Risky Retirement: Colorado's Uncertain Future and Opportunities for Reform

by Josh McGee; Michelle Welch

Jun 15, 2015
This report outlines several key findings about the Colorado Public Employees' Retirement Association (PERA).
  • Despite larger employer contributions, the debt has increased over the past decade. For example, contributions to PERA's School Division have more than doubled since 2005; yet, the payments still do not cover the plan's full cost.
  • Eighty-one percent of the increase in the state's unfunded pension liabilities is due to insufficient payments.
  • Colorado is relying on a risky investment strategy to close the gap between pension assets and liabilities. Two-thirds of its investments are allocated to volatile assets such as equities, real estate, and alternatives.
  • Recent legislative reforms will have a marginal impact on protecting PERA from economic booms and busts.
  • The state's funding plan, which includes a costly period of negative amortization, will cause PERA to remain in a precarious financial position for decades. The period of negative amortization will cause the debt to cost much more in the long term.
Colorado should take action to avoid dire financial consequences, and it should take immediate steps to improve the financial stability of its pension system. Such measures include developing a credible plan to pay down PERA's current unfunded liability, managing future cost uncertainty, and adopting a flexible funding policy. These reforms would allow Colorado to create a lasting, secure retirement plan and would help to ensure that the state is able to deliver on its promises to citizens and public employees.
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