PERA Benefits Among Most Generous in the Country


Late last week, the redoubtable Andrew Biggs of the American Enterprise Institute published a state-by-state comparison of full-career public pension retirement benefits, in that organization’s monthly Economic Perspectives.  While news of PERA’s long-term fiscal problems won’t be a surprise to anyone reading this blog, it may come as a surprise to learn that Colorado ranks among the most generous states when it comes to that measure.

In nominal dollars, Colorado ranks fourth in the country, at just over $60,000 for an employee who spends his entire career in the state civil service.  The $60,420 per annum figure ranks just behind California and Alaska, and considerably behind Nevada’s $64,000.  When adjusted for the states’ relative cost of living, as calculated by the Council for Community and Economic Research, Colorado jumps well past both California and Alaska, into 2nd place.

Biggs also noted that the present value of these benefits can create “pension millionaires,” whose benefits exceed $1 million in today’s money.  When Colorado’s benefit is compounded at the maximum 2.0% COLA, and then discounted using a 3.5% risk-free discount rate, the total comes in at $1.25 million in 2014 dollars, assuming the beneficiary retires at 60 and lives to 82.5 years of age.

As Biggs points out, the need to stay for an entire career in order to collect benefits, at the same time that they forego Social Security benefits for those years, is a serious disincentive to retaining qualified and motivated public employees.  Those who leave – or arrive – in the middle of their career get shortchanged the most, since vesting and benefits are not proportional to the years served.

The problem here isn’t that workers are greedy, or that these benefits themselves are unsustainable.  It’s that the results are unfair to the majority of workers, who find their own benefits shortchanged in order to fund the retirements of full-career public servants.  A conversion to a defined contribution plan, where workers are always fully vested in their own contributions would help to solve this problem, and be much fairer to the majority of workers who do not spend their entire careers with the government.