Last week, Colorado’s Public Employees’ Retirement Association voted, 8-7, to lower its long-term investment return assumption to 7.5 percent from 8 percent.
The assumed rate of return is the yearly return estimate that PERA’s portfolio must achieve to have the funds to pay current and future beneficiaries.
Colorado PERA provides retirement and other benefits to 500,000 current and former employees of more than 500 public entities in the state, according to a PERA news release, making it the 21st largest public pension plan in the country.
The decision to lower the assumed rate of return came at the conclusion of the PERA Board of Trustees’ annual review of economic actuarial assumptions, and despite short- and long-term returns that have exceeded market benchmarks. In 2012, PERA’s rate of return was 12.9 percent, with a 10-year annualized return of 8.4 percent and a 30-year annualized return of 9.4 percent, according to the release. The release also stated 2013 returns to date were in excess of 11 percent.
But, PERA currently has an approximately $23 billion unfunded liability, or money that it owes to current and future retirees that it does not have in its fund, according to a news release from Colorado Department of the Treasury.
Katie Kaufmanis, public information officer for PERA, said that liability was already being paid down before the board’s decision last week.
“Not everyone is going to retire today,” Kaufmanis said. Passage of “Senate Bill 2010-1 made it reasonable to pay off that liability over the next 30 years.”
However, Kaufmanis declined to speculate why the board voted to reduce its rate of return considering it has exceeded the 8 percent rate for some time and already is in the process of reducing its liability through legislative action, saying she simply noticed a theme of being more conservative among board members during the meeting.
Colorado Treasurer Walker Stapleton, the only elected official on PERA’s board, was among those board members who voted to lower the assumed rate of return from 8 percent to 7.5 percent. He has repeatedly said that keeping an 8 percent return assumption would jeopardize the retirement outlook for future retirees, as well as younger PERA members.
“I commend the PERA board for the care, prudence and diligence that went into today’s difficult decision,” Stapleton said in the release. “I am confident that the decision reached today will serve to benefit PERA beneficiaries in the long term as we seek to keep and fulfill our most important promise to public workers throughout Colorado.”
In 2011, Stapleton’s first year on the board, the board voted, 10-5, to keep an 8 percent return. The board voted to maintain the 8 percent rate of return last year as well, but by an 8-7 margin.
Last week’s vote symbolizes a decisive shift in PERA’s board, Stapleton said in the release.
“This is a great common sense step towards ensuring the safe retirement of 300,000 public servants,” Stapleton said in the release. “We have seen Democrats, Republicans and Independents across the country take up meaningful reforms to deal with their underfunded pensions. Colorado can now begin working to initiate real reforms to shore up our $23 billion underfunded pension system.”