PERA’s 2014 CAFR – Situation Normal…


Colorado PERA released its 2014 Comprehensive Annual Financial Report on Tuesday, and there were no real surprises, which isn’t to say it was particularly good news for the state’s retirees, government employees, or taxpayers.  For the most part, it showed more of what we already knew: a system in trouble, and unlikely to earn its way out of that trouble any time soon, if ever.

The rate of return on investment was 5.7%, which is 1.8% short of the expected rate of return of 7.5%.  PERA will no doubt point to the fact that it met the benchmark return, but all that means is that the funds weren’t grossly mismanaged.  The net result is that the unfunded liability, as acknowledged by PERA, climbed from $23.3 billion to $24.6 billion.

In reality, the future liability should be discounted not at the expected rate of return – an accounting gimmick that is only available to US public pensions – but by the borrowing cost of the governments involved.  In this case, that would mean a discount rate of about 4.5%.  Running that out 15 years, we end up with an eye-popping unfunded liability of $60 billion.  A 30-year window raises it to an almost unimaginable $116 billion.  That’s the unfunded liability – the promises made for which we have no money.

Overall, the funding levels fell to 64.2% from 65.2%, but the two biggest funds are much worse off than that.  The State Fund’s funding level slipped to 59.8%, the School Fund to 62.8%.  These calculations are done using the market value of the assets, rather than the smoothed actuarial value, as they have in the past.  That actually makes the funding levels look better, as the investments age out the miserable 2011 investment year, but it gets the direction right, and funds can only spend and invest actual dollars, not smoothed ones.

The amortization periods – how long it would take to get to full funding – also ballooned to 45 years for the State Fund, and 48 years for the School fund, after accounting for the future increases in the AED and SAED supplemental payments.  PERA rightly points out that these numbers don’t account for the decrease in benefits for future hires, which probably shorten the amortization periods by a few years.

I’ll have a lot more to say about this, but the short version is that there’s nothing to be cheerful about here.  PERA will claim that everything is still on track to be fully-funded decades hence, but then, PERA always thinks nothing’s wrong right up until the point that they come to the legislature for more money.

Photo Credit: Todd Shepherd & Complete Colorado