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Legislative Year: 2018 Change
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Bill Detail: SB18-200

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Title Modifications To PERA Public Employees' Retirement Association To Eliminate Unfunded Liability
Status Governor Signed (06/04/2018)
Bill Subjects
  • State Government
House Sponsors K. Becker (D)
D. Pabon (D)
Senate Sponsors J. Tate (R)
K. Priola (R)
House Committee Finance
Senate Committee Finance
Date Introduced 03/07/2018
Description

The public employees' retirement association (PERA) provides
retirement and other benefits to employees of the school districts, state,

local governments, and other public entities across the state. The bill
makes changes to the hybrid defined benefit plan administered by PERA
with the goal of eliminating, with a high probability, the unfunded
actuarial accrued liability of each of PERA's divisions and thereby reach
a 100% funded ratio for each division within the next 30 years. The bill
modifies benefits, increases contributions, ensures alignment of
contributions, service credit, and benefits, and makes other modifications
as follows:
Highest Average Salary (HAS): Currently, for a PERA member
who is not in the judicial division of PERA, the member's HAS is based
on an average of the highest annual salaries associated with 3 periods of
12 consecutive months of service with a base year. For a PERA member
who is in the judicial division of PERA, the member's HAS is based on
an average of the highest annual salaries associated with 12 consecutive
months of service. For all new PERA members hired on or after January
1, 2020, who are not in the judicial division, and for all existing PERA
members who do not have 5 years of service credit as of January 1, 2020,
who are not in the judicial division, the bill modifies the HAS calculation
to be based on an average of the highest annual salaries associated with
7 periods of 12 consecutive months of service with a base year. For all
new PERA members hired on or after January 1, 2020, who are in the
judicial division, and for all existing PERA members in the judicial
division who do not have 5 years of service credit as of January 1, 2020,
the bill modifies the HAS calculation to be based on an average of the
highest annual salaries associated with 3 periods of 12 consecutive
months of service with a base year.
Definition of salary: The bill modifies the definition of salary.
Specifically, the bill states that amounts deducted from pay pursuant to a
cafeteria plan or a qualified transportation plan are included in the
definition of salary. In addition, the bill clarifies that unused sick leave
converted to cash payments is included in the definition of salary and that
insurance premiums paid by employers are not included in the definition
of salary.
Termination of affiliation: Current law allows a political
subdivision of the state that is an employer associated with PERA and
that is assigned to the local government division of PERA to terminate its
affiliation with PERA upon application to the PERA board. The bill
specifies that any employer that ceases operations or ceases to participate
in PERA for any reason is deemed to have terminated its affiliation with
PERA. The bill states that any such employer is required to fully fund its
share of the unfunded liability of the defined benefit plan and its share of
the unfunded liability of the health care trust fund. The bill specifies that
the PERA board will determine the amount of such payments and that
such determinations may be appealed by the employer through the
administrative review process established in the board rules. The bill
further specifies that the employees of an employer that terminates its
affiliation with PERA will become inactive members of PERA as of the
date of the termination. Such members may elect to have their member
contributions credited to an alternative pension plan or refunded. In the
absence of such election, the member contributions will remain with
PERA.
Increase in member contributions: Currently, all PERA
members with the exception of state troopers contribute 8% of their salary
to PERA on a monthly basis. State troopers contribute 10% of their salary
to PERA on a monthly basis. On July 1, 2018, and again on January 1,
2019, the monthly member contribution to PERA will increase by .5% of
salary. On July 1, 2019, and again on January 1, 2020, the monthly
member contribution to PERA will increase by 1% of salary. When all
increases are fully implemented, the total contribution will be 11% of
salary each month for PERA members who are not state troopers and
13% each month for PERA members who are state troopers.
Increase in employer contributions: Currently, all PERA
employers contribute an amount equal to a percentage of the member's
salary to PERA on a monthly basis. For most employers, the monthly
contribution amount is equal to 10.15% of the member's salary. For state
troopers, the monthly employer contribution amount is equal to 12.85%
of the member's salary and for members of the judicial division, the
monthly employer contribution amount is equal to 13.66% of the
member's salary. On July 1, 2018, and again on July 1, 2019, the monthly
employer contribution to PERA on behalf of members will increase by
1% of salary. When both increases are fully implemented, the total
contribution will be equal to 12.15% of salary each month for most PERA
employers, 14.85% each month for PERA employers who employ state
troopers, and 15.66% for PERA employers in the judicial division.
Automatic contribution and annual increase amount changes:
The bill specifies the circumstances under which the employer
contribution rate, the member contribution rate, and the annual increase
percentage for retirement benefits can be adjusted so the fund remains
within the target of paying off the unfunded liability within 30 years. The
bill specifies that the yearly adjustments can be up to one-quarter of one
percent on the annual increase percentage, one-half of one percent on the
employer contribution percentage, and one-half of one percent on the
employee contribution percentage. The bill places limits on how much the
annual increase and contribution rates can be adjusted.
Defined contribution supplement: Beginning January 1, 2022,
the bill requires employer contribution rates to be adjusted to include a
defined contribution supplement. The defined contribution supplement
for each division will be the employer contribution amount paid to
defined contribution plan participant accounts that would have otherwise
gone to the defined benefit trusts to pay down the unfunded liability, plus
any defined benefit investment earnings thereon, expressed as a
percentage of salary on which employer contributions have been made.
The employer contribution amounts only include contributions made on
behalf of eligible employees who commence employment on or after
January 1, 2020.
Earned service credit for part-time work: Currently, a PERA
member earns a full year of service credit for 12 months of employment
if the member earns a salary of 80 times federal minimum wage in each
month. This applies even if the member does not work full time. In
addition, a PERA member earns a full year of service credit if the
member's employment pattern covers at least 8 months but less than 12
months in a year, so long as the member worked at least 8 months in the
12-month period. The bill modifies the way service credit is earned for
part-time work for any PERA member who was not a member, inactive
member, or retiree on or before December 31, 2019. Such members earn
a full year of service credit for 12 months of employment if the member
works full time or works at least 8 months but less than 12 months in a
year. If the member does not work full time, the earned service credit will
be determined by the ratio of part-time work to full-time work and the
number of months for which contributions are remitted to the number of
months required for a year of service credit.
Service retirement eligibility for new members: For PERA
members who begin employment on or after January 1, 2020, the bill
increases the age and service requirements for full-service retirement
benefits for most divisions to age 65 with a minimum of 5 years of
service or any age with a minimum of 40 years of service credit. For state
troopers who begin employment on or after January 1, 2020, the bill
increases the age and service requirements for full-service retirement
benefits to age 55 with a minimum of 25 years of service credit or any age
with a minimum of 35 years of service credit. State troopers are also
eligible for full-service retirement benefits at age 65 with 5 years of
service credit. For PERA members who begin employment on or after
January 1, 2020, the bill also increases the age and service requirements
for a reduced service retirement benefit to 55 years with a minimum of 25
years of service credit; except that, for state troopers, the bill increases the
requirements to 55 years with a minimum of 20 years of service credit.
Service retirement eligibility for current members: Beginning
January 1, 2020, for members, excluding state troopers, who are
members, inactive members, or retirees on December 31, 2019, the age
requirement to receive service retirement benefits or reduced service
retirement benefits currently specified in law is the age requirement for
each member plus one year for every 4 years that the member's age is less
than 46 years on January 1, 2020. In no event shall the age requirement
to receive service retirement benefits exceed 65 years for any member for
a service retirement benefit or 60 years for any member for a reduced
service retirement benefit.
Cost of living adjustment (COLA) for all retirees, members,
and inactive members: Currently, the annual COLA for benefit
recipients who began membership prior to January 1, 2007, is 2%. For the
years 2018 and 2019, the bill reduces the COLA to 0%. For each year
thereafter, the bill changes the COLA to 1.25%, unless it is adjusted
pursuant to the automatic adjustment provisions explained above. In
addition, the bill requires benefit recipients whose effective date of
retirement is on or after January 1, 2011, and who have not received a
COLA on or before May 1, 2018, to receive benefits for at least a
36-month period following retirement before the benefit is adjusted with
the COLA.
Defined contribution plan: Currently, members in the state
division of PERA hired on or after January 1, 2006, may choose to
participate in the defined contribution plan administered by PERA rather
than the defined benefit plan. A member's participant account receives the
monthly employer contribution, and the amortization equalization
disbursement (AED) and supplemental amortization equalization
disbursement (SAED) payments are used to amortize the unfunded
liability of the defined benefit plan. Beginning January 1, 2020, members
of the school division, the Denver public schools division, local
government division, and judicial division of PERA hired on or after that
date may also choose to participate in the defined contribution plan. A
new member's participant account will receive the same employer
contribution as received by current members of the defined contribution
plan.
Public pension legislative oversight committee: The bill creates
the public pension legislative oversight committee to study and develop
proposed legislation relating to the funding and benefit designs of PERA
and the fire and police pension association. The committee is comprised
of 4 senators appointed by the president of the senate, 6 representatives
appointed by the speaker of the house of representatives, and 4 experts in
the area of pensions or retirement plan designs appointed by the state
treasurer. The bill specifies limitations on the number of appointees that
may be from the same political party. The bill also specifies that the state
treasurer's appointees are required to have significant experience and
competence in investment management, finance, banking, economics,
accounting, pension administration, or actuarial analysis and shall not be
members, inactive members, or retirees of PERA or the fire and police
pension association. The bill repeals the police officers' and firefighters'
pension reform commission on January 1, 2019.

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