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Teachers union opposes 401(k)-like provision in Colorado pension overhaul bill

Colorado lawmakers Wednesday unveiled one of the most anticipated bills of the session – an overhaul of the public employee pension system in which most public school teachers participate – and the teachers union immediately raised alarms about a central provision.

Along with increasing employee contributions, cutting benefits for retirees, and raising the retirement age, the bill calls for the creation of a defined-contribution option within the Public Employees’ Retirement Association, similar to the 401(k)s available to many private sector employees, for workers hired after Jan. 1, 2020.

“The alarming provisions in this bill to expand a defined-contribution or 401(k)-style plan do absolutely nothing to achieve the goal of fully funding PERA in 30 years,” Colorado Education Association President Kerrie Dallman said in press release. “A drastic overhaul to PERA with political ornaments like defined-contribution are only being driven by well-funded, out-of-state interests such as the Koch Brothers and the Arnold Foundation. Our legislature needs to ignore the outside voices and instead focus on solutions informed by reliable data.”

The bill, whose sponsors include state Sen. Jack Tate, a Centennial Republican, and House Majority Leader K.C. Becker, a Boulder Democrat, also calls for:

  • Employee contributions to increase by 3 percentage points over the next two years
  • Taxpayer contributions to increase by 2 percentage points during the same period
  • Annual cost-of-living raises for retirees to go down to 1.25 percent from the current 2 percent
  • An increase in the retirement age, not just for new employees but also for current employees who are 46 or younger
  • The creation of a legislative oversight committee
  • A fail-safe mechanism to allow automatic adjustments of benefits and contributions if necessary for the financial stability of the fund

As The Denver Post’s Brian Eason reports, Republicans consider the creation of a defined-contribution plan to be the necessary sugar that allows them to swallow the bitter pill of increased taxpayer contributions. But this proposal as introduced doesn’t have the votes to get out of the Democratic-controlled House, which means the final version will look different – if we get a PERA bill at all out of a divided legislature in an election year.

Ushering the bill through a split legislature in an election year will be tricky, and there’s something in the bill for each side of the pension debate to hate. The defined contribution provision, coupled with the steeper cuts to benefits backed by Hickenlooper, will likely draw significant opposition from public-sector unions and Democratic lawmakers. The plan also increases government contributions, an idea that (Gov. John) Hickenlooper, (Treasurer Walker) Stapleton, and many conservative lawmakers oppose.

Dallman stressed that the teachers union understands that shoring up PERA’s solvency will require “shared sacrifice.” What that means in practical terms is that increased employee contributions and reductions in cost-of-living increases for retirees are negotiable and very much on the table.

But the union considers the 401(k)-like plan unacceptable. Dallman tied the issue to the difficulty many districts have in hiring enough teachers in certain subject areas and in certain parts of the state. PERA’s defined retirement benefits, so rare now in the private sector, help teachers tolerate low wages and sometimes challenging working conditions.

“Educators who teach our children for a long career have earned a stable income that affords them a good quality of life in their retirement years,” Dallman said. “The defined benefits of PERA allows retirees to remain solid, dependable contributors in their local economies in all market conditions, and demonstrates Colorado’s dignity and respect for public employees who continue to make our state a great place to live, work and raise a family.”

Past proposals to create defined-contribution plans have been expensive, the Post reports, because the system needs money from current employees to pay retirees. This bill tries to avoid that problem by requiring public agencies to backfill some of the lost contributions of non-participating employees.

PERA, which replaces Social Security for public school teachers and many other public sector workers, has roughly 566,000 members statewide. The program has only 58 percent of the necessary assets to pay its retirement obligations, with an unfunded liability between $32 billion and $50 billion.

Earlier this year, Eason looked at how the program ended up in trouble less than a decade after it was supposedly fixed the last time.

Correction: An earlier version of this story described PERA’s unfunded liability in the millions. It’s in the billions.