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New research provides evidence that state-run retirement plans with automatic enrollment continue to encourage private-sector employers to offer plans of their own, expanding access to retirement savings. According to Pew, Colorado had the highest rate of new plan formation among states with so-called “auto-IRAs” in 2023, the first year of the Colorado SecureSavings program.
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People are increasingly turning to generative AI tools like ChatGPT for financial advice, including planning for retirement. Experts say AI is good at some aspects of financial planning and the technology is improving rapidly, but it’s important to use caution as AI still has its limits and isn’t bound by the same regulations as human advisers.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
The Colorado General Assembly gave its approval to a bill that helps keep the PERA Defined Benefit Plan on track to meet its funding goal by giving PERA additional flexibility in how it allocates contributions to the Plan.
Legislators passed House Bill 1400, which now heads to Governor Jared Polis for action.
Background
In 2025, PERA’s actuaries conducted an analysis of the Automatic Adjustment Provision (AAP), the mechanism included in Senate Bill 18-200 that automatically adjusts member and employer contributions, retiree annual increases, and the State’s annual $225 million direct distribution based on PERA’s funding progress. The goal was to examine how well the AAP has been functioning so far and consider whether any proactive changes are warranted.
While the AAP has largely worked as intended, the actuaries identified two modifications to help reduce the chance of triggering automatic adjustments in the near future without jeopardizing our funding progress. Both changes involve giving PERA more flexibility in how it allocates contributions to the trust funds.
Flexibility in allocating the State’s direct distribution
Every year on July 1, the State of Colorado makes a direct payment of $225 million to PERA. Under current state law, PERA is required to allocate the $225 million to three of the five division trust funds (State, School, and Judicial) proportionally based on total payroll.
The division trust funds differ in their funding levels and some are closer to reaching full funding than others. This disparity is likely to continue, which results in the less-funded divisions having a disproportionate impact on the annual AAP calculation and triggering automatic adjustments if their contributions are not keeping up with the amount needed each year to reach full funding.
House Bill 1400 would allow PERA to allocate the State’s direct distribution on an actuarial basis, meaning the money will be deposited to whichever fund(s) would reduce the likelihood of triggering the AAP in the future.
Redirecting a portion of employer contributions to the health care trust fund
The second provision of the bill reduces employer contributions to PERA’s health care trust fund from 1.02% of employee salaries to 0.52%. The 0.50% reduction is then redirected to the pension trust funds to help pay down the unfunded liability.
The health care trust fund is much closer to full funding than the pension trust funds, so this change will make sure those contributions are going where they’re needed most. Employer rates would remain the same, with incrementally more money going to pay off the unfunded liability and keeping PERA on track for full funding.
What’s next?
If the Governor signs House Bill 1400 into law, the changes take effect July 1, 2026.
The 2026 legislative session is still underway and other PERA-related bills remain under consideration. Visit our 2026 Proposed PERA-Related Legislation Status article for the latest information.
Colorado PERA provides lifetime retirement income to the state’s public employees and that poses a unique challenge: Estimating the cost of member benefits for many years into the future and ensuring the plan has enough money to pay them.
In discussions about how PERA is doing in that regard, the term “unfunded liability” often comes up.
It’s a term that isn’t always well understood, but examining a plan’s unfunded liability and the factors behind it can provide members and other stakeholders with a better sense of the plan’s financial footing and its future.
What is unfunded liability?
Unfunded actuarial accrued liability (UAAL)—or simply unfunded liability—is a common term used in funding for public pension plans. It refers to the gap between the amount of money a plan has in its trust funds and the value of current and future benefits members have earned to date.
In other words, UAAL is like a debt owed to members. The liability is the money the plan will eventually have to pay, and the portion that isn’t covered by current plan assets is considered “unfunded.”
Unfunded liability can be a helpful tool for measuring a pension plan’s financial health. While many plans carry some level of unfunded liability, UAAL that continues to grow can be a sign of underlying issues that may jeopardize the financial sustainability of the fund, such as inappropriate actuarial assumptions or insufficient contribution levels.
By the end of 2016, PERA’s unfunded liability had grown large enough that it prompted recommendations from the PERA Board of Trustees and responsive action from the Colorado General Assembly. Senate Bill 200, enacted in 2018, included various reforms designed to pay down PERA’s unfunded liability with the goal to fully fund the Defined Benefit Plan within 30 years, and PERA continues to make progress toward that goal.
The history of PERA’s unfunded liability
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At the end of 2000, PERA was over 100% funded. That means the plan’s trust funds—which contain all the money that comes into the plan (including investment earnings) and from which the plan pays benefits—held more than what was needed to pay all earned benefits to date. By the end of 2016, the funded percentage had fallen below 60%, driving the Board’s recommendations and the bipartisan efforts of the General Assembly to pass Senate Bill 200 in 2018. By the end of 2024, PERA had improved its funding level to 69%, while also mitigating risk through the adoption of more appropriate economic and demographic assumptions over this eight-year period.
While various factors have contributed to the increase in PERA’s unfunded liability over the past two and a half decades, three of those factors have had the largest impact:
Assumption changes aimed at better reflecting reality: To ensure PERA’s projections are as accurate as possible, the Board regularly reviews and adjusts its actuarial assumptions—which include things like the expected lifespan of the retiree population and expected salary trends in public employment—through a process known as an actuarial experience study. Over the years, adjustments to assumptions resulting from these studies have gone both ways, with some changes reducing liabilities and other changes increasing liabilities. Certain adjustments, such as lowering the portfolio’s assumed rate of return and the adoption of generational mortality, are more impactful than other assumption changes and resulted in a net growth in PERA’s unfunded liability.
Plan experience worse than expected: Actuarial assumptions help pension plans like PERA make projections about the cost of benefits decades into the future. When reality differs significantly from expectation—for example, shifts in demographics and salaries for public employees—they affect the projections for how much money PERA will need to have on hand to pay retirement benefits.
Investment returns worse than expected: PERA’s investment portfolio has performed well relative to benchmarks over the long term, but investing in the markets exposes the portfolio to risks; like any investor, PERA is not immune to the effects of major market downturns. For example, the dot-com bubble in the early 2000s and the 2008 financial crisis led to unprecedented losses in financial markets. These major events resulted in negative investment returns far beyond general expectations.
When it comes to reducing PERA’s unfunded liability, the largest factor has been changes to plan provisions, such as the reforms included in Senate Bill 1 in 2010 and Senate Bill 200 in 2018. Those reforms include higher contributions from working members and their employers, an annual $225 million direct distribution from the State, lower annual increases for retirees, and increased age and service requirements for a full retirement benefit, all of which have helped put the plan on more solid financial footing.
PERA’s enhanced contribution structure, which better ensures sufficient funding to support current benefit accruals, is a key element to maintaining PERA’s sustainability. Strong investment returns on those contributions also make a difference. When the portfolio achieves a return that’s better than the assumed rate of return, that investment income increases the value of plan assets and reduces the unfunded liability. PERA’s assets have grown faster than liabilities over the past decade, and that trend is expected to continue.
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Getting PERA to full funding
Unfunded liabilities don’t accrue overnight, and it can take many years to eliminate that debt. PERA’s goal is to reach full funding by 2048, and as of the date of our most recent Annual Comprehensive Financial Report, we remain on track to meet that goal.
The Automatic Adjustment Provision automatically adjusts, as necessary, member and employer contributions, retiree benefit increases, and the State’s annual $225 million direct distribution to PERA, based on funding progress. This mechanism helps ensure we don’t fall behind on the target of achieving full funding by 2048.
The PERA Board of Trustees also plays an important role. While Trustees can’t control factors such as inflation, public employee salaries, or the number of plan participants, the Board regularly monitors and adjusts the factors in its control, such as actuarial assumptions, the amount of risk in the investment portfolio, and plan costs.
Reducing the unfunded liability is a challenge, but it’s an important one to tackle. Through a combination of sensible policy updates, good plan governance, and fiduciary care, PERA is making progress toward full funding and a more secure future for Colorado’s retired public employees.
State lawmakers are working on finalizing the fiscal year 2026-2027 budget after months of work to identify approximately $1.5 billion in spending cuts. Medicaid costs account for a large portion of state spending and were also a major focus of budget cuts. Once the Legislature approves a budget, it will go to Governor Jared Polis for action.
Like many public employees across the country, most PERA members do not participate in Social Security for their retirement or survivor and disability benefits. There are sometimes calls to mandate Social Security for all public employees, but a new report highlights the significant added costs and other issues that could arise from requiring participation.
When do American workers actually retire? It can vary widely based on personal circumstances, but according to some research, the average retirement age has been inching upward over the past several decades.
April is Financial Literacy Month, which provides a great opportunity to test your own knowledge about money. This quiz from NerdWallet covers the basics on topics such as taxes, saving, and debt.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
