Public Pensions, Public Purse

On the campaign trail, I’ve spoken to any number of public employees and retirees who are worried about PERA, understand the problems, and who recognize the system needs to be changed.  Some retirees are even willing to take cuts themselves, although I think asking them to do so would be a breach of faith.  Employees and even reitrees are clearly more flexible on this issue than their unions are.  To his credit, Mayor Hickenlooper has proposed changes to Denver’s pensions to try to make it more solvent:

For future employees only, the proposal would increase the minimum retirement age from 55 to 60, further decrease the pensions of those who retire early and increase the time required for vesting from five years to seven years….

This year, city workers had to contribute an extra 2 percent of their paychecks to offset losses in the pension fund’s investments…
The most recent analysis shows the pension plan ended December 2009 with 88.4 percent of its obligations funded, better than many other public pension plans, including the one for state workers.

Now, an 88.4% funded status is excellent, especially given the status of other public pensions.  It speaks well of the conservative management of plan assets, although it’s worth noting that Denver may be using the expected return as the discount rate, rather than the level of obligation, which would overstate the plan’s funded status.  (Full disclosure: I’m friends with Steve Hutt, who attends my synagogue, and haven’t had a chance to ask him what discount rate the plan uses.)

Nevertheless, defined benefit plans will almost always encounter, over their lifetimes, a rough patch rough enough to make them insolvent without greater contributions.  The Mayor’s efforts are better than doing nothing, but will face opposition in the City Council from unions, and don’t address the fundamental problem of making promises the city can’t keep.

This is important, because dealing with PERA will be an important job of the next governor and legislature.  According to Business Insider, Colorado’s pension fund is only 12 years away from actual insolvency, 8th-worst in the country.  Unless we deal with this, by getting obligations to current and imminent retirees fully funded, and then converting to a defined contribution plan for new and younger state employees, we will end up bankrupting the state.  Pension obligations – backed by unions whose greed is not representative of their members – will eat us alive, leaving almost nothing for actual services and functions.

I’m not sure that John Hickenlooper is willing to make that decision, but I am certain that the current legislative majority isn’t.  We need to elect one that is.

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