So What’s Next?

By Retiree John Kiljan

February 23, 2010

I don’t think most retirees have any idea as to how big a financial hit they are taking now that Senate Bill 1 has become law.  For career State employees just beginning their retirement, think of your house burning down after you let your insurance lapse and you will be pretty close.

Going from a 3.5% to a 2% COLA doesn’t sound like much of a sacrifice, but the math says otherwise.  I ran my own benefit numbers through a spreadsheet and was astonished by the losses.  It’s over $20,000 in the first six years alone. After that the loss grows exponentially.  By the time I am 80, Senate Bill 1 will have reduced my monthly pension by 25%. Over the expected lifetime of myself and my wife our losses from SB 1 will exceed a half a million.  I strongly encourage every retiree to run their own numbers.

But, it’s worse than that.  Those are optimistic estimates figuring a 2% COLA each year.  However, if PERA experiences an investment loss in any given year, future COLA’s can be lowered even further for years afterward.  If history is any guide, PERA will have an annual investment loss a couple of times a decade.

There’s more.  If this bill passes court muster or goes unchallenged, the legal precedent will be set.  The Legislature can repeat its past follies and lower its own contribution rate still further during the next budget crunch and once again increase benefits and buyback provisions to encourage budget-saving early retirements.  After that, the Legislature can just adjust the COLA (or any other retirement benefit) even lower whenever it decides there is yet another ‘actuarial necessity.’  Indeed, the bill even has language in it that warns retirees that the Legislature has the right to make further benefit cuts in the future.

Could it get even worse?  Yep, it sure could.  We could have a repeat of the late 1970’s.  That’s when years of billion-dollar federal deficit spending sparked high inflation.  The very things that PERA invests our pension funds in, stocks and bonds, got hammered.  The stock market fell 25% and the value of bonds plummeted as the Federal Reserve cranked up interest rates as high as they could to bring inflation back under control.  The purchasing power of the dollar fell by more than half.  Financially, there was nowhere to hide.

Since then, those billion-dollar federal deficits have turned into yearly trillion-dollar deficits.  Retirees were already vulnerable to inflation before Senate Bill 1 became law.  Now, it is downright scary.

* * *

Despite the ‘2/2/2 Plus’ marketing and lobbying campaign, it’s pretty hard to believe PERA’s assertion that the pain is being spread equitably among employers, existing employees, employees yet to be hired and among those already drawing their retirement benefits.  The truth is that the bulk of money for ‘saving PERA’ comes from retirees–90% by SB 1’s own sponsors’ estimate.  Why?  Because as one lawmaker put it (probably unaware that he was quoting the famous bank robber, Willie Sutton, when asked why he robbed banks), “that’s where the money is.”

Where should the money to fix PERA really be coming from?  The one organization that made these retirement promises in the first place and then decided not to fund them–the State itself.

If anyone wants an impartial confirmation of that answer, they should read two eye-opening reports on states’ retirement funding from the Pew Center on the States.  The most recent report, The Trillion Dollar Gap–Underfunded State Retirement Systems and the Roads to Reform, can be found at this link

You may have heard about the report in the media lately.  The part that specifically deals with Colorado’s underfunding can be found on page 27.

How did this situation come about?  Don’t believe it was just bad stock market returns and don’t overlook another December 2007 report by the same organization that tells you exactly what went wrong in Colorado.  Here’s a quote from that report:

Colorado once had a stellar record of responsibly supporting its pension plans—but that fell apart in recent years.  The state experienced one of the most severe drops in pension funding levels of any state in the early years of the decade, and between 2003 and 2006, the amount of money the state contributed to its pension systems fell far short of annual required contributions.

and one more,

” . . . practices in the late 1990s allowed [Colorado] employees to buy five to 20 years of service at ‘fire sale prices.’ Although the program certainly cut the workforce, it added significant costs to the pension system and contributed to the dramatic drop in funding levels from about 105 percent funding in 2000 to about 73 percent funding at the end of fiscal year 2005.  ‘It was not an actuarially sound price,’ one Colorado finance official told the GPP [Government Performance Project] in 2005.

The 2007 report, Promises with a Price, can be found at

* * *

I’m sorry to worry existing retirees about the risk of devastating inflation in their senior years, but I’m also sorry to see them lose so much of what they were promised over their working lives.  We’ve certainly had a lot of fear mongering from PERA in the last few months, and it’s past time to hear the other side of the story.

Remember, PERA doesn’t work for you.  It never did.  It was created to administer our pension plan by the General Assembly of the State of Colorado.  Retirees get some representation on its board, but its administration answers to the Legislature and to the Governor.  It does not answer to its retirees and vested employees whose contributions they hold.

So what is next?

On the face of it, SB 1 COLA provisions violate the contract provisions of both the Colorado Constitution and the U.S. Constitution.  No other state has been able to reduce employees’ vested benefits after retirement.  The courts could easily overturn all or part of this bill.  But, they will only do that if they are asked for a ruling.  To do that requires legal action of some kind, and we’ll probably only have one shot at it.

Consider carefully, retirees:  Wouldn’t it be foolish for you not to contribute to any viable class-action legal fund that starts up? I also put that same question to all present and former State employees who were frightened into supporting this bill.  I heard plenty of you during committee testimony.  And, I’ll put that question to all those organizations that PERA said had its members’ support to cut vested benefits.  Even if this bill is upheld as being constitutional, a court ruling could limit additional benefit cuts for retirees in the future.  Right now, there is no limit.

A contribution to a class-action suit could be the best two or three thousand dollars a PERA retiree ever invested.

–John Kiljan

vested adj (ca. 1766):  fully and unconditionally guaranteed as a

legal right, benefit, or privilege <the ~ benefits of the pension plan>

— Webster’s New Collegiate Dictionary

10 Responses to So What’s Next?

  1. Walter Johnson says:

    Over 20 years the annual pay for the type of work I was doing at the top step increased by over 70%. Waiting a year for the first increase and having 3.5% annual increase over 20 years retired (19 years of increases) the final retirement has an increase equal to 92% of the initial amount, while for a 2% annual increase the same number is 46%, but a provision like SB-1 with its periods of no and curtailed increases can mean an increase of 35% or less in a typical 20 year period of retirement. Had the annual CPI been used the number would be 65%.

    For someone who went on disability retirement and did not have 10 years of Medicare contributions, the difference in combined Medical premiums, co-pays and deductibles can be $200,000 or more extra for health care over 20 years than if they had received Social Security disability instead. For those with the most severe disabilities they would have wound up poor and on welfare because of the staggering increases in the cost of health insurance and out of pocket expenses for retirees under PERA.

    Even though my wife did some part-time work for a decade after retirement under Social Security she may get no benefit because of the Social Security WEP reduction and I definitely will get none because of the GPO reduction. This has an extra consequences. While for those who never received any PERA or other government pension in lieu of Social Security never have to pay more in Medicare premiums than the actual increase in their benefit, my wife and I will always have to pay the full Medicare premium.

    I tell my sons never to work for government, and to put as much into tax advantaged retirement contributions as the law allows. The public is always trying to compare PERA to private pensions when no private pensioner of Social Security age doesn’t also get a Social Security check.

    The Court challenge to SB-1 is as much about private-public fairness as it is about contract law to me. PERA pensions are not even guaranteed by the Pension Benefits Guarantee Corporation that covers comparable private employer pensions. And, if Congress changes the current law and allows states to go bankrupt many states may do so simply to get out from under their pension obligations.

    It will be bad for all public employee pensioners if Colorado wins this law suit. Our pensions might as well be funded in the welfare programs budget because they will be treated that carelessly.

    • saveperacola says:

      If you or your wife are covered by Social Security and thus Medicare, then the spouse is also covered per Federal law. Notwithstanding that, there is a state law that says all PERA retirees are given the same PERACare insurance rates after reaching age 65, regardless whether they are covered by Medicare or not, in the PERACare plan. Check with PERA about this. (This does not apply to DPS division retirees.) This is not legal advice.

  2. Anna says:

    Is anyone interested in sharing their story about how PERA’s failure affected their life. The story would be a part of an article in Atlantic Monthly and will provide more attention to the predicament our current retirees are in. E-mail :

  3. Nancy Moore says:

    I retired in June of 2001 after 26 years of teaching. The lawsuit is for people who retired several years after I did so it won’t help me with COLA? PERA is all I have. I am a single woman who just realized that I can’t even qualify for Medicare A because my entire career was a teaching career.

    • saveperacola says:

      You are covered by the lawsuit provided the judge certifies the class as requested. Your health insurance premium will not differ (due to not being qualified for Medicare) from what PERA offers everyone else, provided you did not retire from Denver Public Schools. Check with PERA for a definitive answer.

    • John Kiljan says:

      Hello Nancy,

      You probably want to attend one of the PERACare open houses in October. Even if you are pre-Medicare now, they have sessions on Medicare coverage that are pretty informative.

      I sat in one one year and I’m not sure but I think they said that PERA will purchase Medicare A coverage for you if you or your spouse has not paid enough into the system to qualify on your own.

      You should already have a PERACare package with the open house dates and locations around the state.


  4. Ed Buckingham says:

    Sad to see only two (2) replies….perhaps some of the funds raised should go to marketing this.

    The goal should not be large $ from a few. If 5,000 retirees donate $10 each per month (talk about “cost-benefit”), that generates $50,000 per month or $600,000 per year.

    If the same numbers donate an average of $20 per month that is $1,200,000 per year.

    If these kind of numbers do not materialize, then retirees will get what the deserve…..or more accurately, won’t get what they deserve.

    PS: I violated the monthly principle of $10 or $20 by sending in $250. I figure that covers this month for 24 of my fellow retirees.

    • saveperacola says:

      Money was spent on advertising in nine Metro Denver local education association and senior newspapers with some, but not great, results. Word of mouth has worked best so far. If anyone has a partial list of retirees from their previous work place that can be legally shared, please let us know.

  5. Greg Newton says:

    Please add my name to the list.

  6. Cathie Nazir says:

    Great post, I bet a lot of work and research went into this article.

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