Three things have to happen for Colorado to save its terminally ill public employee pension system.
First, state lawmakers need to stop perpetuating the misnomer that solving the state employee pension funding crisis is rife with “hard choices.” The choices legislators must make to save the Public Employee Retirement Association pension plan aren’t difficult. They’re just wildly unpopular, and there’s no changing that.
Second, state employees need to accept the fact that the system will cost them more while they’re working. State retirees must accept the fact that PERA will provide them with fewer benefits than they expected, because there is no realistic way around it.
Third, the public, state employees, state retirees and state lawmakers are all going to dislike or even hate what is the only way out of this quagmire. To avoid insolvency, state taxpayers must kick in more money. State employees must kick in more money. State retirees must take out less money.
Nothing else will work politically, financially or practically, so everyone needs to stop pretending there’s another solution, because there’s not.
This week, state lawmakers are trying to reconcile differences between what is essentially opposing Democrat and Republican versions of Senate Bill 200. Republicans are pushing for a solution that requires state employees and retirees to bear the brunt of saving the ailing program, hoping to slip a 401K poison pill into the mix for good measure. Democrats’ plan goes too far in protecting benefits at the expense of employees and taxpayers. But their plan is closer to a realistic answer.
Regardless of whether you’ve ever taught public school or worked for the state, the financial disaster looming over the Colorado public employee retirement system is your problem. It’s everybody’s problem.
For years, Colorado lawmakers have either ignored or mishandled the issue of expense of PERA increasingly outpacing revenue. In short, the system that provides promised pensions to almost every educator and state employee in Colorado is going broke.
State officials estimate the PERA system is underfunded by between $30 billion and $52 billion. If you passed over that, the horrifying number is: $52 BILLION. The Associated Press reports that the Colorado pension system is one of the worst funded in the country.
The reasons why the program is so badly underfunded and the actuarial math that explains it all aren’t critical right now. Essentially, the state promised more than it can deliver at the current funding level, and the situation is made worse by people living longer than they were expected to, drawing larger lifetime benefits than the system can afford.
The problem has heightened the partisan divide at the Capitol, where both Republicans and Democrats posture for their bases. Democrats are pushing to minimize the impact on teachers and public employees. Republicans are trying to keep the problem completely out of the pockets of conservative skinflints.
This time, everybody must put some skin in the game. There is no way a $52 billion deficit can be solved unless everybody gives.
And if you think this is someone else’s problem, you’re dead wrong. The financial situation is so bad, it threatens Colorado’s credit rating. That means more of your tax dollars will be required to pay for fewer roads and other necessities. It means that quality employees who keep you safe and sound in Colorado will be looking for work where their retirement is a plan and not a proposition.
Like it or not, everyone who lives and works in Colorado is chained to the PERA boat anchor.
The compromise underway for Senate Bill 200 must include plans to regularly increase draws from the general fund, most likely well above the funding Colorado was able to add this year because of a rare state budget surplus.
An equitable plan must increase payments from existing workers, and it must delay the age an employee can begin collecting benefits — regardless of how many years they’ve worked.
And a realistic solution must reduce the benefits of current and future retirees.
Of course this isn’t right, and it’s not fair, to anyone. But it’s unavoidable, and anyone telling you differently is lying.
The option is the equivalent of bankruptcy, which would be most disastrous for pensioners, forcing courts to dig far deeper into benefits than lawmakers will now.
Such a solution is certainly a possibility, but it’s the worst of all options for everyone.
It is, however, the most likely if legislators don’t square the unsavory political reality at the Capitol with the only way out of this. It’s a no-win situation for everyone, but unless all sides do what they have to, the shared loss will be far more painful.
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