View From a Height

As some of you may have heard, PERA, Colorado's Public Employee Retirement program, has got a little problem. At latest report, its obligations were down to being about 60% funded, a couple of decades out, down from 80%, which is considered fully-funded. This is before taking into account paper losses from real estate and other non-equity investments.

The reason that being underfunded 30 years out is a problem is that there are still bills to pay today, and that at some point you start paying out money faster than it can grow. One day, you wake up, and the seed corn is gone at the retirees are at the door.

Yesterday's Denver Post cites a 2004 State AG's report to the effect that there may be some legal limitations to what PERA can do. In all likelihood, benefits to current retirees are sacrosanct, barring a constitutional amendment (aren't you now that glad we rejected Referendum O?) to permit a reduction of benefits.

New hires should be put into the 401(k) without even the option of a defined-benefit plan. Those at or approaching retirement age should probably not have their benefits tinkered with. But some combination of higher contributions by employees, lower benefits, and a higher retirement age (really, who gets to retire on full bennies at 57?) will probably be required.

PERA's Board may have to show to a court's satisfaction that all this is necessary to prevent major street corners from being overrun by former state employees and the inevitable tin cup shortage. At the same time, there's no question that PERA has been operating under one of those unspoken assumptions that the taxpayers will always be there to bail them out, if necessary. Thus the somewhat rosy 8.5% growth assumptions underlying their projections.

We'll probably have to await the 2008 Annual Report to see exactly how bad things are, but there's no question that the sooner we deal with this the better. After all, better to ask public employees now to contribute more to their own financial security than to ask you, 15 years down the road and a few years away from your own golden years, to work for a few more years.