The second regular session of the 75th Colorado General Assembly will begin on Wednesday, January 14. Lawmakers will then spend up to 120 days introducing and debating bills that could become law and passing a budget for the next fiscal year.
Before all the legislative activity begins, we sat down with PERA’s Director of Public and Government Affairs, Michael Steppat, to discuss the session and what we can expect as it relates to PERA.
Tell our readers a little bit about the Legislature’s role in overseeing PERA and the work you do.
It can be helpful to think of the General Assembly as PERA’s plan sponsor while the PERA Board administers benefits. The General Assembly is responsible for determining things like contribution rates and benefit levels, providing oversight through various legislative committees, and setting the amount of the annual benefit increases that retirees receive.
Because lawmakers have the power to change plan provisions and benefits, it’s important to make sure they understand how PERA works and how legislation can potentially affect our members, retirees, and funding progress. A lot of my time leading up to and during the legislative session involves meeting with legislators and other stakeholders on PERA-related issues and potential legislation. I also attend bill hearings to help inform committee members and answer their questions.
Ahead of the session, you’ve been talking with lawmakers about some PERA-related proposals. Can you give us some more detail on those?
We’ve been exploring some options from a study PERA’s actuaries performed earlier this year for a couple of proactive legislative changes meant to reduce the likelihood of triggering the Automatic Adjustment Provision (AAP) that took effect with Senate Bill 200 in 2018. The AAP automatically adjusts member and employer contributions, the State’s direct distribution, and retiree annual increases based on our funding progress. It is a calculation laid out in statute that essentially compares what came into the fund in any given year versus what should have come in that year to keep PERA on track to full funding by 2048. If we fall behind in a given year, contributions go up the following year while annual increases go down, and vice versa.
We know those adjustments can be really challenging for our members and retirees, so we worked with our actuaries to come up with two legislative proposals that are meant to reduce the likelihood of any automatic adjustments in the near future—without jeopardizing our progress toward reaching full funding by 2048.
Those proposals include providing PERA flexibility to allocate the State’s annual $225 million direct distribution to whichever division trust funds would help minimize the likelihood of triggering automatic adjustments and redirecting a portion of employers’ health care trust fund contributions to instead help pay off pension liabilities. The health care trust fund is closer to full funding than the pension trust funds, so we want to make sure those contributions are going where they’re needed most.
We think these two bill proposals will be beneficial for our members, retirees and employers, because they would reduce the chance of automatic adjustments without having any negative financial impact on our funding progress. Additionally, these proposed changes do not require any new funding mechanisms from the State, which is very important as the Legislature is facing yet another year with a budget shortfall and having to make drastic cuts to balance the budget.
Speaking of the budget, lawmakers will be tasked with cutting hundreds of millions of dollars in State spending. Could any of those cuts affect PERA?
PERA doesn’t rely on the State budget for the administration or operating costs of the plan, but the General Assembly and the State of Colorado as an employer make contributions to PERA that could be subject to legislation.
For example, during the early days of the COVID-19 pandemic, the Legislature paused (and later repaid) its annual $225 million direct distribution to PERA due to a significant budget shortfall. We don’t expect anything like that this year. However, Governor Polis included in his budget proposal a 1% reduction in what the State Division contributes as an employer to PERA. Specifically, the governor’s budget request calls for reducing the Amortization Equalization Disbursement (AED) and Supplemental Amortization Equalization Disbursement (SAED) both by 0.5% for employers in the State Division to help balance the fiscal year 2026-27 budget. The AED and SAED are employer contributions to PERA for the purpose of reducing the unfunded actuarial accrued liability.
The proposed 1% reduction would reduce contributions to PERA by about $40 million over the state’s next fiscal year, adding up to about $180 million by the time PERA reaches full funding in 2048.
PERA leadership remains actively engaged with policymakers to oppose measures that would negatively impact the fund’s financial health and we have already provided formal testimony to the Legislature’s Joint Budget Committee outlining the long-term risks of reduced contributions, to ensure they fully understand the consequences for members and retirees.
The Governor’s list of budget recommendations also revives the proposal to privatize Pinnacol Assurance. How does PERA factor into that proposal?
Pinnacol Assurance is the State’s workers’ compensation insurer, and the Governor’s Office wants to convert it from a quasi-public entity to a private one to take advantage of the hundreds of millions of dollars Pinnacol has in its reserves.
If that happens, Pinnacol could not continue to be part of PERA, since its staff would no longer be public employees. In order to disaffiliate from PERA, Pinnacol would be required to pay its portion of DB Plan liabilities—estimated to be approximately $300 million—to fund the benefits its employees have earned prior to disaffiliation.
This is the second year in a row the Governor’s budget request has proposed privatizing Pinnacol Assurance, but it has also been a policy discussion that has come up multiple times over the past few decades and, so far, without any consensus on potential changes to the structure of the state’s largest workers’ compensation carrier and insurer of last resort. If policymakers can agree on a solution to the more fundamental question of whether Pinnacol should be allowed to privatize, then PERA will factor in and we’ll seek to ensure any disaffiliation payment to PERA is satisfactory to cover the expected liabilities over time.
We sometimes hear from members who want to know how they can weigh in on legislation—what’s your advice?
I always tell people the most important thing they can do is contact their legislators about issues that are important to them. In addition, the General Assembly website has lots of great information. You can listen to committee meetings, view calendars, review the status of a bill, and sign up to testify at committee meetings.
I also encourage anyone who’s interested in PERA-related policy to join the Ambassador Program to receive email updates on the legislative session and bills that might affect PERA.
And of course the biweekly PERA On The Issues newsletter will also have up-to-date information on any legislation that affects PERA.
