protection. Other non-contract states, such as Minnesota, consider a pension a property right or treat it as subject to promissory estoppel (i.e., as a promise that is relied upon). Therefore, legal protections for pensions are strong, but they vary among states. Contracts may be modified by proper exercises of a state’s police power but proper exercise requires such modification to be the least drastic solution needed to solve the problem being addressed. In addition, such change may be effected only to solve an important public purpose; this criterion is very narrowly defined and has seldom been found to exist in such cases.”



    “A very serious, non-market related, cause of pension underfunding is that some states and localities habitually have skipped or underpaid their annual required contributions. These governments willfully underpaid and now find it difficult to afford the contributions required to move toward full funding.”

    “Typically actuaries produce estimates known as annual required contributions, or ARCs, the actuary’s estimates of amounts that must be paid to the system to fund benefits properly. If an employer’s ARC is 17 percent, it means the actuary has estimated that paying 17 percent of payroll into the pension fund each year would put the employer on a path to full funding.”

    “Many governments pay their ARC routinely, either by law or custom, but others do not. Despite the name, there is nothing ‘required’ about the ARC unless a government’s own laws or rules require payment.”

    “During the five years from 2007 through 2011, state and local governments underpaid their ARCs by more than $50 billion. California, Illinois, and New Jersey, with 19 percent of the nation’s population, accounted for more than half (58 percent) of the contribution shortfall during the sub-period for which we have comprehensive data, 2007 through 2010. Governments in these states underpaid pension contributions before the recession began, during the recession, and after the recession officially ended.”

    “Illinois has underpaid its contributions for at least 15 years. Between 1996 and 2011, Illinois underpaid contributions by $28 billion. New Jersey, too, has habitually underpaid its pension contributions. Over the last six years, contribution shortfalls have totaled about $14.5 billion.”

    (The Colorado General Assembly has willfully ignored its ARC payments to the tune of $4.3 billion in just the last decade.)



  8. Dear Al Moncrief,

    I very much appreciate and agree with your perspective on our pension debacle! I suspect most retirees do, as well!

    The bottom line seems to be, that the PERA Board, it’s officers and investment advisors, internal and external, do not advocate for, or protect the interests of retirees. Instead, in spite of their fiduciary duty to retirees, they appear to pursue another agenda?

    This entire situation merits an independent investigation to determine if the PERA Board, State Legislature, and governor acted
    within the law in passing Senate Bill 10-001. It seems to me that this action was a very thinly veiled act of expropriation of earned retiree benefits. I am surprised that no one has asked for an Attorney General’s investigation? Oh, yes..PERA is not subject to oversight by the State’s chief law enforcement officer, is it?

    Would anyone believe this state of affairs is simply coincidental?

    John A. Dunaway, Ph.D.

    • W. Steve Eslary, M.A. says:

      Dr. Dunaway. I agree with you completely and hope that justice will prevail in the long term. I would like to further commend Al Moncrief for his professionalism and dedication to this effort the last couple of years. We owe him our gratitude regardless of how this litigation turns out as we have all learned from him, probably for the first time, how the legislative system works and how it failed us all. Through his research we have learned how other state judicial systems are handling similar litigation and I think that there is more to come in this case here in Colorado.

      W. Steve Eslary, M.A.

      • Al Moncrief says:

        Steve, thank you for the kind words. When I first realized that an attempt to breach PERA retiree pension contracts was under consideration by our public sector unions, our pension administrators, and by the Colorado Legislature I was quite frustrated. I knew that this undertaking was immoral and I was confident that it was illegal. In gathering information that might be useful in the fight for PERA retiree contractual rights, and information that might help to encourage PERA retirees to stand up for their rights, I found a healthy place to direct this energy.

        In 2010, a group of PERA retirees fought back. When confronted by a seemingly insurmountable wall of opposition from a horde of politicians, lobbyists, administrators and lawyers who were determined to breach PERA retiree contracts, some retirees resisted. Many of the proponents of SB 10-001 considered PERA retirees to be weak, vulnerable, unaware of their contractual rights, and unmotivated to defend those rights . . . in short, an easy target. Colorado PERA, the lobbyists, and many politicians believed that PERA retirees would simply acquiesce to the fleecing. After all, most PERA retirees are rightly focused on enjoying their retirements while their health lasts. They are not eager to spend their retirement years in a political and legal battle.

        For me personally, this effort is not about money. This effort is about a principle, the rule of law in the United States. It sounds like a cliché, but it is nonetheless true, those with power should be prevented from riding roughshod over the powerless. Many of our PERA retirees are in no position to defend their rights. They believe every word of PERA’s propaganda mailed to their homes. They have no idea that PERA is using their money to breach their pension contracts. PERA succeeded in “brainwashing” a number of these retirees (and a sufficient number of legislators.) But, any appreciation for the progress that has been made to date should be directed toward that group of PERA retirees who, in 2010, assumed the risk of confronting this wall of opposition and Colorado PERA’s statewide propaganda machine.

        For the rest of my life, I will never forget the courage and determination of Gary Justus, Rich Allen, and the plaintiffs in this case. If we prevail in this effort, these are the individuals who deserve our thanks.

    • Al Moncrief says:

      Hi John, the Attorney General IS the legal adviser to the PERA Board. (So, not much chance for any “investigation.”)

      “Section 24-51-216, C.R.S. Legal Adviser. The attorney general shall be the legal adviser to the board, and the board shall have the authority to select and retain legal counsel in the board’s discretion.”

      Below is the text of the Colorado AG press release addressing last year’s initial ruling by the Denver District Court. Where is the Colorado AG press release addressing the recent decision of the Colorado Court of Appeals? (My guess is he does not agree with the Denver Post’s characterization of the Court of Appeals decision as a “win” for PERA and the Colorado AG.)


      DENVER — Colorado Attorney General John Suthers heralded a decision today from Denver District Court Judge Robert S. Hyatt as a significant step toward long-term solvency for Colorado’s Public Employees’ Retirement Association retirement fund. The decision upholds Senate Bill 1 of the 2010 legislative session, which placed a cap on cost-of-living increases for current and future retirees.

      ‘This ruling will help place the PERA retirement fund on a sounder fiscal footing,’ Suthers said. ‘More than 441,000 public employees are counting on the pension’s financial integrity. This ruling represents a step toward long-term solvency for the PERA retirement fund.'”



      (In my opinion, measures such as SB 10-001, [unconstitutional], should not be considered “pension reform.” They are simply a means of kicking the can down the road. Ultimately, legal pension reforms will be adopted.)

      One of the last bills adopted by the General Assembly in 2010 was a bill (actually an amendment to a bill) that clarified that the PERA Board was authorized to hire outside counsel. They knew that the legal battle to breach retiree contracts was coming, and wanted to be able to spend our PERA trust fund money to fight that legal battle. The co-prime sponsor of SB 10-001, Senator Shaffer, was the sponsor of the third reading amendment to do this (what a surprise!) They found a broad bill title to stick it on, a bill relating to the Department of Personnel (17 lobbyists you know – they should be able to scramble and come up with a suitable bill title that was still alive.)

      Here is the excerpt from the Senate Journal from the final day of the 2010 legislative session:

      “HB10-1181 by Representative(s) Todd; also Senator(s) Bacon–Concerning adjustments to the administration of the department of personnel, and making an appropriation therefor.

      A majority of those elected to the Senate having voted in the affirmative, Senator Shaffer was given permission to offer a third reading amendment.

      Third Reading Amendment No. 1(L.076), by Senator Shaffer.

      Amend revised bill, page 28, after line 1 insert:

      “SECTION 33. 24-51-216, Colorado Revised Statutes, is amended to read:

      24-51-216. Legal adviser. The attorney general shall be the legal adviser to the board UPON REQUEST OF THE BOARD, AND THE BOARD SHALL HAVE THE AUTHORITY TO SELECT AND RETAIN LEGAL COUNSEL IN THE BOARD’S DISCRETION.”.

      Again, many games were played by that “transparent” organization, Colorado PERA. (When I was young, I was never this jaded.)

      • Al,
        Thanks again for your excellent work! What I meant when I said that PERA is not accountable to, nor is the AG empowered to investigate PERA’s actions….

        This I was told by the AG’s Office, as this issue with PERA’s claimed “investment losses in the market” and COLA began to emerge. It seems that PERA is only “accountable” to the State Legislature. Therefore, they seem to have achieved free rein!

        In my opinion, this is completely unacceptable! Indeed, it is simply outrageous! Hope I have expressed this accurately, in terms of fact?
        That said, it is exactly, what I was told, by the AG’s representative, when I called to request a thorough independent investigation of the matter, as it existed at that time.
        Best Regards,

      • DFD says:

        I believe that as an “Instrumentality of the State” PERA is a client of the AG and thus a conflict would exist if they were to conduct an investigation. The State Auditor can conduct an inquiry into the operation and if merited the Colorado Bureau of Investigation could be directed by the Governor or the legislature to conduct a criminal investigation. Neither event is likely at this time.

  9. Al Moncrief says:

    “WE REACT TO THE PEOPLE WHO LOBBY THE HARDEST,” Representative Jack Pommer, Chairman of the Colorado Legislature’s Joint Budget Committee, and Co-sponsor, Senate
    Bill 10-001.

    In a moment of candor, the Chairman of the Colorado General Assembly’s Joint Budget Committee, tells us “we react to the people who lobby the hardest.” He made this statement on April 30, 2010, (during the same legislative session at which he voted to breach PERA pensioner contracts.)

    Rep. Pommer’s statement is available at this link:


    Comment from a Colorado PERA Board member on PERA’s lobbying program: “The system budgeted $400,000 for lobbying this year, although it receives help at the state Capitol from influential unions including the Colorado Education Association.”



    As we have seen the political juggernaut to breach PERA pensioner contracts included a troop of at least 17 high-powered Statehouse lobbyists:



    Comment from Senator Lundberg, during the Senate floor hearing on SB 10-001:


    One of the groups lobbying for SB 10-001 was the business organization “Colorado Concern.”



    From the Colorado Concern website:

    “Colorado Concern’s membership now includes 100 CEOs and business and community leaders from across the state.”

    The Colorado Concern Board of Directors:

    “Joe Blake – Chancellor Emeritus, CSU System
    Dr. Ted Clarke, MD – Chairman and CEO, COPIC
    Steve Farber – President, Brownstein Hyatt Farber Schreck
    Pat Hamill* – Chairman and CEO, Oakwood Homes
    A. Barry Hirschfeld – President, A B Hirschfeld & Sons
    G. “Buck” Hutchison – President and CEO, Hutchison Western
    Bill Hybl – Vice Chairman, Broadmoor Hotel
    John Ikard* – President and CEO, FirstBank
    Walt Imhoff – Retired Managing Director, Stifel Nicolaus & Co.
    Walter Isenberg – President and CEO, Sage Hospitality
    Don Kortz – Chairman of the Board, Fuller Real Estate
    David McReynolds – President, Columbine Health Plan
    Larry A. Mizel – Chairman and CEO, M.D.C. Holdings, Inc.
    Kay Norton* – President, University of Northern Colorado
    Kathryn Paul – President and CEO, Delta Dental of Colorado
    Blair Richardson – Managing Partner, Bow River Capital Partners
    Dan Ritchie – Chairman and CEO, Denver Center for the Performing Arts
    Dick Robinson – Co-CEO, Robinson Dairy, Inc.
    Richard M. Sapkin – Managing Principal, Edgemark Development, LLC
    Sylvia Young – President and CEO, HealthONE”

    The group of 17 SB 10-001 lobbyists includes five lobbyists hired by Colorado PERA, lobbyists for the “Pikes Peak Education Alliance,” Jeffco and Boulder County School Districts, Boulder County, the Special District Association of Colorado, the American Federation of Teachers, the Colorado Association of School Boards, and the afore-mentioned business group “Colorado Concern.”

    How many lobbyists do PERA pensioners have at the Statehouse?

    How many lobbyists did pensioners have to fight for their contractual pension rights while SB 10-001 was “ramrodded” through the legislative process?


    This is what we’re up against.

    • saveperacola says:

      Actually there were two registered “volunteer lobbyists’: Rich Allen and Gary Justus, as well as dozens of concerned retirees. At the House Finance Committee hearing, all proponents were allowed to speak first and then many hours later opponents (those who could stay very late) were able to speak. Once the bill passed out of the committees where legislators actually had to come face-to-face with retirees, the lobbyists had an easy time of it–sort of. Those legislators who actually read their emails learned that SB10-001 would be challenged in court on constitutional grounds. The house vote was 36-29 in favor, just a four vote difference from defeat. Imagine if retirees had just a tenth of PERA’s lobbyist resources that were marshalled against them. Remember that in the PERA statutes, PERA is an “instrumentality of the state,” so it’s really a case of the State of Colorado lobbying for a law to abrogate a legal contract into which it has entered with PERA members. For a list of how your rep and senator voted go to https://saveperacola.files.wordpress.com/2010/03/how-they-voted-on-final-passage-of-senate-bill-10.pdf

  10. Al Moncrief says:


    The Colorado Constitution permits the Colorado General Assembly to CHOOSE to distribute property tax relief to eligible elderly homeowners in the state on an annual basis. This “Senior Homestead Exemption” is a property tax break for those 65 and older. It costs the State of Colorado about $100 million a year. This property tax relief is PURELY DISCRETIONARY on the part of the State Legislature.

    At its recent legislative session the General Assembly opted to give away $100 million in revenue, in spite of the fact that it is currently in breach of public pension contracts . . . now, we see Colorado’s Governor proposing to give away yet another $100 million in the next state fiscal year.

    From today’s Denver Post:

    “For the 2013-14 year, however, the governor is not proposing any suspension of the tax break. Sobanet said that while the governor’s preference in the long term is to reform the tax break, which has no means test, ‘in light of the returning revenue and in light of the harsh lines in the sand’ over the tax break, Hickenlooper isn’t proposing a major change to the exemption in the budget.”

    The State of Colorado is in breach of PERA pension contracts. This fact has recently been confirmed by the Colorado Court of Appeals. Is the Governor of Colorado unaware of this fact? For the state to consider giving away its resources in the form of discretionary property tax relief is irresponsible beyond words. This is like deciding to take that vacation in Hawaii instead of meeting your mortgage payment. Our Governor claims to be a “businessman” and yet makes this decidedly “un-businesslike” proposal? Ignore contractual obligations in order to make a discretionary expenditure? Can you see the truth in my earlier comment regarding the necessity of court orders? We are not dealing with responsible, rational players here.

    Two observations: (1) The proposal to give away $100 million in state revenue is irresponsible beyond words in light of the state’s ongoing pension contract breach. (2) The grant of $100 million in discretionary tax relief at the last legislative session, and the proposal to repeat this giveaway of state resources in the next fiscal year is incontrovertible evidence that the State of Colorado faces no “actuarial emergency.”

    Apparently, Hickenlooper’s position is that expenditures of state resources to meet POLITICAL NEEDS, trump expenditures of state resources to meet CONTRACTUAL OBLIGATIONS.

    Complete article at the Denver Post:


  11. Al Moncrief says:


    Victory (#1)!

    On October 11, 2012, the Colorado Court of Appeals announced its unanimous decision to reverse and remand a lower court’s ruling in the case Justus v. State. The case was remanded to the Denver District Court for further proceedings.

    Last year, the Denver District Court ruled that the plaintiffs (PERA retirees) in the case Justus v. State had no contractual right to the PERA pension COLA that was in effect when they retired. The plaintiffs appealed to the Colorado Court of Appeals where the Denver District Court’s original decision was overturned.

    In their appeal, the plaintiffs contended that under earlier Colorado Supreme Court decisions in the cases McPhail and Bills they did indeed possess a contractual right to their PERA pension COLA benefits. The Court of Appeals agreed with the plaintiffs (PERA retirees.)

    The Court of Appeals writes: “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs here have a contractual right to a particular COLA.” In the cases McPhail and Bills, the Colorado Supreme Court “found a contractual right based on members’ provision of services and contributions to the retirement fund.”
    The Colorado Court of Appeals also reversed the Denver District Court’s summary judgment on the plaintiff’s “Takings Clause claim.” On page 36 of its decision, the Colorado Court of Appeals restores the plaintiff’s Takings Clause claim and cites the case Lynch: “contract rights can constitute property interests protected by the Takings Clause.”

    As We Have Suspected, Gary Justus Has a Contractual Right to His 3.25% COLA!

    Another very satisfying sentence from the Colorado Court of Appeals decision: “Mr. Justus retired under DPSRS in 2003. He has a contractual right to a COLA of three and one-quarter percent, compounded annually.”

    Statute of Limitations for Further PERA Lawsuits Approaching?

    In their decision, the Colorado Court of Appeals notes that the plaintiffs abandoned their “Due Process claim” on appeal, and that, therefore, this claim was not considered by the court. So, it appears that this potential cause of action is available to PERA members or retirees who may wish to file additional lawsuits against Colorado PERA. I imagine that yet another breach of contract case could be brought specifically on the issue of PERA service credit purchases. In my opinion, these PERA service credit purchases are clearly contracts that were impaired by the provisions of SB 10-001. As I understand it, the statute of limitations on these types of lawsuits is three years. So, PERA members and retirees if you would like to file additional lawsuits addressing SB 10-001 you may have to act quickly (before February 23, 2013)! We have seen that the leadership of Colorado PERA recognizes no moral constraints on their actions. Colorado PERA officials understand only the force of a court order. (These people are the stewards of our retirement assets.)

    Colorado Court of Appeals – The Plaintiffs (PERA Retirees) Have Cleared a High Hurdle – The Legislature is Bound.

    The Colorado Court of Appeals writes in their decision: “the party claiming the contractual right must show that there is a clear indication that the legislature intended to bind itself contractually.” The Court of Appeals cites this “higher burden” on plaintiffs, “meaning that a subsequent legislature is not free to significantly impair that obligation . . .”. The decision states that “a contractual relationship exists if a statute gives a party a vested contract right.”

    In spite of the “high burden” cited by the Court of Appeals, the Court found that the pension COLA provisions in the PERA statutes create an enforceable contractual right, and accordingly future sessions of the Colorado General Assembly are bound by the pension contracts to which the Colorado Legislative Branch is a party.

    DeWitt Test to be Applied.

    The Colorado Court of Appeals agreed with the plaintiffs (PERA retirees) in regard to the contractual nature of their pension COLA benefits; however, the Court of Appeals also sent the case back to the Denver District Court requesting that the District Court complete the task of determining if the General Assembly’s taking of the pension COLA benefits was (1) “substantial,” and (2) “reasonable and necessary to serve a significant and legitimate public purpose (defined as follows on page 17: “remedying a broad and general social or economic problem” and, on page 36: “actuarial and funding considerations.”) These are the parts of the “test” in the DeWitt case setting forth the conditions under which breach of contract (specifically, in the case Justus v, State, “governmental theft”) is in conformance with the United State Constitution Contract Clause and the Colorado Constitution Contract Clause. The Colorado Court of Appeals states in its decision that it is “bound” to apply the DeWitt test.

    The Many Synonyms for the Term “COLA.”

    The Colorado Court of Appeals noted that it considers the various terms by which post-retirement benefit increases have been historically described in PERA statutes (e.g. “increase in public employee’s benefits,” and “redetermination of benefits”) to in fact represent “COLAs.” The Court of Appeals adds, later in its decision: “We perceive no meaningful distinction between the escalation provision at issue in McPhail and Bills and a COLA provision: both increase plan members’ pension benefits after they have retired, pursuant to a specified formula.”

    COLA Benefits are Indeed “Pension.”

    The Colorado Court of Appeals cites (and reproduces a finding from) the case Hayden v. Hayden: “COLA increases are as much a part of the pension as the amounts initially established by the pension system on retirement,” i.e. the “base benefit.” It is very satisfying to have this fact recognized and stated by the Colorado Court of Appeals. For three years, PERA retirees have pointed out that the PERA COLA benefit is set forth in Colorado law with the same force of law and status as the PERA “base benefit.” For three years, PERA retirees have communicated to the General Assembly: “COLAs are ‘pension.’” Now, this fact has been confirmed by the Colorado Court of Appeals.

    Colorado PERA Pension COLA Benefits are “Automatic” COLA benefits, as Opposed to “Ad hoc” COLA Benefits, (i.e., what we have been saying.)

    In 1987, the Colorado General Assembly enacted a statute providing that pension COLA increases shall be awarded by the General Assembly on an “ad hoc” basis. In 1993, the General Assembly repealed this explicit language in the Colorado PERA statutes, rendering PERA pension COLA benefits “automatic” COLA benefits. Only a dozen or so states in the country retain public pension COLA benefits that are awarded on an “ad hoc” basis.

    The adoption of an “automatic” PERA pension COLA benefit by the Colorado General Assembly is recognized in the decision of the Colorado Court of Appeals. The 1987 statutory provision (that was removed from Colorado law), stated that COLA benefit increases “shall be made only upon approval by the General Assembly.” On page 28 of the decision, the Court of Appeals notes that the repeal of the “ad hoc” language in the PERA statutes evinces the General Assembly’s intent to commit to providing the pension COLA benefits called for in PERA statutes.
    Colorado PERA COLA benefits are contractual and “automatic.” Colorado PERA COLA benefits are benefits that have been earned by PERA retirees, in an identical fashion to the PERA “base benefit,” and they are to be paid by the pension plan Colorado PERA without the need for “approval” by any governmental entity. The Colorado Court of Appeals defines the term “automatic” in its decision as “not subject to the General Assembly’s approval each year.”

    Court of Appeals – The PERA COLA Formula Has Never Been Tied to the Funding Level of PERA.

    On page 29 of its decision, the Colorado Court of Appeals observes that the Colorado PERA pension COLA benefit has never been tied to the level of PERA funding, i.e., the “actuarial” status of the plan. (I recall that in the case Kettering, the Colorado Supreme Court held that public pension benefits are in NO MANNER CONTINGENT on public pension plan funding.) The Court of Appeals also notes in its recent decision that it is “bound by the decisions of the Colorado Supreme Court.”

    Court of Appeals Sees Through Colorado PERA’s “Unchangeable COLA” Deception.

    The Colorado Court of Appeals notes in its decision that “plaintiffs contend that they have a reasonable expectation of an IRREDUCIBLE (not, as defendants assert, an UNCHANGEABLE) COLA benefit. Colorado Court of Appeals: “Therefore, we direct the district court to consider whether there has been a substantial impairment with that in mind.”

    (Instead of acknowledging up front that the plaintiffs in the case Justus v. State were contesting the provisions of SB 10-001 that REDUCED the PERA retiree COLA benefit, the defendants in the case [PERA and the State of Colorado] employed a “red herring,” claiming that the plaintiffs were arguing that the COLA benefit could not be legally “adjusted,” that it was UNCHANGEABLE. PERA’s deception worked on the lower court, the District Court, but the Colorado Court of Appeals, in their Decision saw through this red herring.)

    The Colorado Court of Appeals also found that the defendants (Colorado PERA and the state) erred in their reliance on recent court decisions relating to COLA benefits in Minnesota and South Dakota. The Court of Appeals determined that these two cases have no relevance to the case Justus v. State (the cases are “distinguishable.”)

    When the “Transparent” Organization Colorado PERA Uses its Publications to Deceive PERA Members Regarding Their Pension Contracts – That is Legal.

    The Court of Appeals cited the Strunk case in its decision, noting that it is not persuaded by extrinsic evidence in materials such as PERA booklets regarding the contractual nature of the PERA COLA. The Strunk decision found such materials “irrelevant to the issue of whether the legislature had created a statutory contract.” PERA retirees, when you’re reading PERA propaganda (i.e., PERA publications) . . . caveat PERA retiree.

    (Note: The Court of Appeals did not address the relevance of such materials in making the determination of whether a breach of a public pension contract is “substantial,” or “reasonable and necessary to serve a significant and legitimate public purpose.”)

    The Denver Delusional Post.

    Where is the flurry of press releases from Colorado PERA and the Colorado Attorney General, et al., that accompanied the original Denver District Court decision? Why are Colorado PERA and the AG not trumpeting this recent Colorado Court of Appeals decision?

    After all, the Denver Post has proclaimed the recent ruling a “win” for the defendants in the case Justus v. State. Link:


    Why did the defendant’s initial “win” in the Denver District Court merit a flurry of press releases, yet this latest court “win” doesn’t merit a peep? Is this Court of Appeals ruling somehow less newsworthy? Could it be that the Denver Post got it wrong?
    There were no press releases, but Colorado PERA did manage to acknowledge the Court of Appeals ruling on the PERA website, labeling the Court of Appeals ruling “a mixed decision.” The lone Colorado press coverage of the Colorado Court of Appeals ruling was this Denver Post article by the very confused reporter, Tim Hoover, who deemed the Court of Appeals decision a “Win” for Colorado PERA. One wonders, does Hoover even read English?

    Fact #1: Colorado PERA was quite content with the initial Denver District Court determination that PERA COLA benefits were not contractual. Fact #2: The Court of Appeals declared that PERA COLA benefits ARE a contractual obligation of PERA and PERA-affiliated employers. How can Hoover possibly construe this outcome as a “Win” for Colorado PERA? (Wishful thinking or clueless?)

    It appears that the Colorado Court of Appeals ruling was not welcomed by elected officials, media, or public pension administrators across the country. If it were not for the efforts of our dogged public pension rights bloggers in the United States, the “powers that be” may very well have succeeded in suppressing news of this important public pension case decision. (Colorado PERA officials have been hoping that many other states will attempt pension COLA theft. Where a crime is ordinary, the conscience of the criminal is assuaged.)

    The Colorado Court of Appeals Dispenses with the “Limited”/”Fully” Vested Pension Benefit Distinction, Raising Questions.

    In its decision, the Colorado Court of Appeals addresses the individual contractual pension COLA rights of the various plaintiffs in the case Justus v. State. The Court of Appeals rejected the notion that a pension plan member can have a contractual right to AN INCREASE in a COLA rate that went into effect AFTER the plan member became eligible to retire or retired, deeming such increases a “gratuity.”

    To me, the real game changer in the Colorado Court of Appeals decision is its determination that there is no distinction between what we have referred to as (“limited” or “partially”) vested pension rights, and (“fully-vested”) pension rights. From the decision: “Thus, the distinction the court in Bills drew between vested and ‘limited’ vested rights is no longer viable. All vested contract rights are limited . . . in that there is no Contract Clause violation if there is only an insubstantial impairment or any substantial impairment is reasonable and necessary to serve a significant and legitimate public purpose. In this respect, therefore, McPhail and Bills no longer remain good law.” The Colorado Court of Appeals states here that the same test of impairment is applied to both pre-retirement and post-retirement public pension contracts. (If I am missing something in this interpretation please bring it to my attention.) Of course, PERA members do not have any “vested” pension rights prior reaching five years of service credit at which point they become eligible to receive a future PERA retirement benefit.

    Further, the Court of Appeals noted that Colorado appellate decisions addressing the question of whether statutory language creates an enforceable contractual right regard the holdings of McPhail and Bills as authoritative “even with respect to the ‘limited vested’ rights of those who are ineligible to retire before an adverse change in a pension benefit.”

    In its decision, the Colorado Court of Appeals observes that the plaintiff Laird in the Justus v. State case retired five days after SB 10-001 was signed, but nevertheless possesses a “limited” vested right to the COLA. The Court of Appeals discusses the impact of the decision in Bills on “near-retirees” (like our Plaintiff Laird in the case Justus v. State), also noting that the Bills decision was post-McPhail. The Court of Appeals noted that, in Bills, the Colorado Supreme Court held that such near-retirees nevertheless have a “limited” vested right that could not be substantially changed adversely . . . “without a corresponding change of a beneficial nature,” and that Colorado appellate courts have repeatedly applied the Bills limited vesting holding. Accordingly, for the Legislature or PERA to seize Plaintiff Laird’s pension COLA benefit they would need to provide Plaintiff Laird with some other beneficial change. (I can remember reading [in a public pension law review perhaps] that this “beneficial change” cannot simply be a claim that the plaintiff “benefited” from the consequent improvement in the pension plan’s funded status, that accompanied the public pension contract breach.)

    So, what does all of this mean for our Plaintiff Laird? Under Bills, the near-retiree Laird has “limited” vested pension rights. The Colorado Court of Appeals does not state in its decision that Plaintiff Laird does not have a contractual right to his 3.5 percent COLA benefit. Is it “reasonable” for the General Assembly to take such a substantial portion of Plaintiff Laird’s earned pension benefits after he has “faithfully plodded” for 30 years toward PERA retirement eligibility? It should be remembered that Plaintiff Laird’s contributions to the pension plan supported the 3.5 percent PERA COLA benefit for many years.

    What is the impact of this Court of Appeals determination? Does the Court of Appeals decision mean that “fully-vested” pension rights and “limited” vested pension rights are now identical?
    The Court of Appeals determination seems to indicate that if COLA rights are violated for current retirees by SB 10-001, they are also violated for active PERA members. If SB 10-001’s COLA provisions are unconstitutional for current PERA retirees, are they unconstitutional for active PERA members? This begs the question, if Colorado courts eventually strike down SB 10-001’s COLA provisions . . . will the provisions of the bill be struck outright from Colorado law for all PERA members? This outcome would send the Colorado General Assembly back to the point at which it should have started in 2008 . . . with an exploration of legal, prospective pension reforms.

    • saveperacola says:

      The Denver Post was notified of the error in its headline “PERA wins ruling, cuts pension raises.” within 36 hours. The Post did not issue a correction. It apparently chose to rely upon the PERA news release.

    • DFD says:


      The question of purchased time is one I posed on this forum during the pendency of this action. CRS states: (Emphasis added)

      24-51-502. Purchased service credit

      (1) A member may qualify earlier for service retirement, reduced service retirement, or increased benefits through the purchase of additional service credit.
      (2) Service credit purchases are limited to those specified in this part 5.
      (3) Service credit purchased pursuant to this part 5 by members who were members, inactive members, or retirees on December 31, 2006, shall be subject to the benefit provisions in effect for the existing member contribution account. Service credit purchased pursuant to this part 5 by members who were not members, inactive members, or retirees on December 31, 2006, shall be subject to the benefit provisions in effect for such member at the time of the initiation of payment of the purchase.

      I asked before and ask again, Is there a 3 year limitation on this action from the time the bill was passed or can a new action be based upon each inflicted financial loss suffered when a benefit check is issued? This statue also illuminates the issue of legislative intent concerning the automatic increase.

      It is also a question as to the requirement that a notice of intent to sue a governmental agency is required with a much shorter time limit to preserve the right to initiate a court action.

      One other avenue to be considered by retired elected officials or elected officials serving under the 3.5% automatic benefit increase is that the benefit may well be considered an emolument of office and thus cannot be reduced and/or eliminated. The emolument argument is based upon the premise that, unless negotiated or noticed prior to taking office, there can no change in the wage/benefit structure of an elected official in order that their official actions cannot be influenced by an increase and/or decrease in their remuneration. This is why elected officials, particularly Judges, were not subject to furloughs during the recent state budget crisis.

      The issue of substantial impairment should be a no brainer. If the impairment was not substantial PERA would not pursue it. It is misleading to characterize the loss as 1.5% when it represents an approximate 42% loss in our former earned benefit.

      As to the issue of need it seems that even our attorneys are silent this and it indeed may be a reasonable approach in the future. The problem is that it is not reasonable to use this substantial impairment disproportionally on a single segment of PERA, the segment that has the least ability to respond and compensate for the loss. As pointed out in this forum, with emphasis on the fine research Al has submitted, there are many more equitable responses to funding that should be tried prior to breaking a contract.

      Case law seems to indicate increased scrutiny when the government wants to welsh on a contracted debt. We still have not been in a position to demonstrate that the State failed to fund PERA as required.
      Do we have a new court time line for the case now that it has been remanded?

    • Stan Brown says:

      Al, I’m increasingly optimistic about the recovery of our 3.5% COLA. During years of high inflation (e.g., double-digit), PERA may even be persuaded to offer an additional ad hoc COLA above 3.5%. However, I anticipate they may resort to creative socialized reasoning to justify capping the supplemental based on benefit amount (e.g., <$30K per year beneficiaries get the additional COLA), or by limiting the ad hoc COLA to earned service credits only (i.e., no gratuity paid on purchased service credits). Perhaps implementation of either of the above scenarios would result in future lawsuits.

  12. Al Moncrief says:


    Rhode Island is one of a handful of states in the nation that have opted to attempt the breach of public pension contracts in lieu of enacting legal, prospective pension reforms. Rhode Island’s attempted COLA theft was spearheaded by the current Rhode Island Treasurer Raimondo who hopes to ride this public pension contract breach to the Governor’s Office.

    From GoLocalProv.com:

    “One need look no further than the legal fallout of pension reform to see this. Right now Raimondo’s law is being challenged in court, and though I am far from a legal expert, it seems from what I’ve read that labor’s case has at least a significant chance of prevailing. After all, in order to break a contract with its employees, the State needs to prove that there was a public emergency for which there were no other options. Not only was there no public emergency-but rather a manufactured crisis caused by changing some actuarial assumptions-there were also many other options on the table, from cutting management to rolling back tax cuts on the rich.”

    Sound familiar? It should.

    (During the enactment of Rhode Island’s COLA-theft bill I was greatly amused to hear the identical lines [verbatim] from the Colorado PERA Public Pension Benefit Theft Playbook [that were spouted by Meredith, Shaffer and Penry] parroted before the Rhode Island Legislature by Raimondo.)

    As has been extensively documented at saveperacola.com, no “public emergency” existed in Colorado at the time of the enactment of SB 10-001’s COLA-theft provisions. The comments of Senator Penry (one of the prime sponsors of SB 10-001) reveal the types of games that were played with this legislation . . . from “Penry Republican Legislative Preview”:

    “Senator Josh Penry, in a videotaped discussion with Representative Mike May, (videocenter.denverpost.com) said ‘we can’t, can’t miss this window.’ “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.”) Here’s a link:


    So, the prime sponsor of SB 10-001 candidly made his case . . . we need to take advantage of a temporary downturn in securities markets to breach PERA pension contracts.

    Also documented at saveperacola.com are dozens of legal, prospective pension reform options that were available to Colorado PERA and to the Colorado General Assembly. These legal pension reform options were ignored. A complete chronicle of legal pension reform options (adopted across the country) is available on the website of the National Conference on State Legislatures. (Note that when considering changes to COLA benefits by state legislatures it is important to distinguish between LEGAL changes made to “ad hoc” pension COLAs, and UNCONSTITUTIONAL takings of “automatic” pension COLA benefits. Unfortunately, the NCSL website fails to make this distinction. PERA DECEPTION ALERT: Retirees should rest assured that the “transparent” organization Colorado PERA will attempt to exploit this lack of clarity, the distinction between “ad hoc” and “automatic” COLA benefits, in the case Justus v. State.)

    Notably, (unlike the Colorado COLA theft attempt) the public sector unions in Rhode Island are litigating the COLA theft bill in their state (as might be expected of advocates for public employees.) Contrast the behavior of Rhode Island’s public sector unions with the actions of Colorado’s public sector unions. Instead of fighting for the rights of their retired union “brothers and sisters” in Colorado, Colorado’s public sector unions gave them an alternative gift . . . a swift kick in the teeth.

    The complete GoLocalProv.com article is available here:


    The newly published (October 2012) PERA “Retiree Report” includes a nice puff piece for former PERA Director Meredith Williams who is now at the National Council on Teacher Retirement (dreaming of breaching retired teacher pension contracts on a national scale?) Should former PERA Executive Director Williams be celebrated for presiding over the breach of PERA pension contracts in Colorado (as has recently been confirmed by the Colorado Court of Appeals?) How is this laudable? Are the members of the PERA Board happy with Williams’ leadership . . . are they happy to be complicit in this legal fiasco?

    Greg and Meredith had the obligation to steer the PERA Board of Trustees away from folly . . . to help the PERA Board resist the political juggernaut that was targeting contracted PERA pension benefits. Instead, Greg and Meredith marched the PERA Board of Trustees right over the cliff.

    Sound advice was available to Greg and Meredith regarding legal pension reform options . . . they should have heeded this advice.

    Here it is:

    From PERA Retiree Update, December 2008, page 1:

    “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.” Meredith Williams, executive director discussing Attorney General Ken Salazar’s 2004 Formal Opinion on PERA benefits.

    From the Denver Post, November 30, 2008:

    “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.” (A prescient interpretation provided by Greg Smith, General Counsel, Colorado PERA.)

    (Link: http://www.denverpost.com/news/ci_11105271#ixzz0eEZGoxly)

    • Tim Hansford says:

      Hear, hear. I was just watching the video of the 2012 Shareholder Meeting on PERA’s website, and my attention was drawn to the slide about 28 minutes in, showing the return on investments over time. In the three years since 2008, the rate of return has been nearly 11%, or almost 3% more than PERA’s expected rate of 8%!! Even the rate of return over the last 30 years, which includes the disastrous 2008, is still 10%, or 2% above what was expected. And this year, the return for 2012 is running at 10-11%.

      I would think that since the returns have been so outstanding, that would undermine PERA’s argument of “actuarial necessity”. I’m hoping that the review by the District Court will result in a more thorough analysis of PERA’s claim. It’s just not enough for them to effectively say, “We can’t afford this, therefore we’re just not going to pay it.”

  13. Al Moncrief says:


    Public pension administration is rife with confusing, technical jargon. Colorado PERA is hoping that this level of complexity will work to its advantage in its attempt to breach PERA retiree pension contracts.

    For evidence of PERA’s willingness to attempt to confuse PERA members, courts and juries in its efforts to take contracted retirement benefits consider a device that PERA used in its initial briefs in the case Justus v. State.

    From the outset, the plaintiffs in the case Justus v. State have contested the REDUCTION of their contracted PERA retiree COLA benefits and the consequent breach of their PERA pension contracts. (Obviously, improving PERA retiree COLA benefits would not breach retiree pension contracts . . . the retirees would not be harmed if their pension benefits were increased.) Instead of acknowledging up front that the plaintiffs in the case Justus v. State were contesting the provisions of SB 10-001 that REDUCED the PERA retiree COLA benefit, the defendants in the case (PERA and the State of Colorado) employed a “red herring,” claiming that the plaintiffs were arguing that the COLA benefit could not be legally “adjusted,” that it was UNCHANGEABLE.

    From a defendant’s brief:

    “Plaintiffs have no vested right to a particular COLA formula and to claim that a cost of living adjustment can never be adjusted defies law and logic.”

    PERA’s deception worked on the lower court. The initial Denver District Court decision (that was later reversed by the Court of Appeals) stated that “Plaintiffs’ takings and due process claims likewise are premised on the existence of a constitutional right to an UNCHANGEABLE COLA formula and necessarily fail because no such right exists.”

    Well, the higher court, the Colorado Court of Appeals, in their Decision saw through this red herring. In reversing the District Court, the Colorado Court of Appeals specifically ordered the lower court to ignore PERA’s attempted deception.

    From the Court of Appeals Decision:

    “We note, however, that plaintiffs contend that they have a reasonable expectation of an irreducible (not, as defendants assert, an unchangeable) COLA. Therefore, we direct the district court to consider whether there has been a substantial impairment with that in mind.”

    It is clear that Colorado PERA will not hesitate to deceive PERA members, the court, (and jurors) in their legal briefs, legal arguments, and public propaganda.

    So, what’s next up on the Colorado PERA’s deception menu?

    PERA will attempt to substitute “market-based” pension funded ratios for “actuarial funded ratios.”

    Colorado PERA will attempt to deceive the District Court Judge and jury relating to public pension funded ratios. Why would Colorado PERA attempt to substitute “market-based” pension funded ratios for “actuarial funded ratios”? They will do so, because the use of “market-based” funded ratios, rather than “actuarial funded ratios” exaggerates the financial condition of the PERA trust funds, bolstering PERA’s case for their breach of PERA pension contracts.

    Some background. 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 most often used in defined benefit pension administration because their use is 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.”


    Here is a description of the term “actuarial funded ratio” 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 prior to their campaign to deceive.)

    A “market-based funding ratio” is calculated using the market value of pension assets rather than the actuarial value of assets. PERA used the market-based funding ratio throughout its initial Answer Brief in the case Justus v. State in an attempt to exaggerate the decline in the funded status of PERA’s trust funds.

    PERA cited a “market-based,” “52% funding ratio” three times in its Answer Brief. 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 it has used the “actuarial funded ratio” to measure 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 funded 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 other PERA publications over the last decade reveals that “actuarial funded ratios” are almost always used as indicators of the financial soundness of the PERA trust funds.

    Here are a few examples of Colorado PERA’s historical use of “actuarial funded ratios” in communications to PERA members:

    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 (actuarial) funded level was below 60 percent in 1970, and there was not a perceived crisis in PERA’s financial health.”

    The very bill that Colorado PERA is attempting to defend, SB 10-001, uses “actuarial funded 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 funded ratios.”

    From SB 10-001:

    “24-51-204. Duties of the board. (7) (a) The board or its designated agent shall submit an annual actuarial valuation report to the legislative audit committee and the joint budget committee of the general assembly, together with any recommendations concerning such liabilities that have accrued.


    Colorado PERA statutes define the term “Amortization period” as “the number of years which is required to gradually extinguish the unfunded actuarial accrued liabilities of the plan . . .”. There is no reference to the plan’s “market-based” liabilities.

    Rules adopted by the Colorado PERA Board of Trustees require the use of the “actuarial funded ratio,” i.e., the “smoothed market value of assets.” PERA calculates the actuarial funded ratio by “smoothing” the value of its assets over a four-year period. This process diminishes the impact of short-term market volatility on the pension fund, and consequently the need to alter contribution levels to a pension plan frequently. However, since the campaign of deception began you have seen Colorado PERA officials use (and they will continue to use) the “unsmoothed,” “market-based” funded ratio to exaggerate the financial condition of the PERA trust funds.

    See Colorado PERA Rules, page 23 at this link:


    In their initial Answer Brief in the case Justus v. State, Colorado 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. This citation is to a “market-based” funded ratio.

    In reality, at the end of 2008, the combined PERA “actuarial funded ratio” stood at 69.8%, according to Colorado PERA’s own reported statistics. This level is about 10% below a “well-funded” actuarial funded level according to Fitch Ratings. (And not quite as scary as the 52% figure PERA would have us believe.)

    For recent evidence of Colorado PERA’s intent to use “market-based” pension funded ratios to deceive watch a video posted on the Colorado PERA website last week. In this video, of a PERA “Shareholders Meeting,” the only pension funded ratio that PERA uses is the “market-based” pension funded ratio.



    (Note also that in this video PERA officials boast of their organization’s “transparency.” Do organizations dedicated to the idea of “transparency” use such devices to deceive their members? This PERA “Shareholder’s Meeting” included a scripted, initial section, and then concluded with a segment in which unscripted questions from PERA members were answered. The “transparent” organization, Colorado PERA, presents only the scripted portion of the meeting in the video, and ignores the portion of the meeting in which PERA officials took “unscripted” questions from the PERA members present. Transparency anyone?)

    In the case Justus v. State, it is critical that the Denver District Court see the PERA Trust Fund’s combined “actuarial funded 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 funded ratio” ranged from a low of 54.5 percent in 1973 to a high of 105.2 percent in 2000. The average actuarial funded ratio over this 40-year period is 78 percent. At the end of 2008, the PERA actuarial funded ratio of 69.8% was mere 8.2% lower than the average PERA actuarial funded ratio over the 40 year period. At the end of 2008, PERA’s actuarial funded ratio of 69.8 percent was 10.2 percent below an 80 percent actuarial funded ratio, considered “well-funded” by Fitch Ratings. During an eleven year span, from 1970 to 1981, PERA’s actuarial funded 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 vested, earned, accrued, contracted PERA retiree pension benefits. At the time of the breach of retiree pension contracts in SB 10-001, the difference between the Colorado PERA actuarial funded ratio and Wilshire Associates average actuarial funded ratio for 57 state retirement systems was 3.1 percent. Should pension contracts for all of these public pension plans be breached at this level? According to Colorado PERA, the answer is yes.

    A memorandum (see link below), prepared by the staff of the Colorado General Assembly, provides the historical “actuarial funded ratio” for the Colorado PERA Trust Funds. Colorado PERA is the source of the historical “actuarial funded ratio” statistics displayed in the memorandum.



    Colorado PERA claims that, considering the financial condition of the PERA Trust Funds in recent years, the PERA Trust Funds could not be “sustained” short of the taking of contracted benefits in SB 10-001. I ask, if the Colorado PERA Trust Funds could not be “sustained” with an “actuarial funded ratio” of 69 percent in 2009, 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 “actuarial funded ratio” is in the 50-60 percent range, since the “actuarial funded ratio” has been there in the past and the pension trust funds still exist . . . the trust funds were “sustained.”

    On its website, the law firm Reilly Pozner (a law firm hired by Colorado PERA) describes how it tries cases:


    This law firm’s legal strategy includes the use of graphics: “With our in-house design department, we produce visual aids and demonstrative evidence for use during every phase of a case, from pre-suit case analysis through trial.”


    I expect that Colorado PERA has already issued orders to its hired law firm for the production of visual aids that will include its “market-based” pension funded ratio deception.

    Colorado PERA officials like to boast of their organization’s “transparency.” What is most transparent about the organization Colorado PERA is its desire to deceive.

    • Al, Without going back and doing some homework, didn’t PERA also change the amortization period from 40 years to 30?

    • DFD says:

      What would the “market based” funding ratio be when when the
      “actuarial funding” ratio is 102%?

      • Al Moncrief says:

        Hey DFD,

        I’m not sure that there is a straight line correlation between the two measurements of pension funding status.

        The “market-based funded ratio” is calculated using the market value of pension assets rather than the actuarial value of assets. It is a snapshot in time. As we know “snapshots” are of limited utility when you are considering a public pension that is investing for many decades. The 2010 “market-based funded ratio,” “snapshot” just happens to serve PERA’s deceptive purposes.

        As I understand it, PERA calculates the actuarial funded ratio (AFR) by “smoothing” the value of the PERA Trust Fund assets over a four-year period. The point of using “smoothing” is to diminish the impact of short-term market volatility on the pension fund, and consequently the need to alter contribution levels to a pension plan frequently. You would not want to continually change levels of PERA-affiliated employer or PERA member contribution rates every year. The AFR adds some stability to contribution levels.

        After a significant downturn in the markets the “market-based funded ratio” can be dramatically lower than the AFR (since the AFR is “smoothed,” “averaged,” and reflects the value of assets in the PERA Trust Funds over a period of four years.) This is what happened after the downturn of the markets in 2008-2009. This fact explains PERA’s current desire to begin using the market-based funded ratio from 2010 as the measure of the assets in the PERA Trust Fund at the time of the COLA taking. It casts the funded status of the pension at the time of the COLA taking in the least favorable light, which is PERA’s goal. They want to make the taking of the COLA look like it was “actuarially necessary.” It wasn’t.

        Historically, PERA has almost exclusively used the AFR, and this fact is reflected in their publications, CAFRs, testimony to the Legislature, PERA rules, and PERA statutes. PERA is trying to make the case for the breach of pension contracts, so they will use all tools at their disposal, including the “market-based funded ratio” deception. In the past, PERA had no need to play games with pension funded ratios.

        In years of significant gains in the markets, the “market-based funded ratio” will be greater than the AFR, since the “smoothing” of the AFR includes recent years in which the value of assets in the PERA Trust Funds were lower (these years bring down the average over the four-year period.) If equities see significant gains in the next year or two, you may see the market-based funded ratio exceed the AFR. But, PERA is primarily interested using the “market-based funded ratio” for the year 2010, when SB 10-001 and its COLA theft provisions became law.

        This is my understanding. If we have any actuaries out there and I have something wrong, please correct me.


      • DFD says:


        What I was wondering is what was the market based value when we were “over funded” to determine the extent of this manufactured crisis. When SB 1 demanded 100% funding was it market based or actuarial based?

        By the way Al, you rock. Thank you for the hard work on this.

  14. Al Moncrief says:



    From PERA’s website:

    “’We heard from businesses around the state during the development of the Colorado Blueprint that increased access to capital is critical to their success and that of our state’s economy,’ said Gov. John Hickenlooper. ‘The creation of the Colorado Mile High Fund will improve that access to capital and we are pleased that Colorado PERA’s partnership will benefit and help grow companies here in Colorado.’”

    It is not logically possible for the PERA Board to claim that the PERA Trust Funds have faced, or face, an “actuarial emergency” in recent years and simultaneously enter into an arrangement in which the investment performance of those PERA Trust Funds may be compromised (to any degree.)

    News flash for our “businessman” Governor: By definition, placing an artificial, political restriction on investment options for a portion of the PERA Trust Funds (regardless of size) denies PERA members and retirees the benefit of the most productive use of those funds. Interference with the work of Colorado PERA’s investment team is ill-advised and the burden of restoring any resulting loss of capital will fall on Colorado taxpayers.

    From the Colorado PERA statutes:

    “As fiduciaries, such trustees shall carry out their functions solely in the interest of the members and benefit recipients and for the exclusive purpose of providing benefits and defraying reasonable expenses incurred in performing such duties as required by law.”

    Is the provision of corporate welfare through the “Colorado Mile High Fund” in conformance with the fiduciary obligation of the Colorado PERA Board of Trustees to act “for the exclusive purpose” of providing PERA pension benefits? How does this scheme guarantee improved investment performance for this tranche of the PERA trust funds for beneficiaries? I believe this action represents yet another clear breach of fiduciary duty by the PERA Board of Trustees.

    Does the Governor understand that the PERA Trust Funds belong to the beneficiaries of the trust? Does the Governor understand that the PERA Trust Funds are not public property to be used to meet public policy goals? (Politicians have been trying to gain access to this “pile of money” for decades.)

    If the members of the PERA Board of Trustees would grow a backbone and resist political interference, we might have avoided the recent SB 10-001 debacle, the breach of retiree contracts, the “legal morass” it engendered, and this most recent assault on the integrity of the PERA Trust Funds.

    If Colorado businesses are desperate for capital why do these businesses not take advantage of available historically low market interest rates? Is it simply the case that these businesses are considered too great a risk by private lenders? This risk must be assumed by the beneficiaries of a public pension fund? Public pensions should be forced to invest in businesses that the private sector won’t touch?

    “’The Colorado Mile High Fund will be a new pool of growth capital for investments in Colorado businesses. Over time, the amount of money available for such emerging entrepreneurs and management teams has diminished in Colorado, and PERA saw the mutual benefit providing much-needed capital for Colorado’s business community,’ said PERA Director of Alternative Investments Tim Moore.”

    How is it the responsibility of Colorado PERA members and retirees to redress this shortfall of funding for Colorado entrepreneurs by accepting a less favorable risk/reward ratio for a portion of their PERA Trust Fund property?

    “’This is good for Colorado and for PERA,’ added PERA Chief Investment Officer Jennifer Paquette.”

    The duty of the PERA Chief Investment Officer is not to achieve what is “good for Colorado,” or “good for PERA” administrators. The duty of the Chief Investment Officer is to invest the PERA Trust Funds prudently . . . and in a manner that offers the greatest return potential at the least portfolio risk.

    However, I believe that Paquette’s statement here is politically necessary for her, and I find it sad that the PERA Board places her in this situation. Paquette should be left alone to do her job free from political interference. I believe that if she could speak freely, she would state, as an “investment professional,” that the artificial limitation of investment opportunities for a tranche of PERA’s trust funds is NEVER “good” for the beneficiaries of the Trust Fund. I place only a modicum of blame for this blossoming fiasco on Paquette. I understand that as a condition of employment she must do the bidding of an invertebrate PERA Board.

    If the geographical restriction of PERA Trust Fund investment options is a prudent investment philosophy will the PERA Board please explain why this policy has not been in place at Colorado PERA for decades? Why the artificial, geographical restriction of investment options is summarily rejected by securities industry professionals?

    How did the PERA Board go about determining the geographical investment boundaries that offer the greatest risk/reward potential for the investment our funds? What analysis was conducted? What advantages did Colorado’s borders offer over limiting investment of the funds to venture capital or private equity opportunities in Massachusetts? California? Australia?

    Complete PERA propaganda available here:


  15. Stan Brown says:



    Will larger “too big to fail” or politically powerful states such as CA and IL get federal bailouts … time will tell. In the meantime, fiscally conservative states such as Colorado will default on contractual obligations with its retirees.

  16. John A. Dunaway, Ph.D. says:

    This is an incredible win (of a battle). But, the ultimate outcome of our struggle, is still in doubt.

    I hope that our excellent attorneys can prepare an absolutely compelling argument, that PERA qualified retirees relied upon the representations of PERA and the State Government, via it’s various subdivisions, in making their retirement decisions.

    Those representations, (warranties, in fact) including brochures, documents, letters, emails, etc., originating with PERA and their employees, and board members, most certainly do constitute evidence of the “retirement contract”, including the COLA provision, that was guaranteed to PERA qualified retirees, retiring under the defined benefit plan.

    How could one conclude anything else? After all, the State Legislature found it necessary to pass Senate Bill 10-001 to expropriate earned retirement benefits from qualified PERA retirees, including those ALREADY IN RETIREMENT STATUS.

    This could only be achieved by changing the law to reduce the retirement benefits of the State’s most vulnerable employees, those who had qualified for, or were already retired!

    Shame on the State Legislature for passing Senate Bill 10-001. Shame, as well, on the governor who signed it into law, and didn’t have the courage to veto it, when it landed on his desk, in the first place! It was nothing short of a blatant betrayal of the State’s most loyal employees. It is about that simple!

    John A. Dunaway, Ph.D.
    Director, Risk Management/Security Dept (Ret)
    Jeffco Public Schools

  17. Thank you to all of the attorneys who have worked so hard on this case. I have a question. Will Judge Robert Hyatt be deciding the remaining issues? (This comment was edited.)

  18. MikeyP says:

    There may have been, and may still be, an actuarial need to temporarily reduce the annual increases due to economic conditions, but they lowered the increase permanently and that’s a dirty, rotten, trick.

  19. Al Moncrief says:



    From the pension blog of actuary John Bury:

    “Now fast forward to Colorado 2010 where the state cut back COLAs and brought on this morass of litigation. Would the Knicks be able to do the same thing to (the private sector contract of) Tom Riker (assuming they’re still paying him)? What if they wanted to spend that money for other purposes that they considered more significant and legitimate and it was reasonable and necessary to reduce his payments?

    Could the Knicks get away with that? And if they did would anyone ever sign another contract with them? Then why should Colorado?”

    Complete Article:


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