Recently, Colorado’s Public Employee Retirement Association unveiled its 1.9% return on investment for 2011. While PERA touted the returns, Colorado State Treasurer Walker Stapleton sounded an alarm about the low returns given the 8% per year assumed ROI. Late last week, the Denver Business Journal learned that three of PERA’s 16 board members voted against publishing its annual report on June 26 over concerns, again, about PERA’s 8% per year ROI assumption.
In short, this high assumed rate of return for 30 years means that pension funds could be grossly underfunded, especially in light of its 25% loss in 2008. Of course, that’s where State Rep. Andy Kerr comes in.
At a time when Colorado PERA was struggling to bounce back after substantial losses in 2008, Kerr sponsored legislation that increased the burden on the fund by merging more than 6,000 retirees (and thousands more future beneficiaries) from the Denver Public Schools pension plan into PERA. His efforts increased PERA’s unfunded pension liability by hundreds of millions of dollars as of December 31, 2011 (when it was last published).
According to PERA’s 2011 annual report, made public two weeks ago, the Denver Public Schools Division of PERA now carries a $638 million unfunded liability, and this assumes the controversial 8% projected return on plan assets.
To put this into perspective, if that return assumption is reduced by just 1.5%, to a 6.5% projected return on investments, the Denver Public Schools unfunded pension liability balloons to $1.27 billion. Even worse, PERA’s investments returned 1.9% in 2011, and had an annualized return of just 2.1% over the past five years.
The detail of PERA’s expected return on plan assets cannot be overlooked, as small changes in this assumption have a dramatic impact on the funded status of a pension plan. Lower projected returns result in drastically higher unfunded liabilities, and to bridge this gap, the necessary funds only come from two places: employee contributions and employer contributions (read: Colorado taxpayers).
Recently in Wisconsin the nation witnessed the dramatic and pathetic spectacle that occurred when teachers and other government workers were asked to contribute slightly more to their retirement accounts. Could the same thing play out in Colorado? Who knows? But the taxpayers in Colorado certainly did not need Andy Kerr throwing gasoline onto the fire.
(Photo Credit: Colorado News Agency)