Gov. John Hickenlooper is facing criticism for asking government retirees and employees to contribute more than taxpayers to help pay off the massive unfunded liability hanging over the state’s pension system. His critics should stand down. Hickenlooper’s plan to pay down the more than $32 billion liability in the next 30 years is a responsible stance that gets out ahead of an ugly political battle sure to erupt when lawmakers return to the Capitol in January.
There’s no denying that Colorado’s Public Employees’ Retirement Association needs to make changes now to ensure the retirement fund remains strong. PERA will need millions of new dollars every year to shore up the pension, which today is just 58.1 percent funded and is headed in the wrong direction even if the stock market performs as well as expected.
The PERA board recommended that all parties — retirees, current employees and taxpayers — share a portion of the cost of righting the ship. But we, and others, are calling for taxpayer-funded state agencies to be shielded from helping to pay for another round of PERA reforms. The agencies and the taxpayers who fund them are already doing more than their part. Most agencies, for example, are contributing a backbreaking 20.15 percent toward employee benefits.
Hickenlooper’s recommendation understands that reality. Instead of asking state agencies to increase their retirement contributions for each employer by 2 percent, the governor would further reduce retirees’ annual guaranteed cost-of-living adjustment, or COLA. PERA’s board supports a plan calling for the COLA to be reduced from 2 percent to 1.5 percent. Hickenlooper’s plan would drop it another quarter percent to 1.25 percent.
Yes, Hickenlooper’s plan would represent a decrease in retirement benefit for retirees, but part of PERA’s problem is that the state has long promised benefits that were too rich to begin with. For example, before lawmakers passed reforms in 2010 meant to deal with the Great Recession, retirees enjoyed a whopping 3.5 percent annual COLA.
Sadly, those 2010 reforms didn’t go far enough, a fact that should underscore efforts to get it right this time around.
Hickenlooper’s plan is not without heart. It still asks taxpayers to help employees meet their obligations for their retirement fund. While Hickenlooper’s plan would require employees to pay an additional 2 percent more every year toward their retirement plan — most now pay 8 percent — his budget also calls for a 3 percent across-the-board raise for most state employees, which will offset the sting of increased retirement contributions.
For some Republicans, like Treasurer Walker Stapleton, Hickenlooper’s plan doesn’t go far enough. Stapleton is calling for PERA to base its reforms on a lower anticipated rate of return. He wants the board to take a more conservative approach, which would cost more money up front but put the funds on more stable footing faster.
While we appreciate the watchdog role the gubernatorial candidate has played in pushing the board to get to this point, we think his approach would be too aggressive. Part of the benefit of creating a multibillion-dollar retirement fund is that it can absorb risk and loss over several decades. If there’s another financial collapse, then more drastic measures can be taken.
Now is the time to implement reforms and we hope that lawmakers can support Hickenlooper’s plan.
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