PERA is a state issue, not a Jeffco issue

Contrary to what some have suggested, contributions to the Public Employees’ Retirement Association (PERA)  will not be affected by the success or failure of a Jeffco Schools mill and bond.

PERA rates are state-mandated, which means that PERA employer and employee contribution rates are set by the Colorado state legislature.  PERA rates cannot be changed by the Jeffco Board of Education, nor may they be changed by the teacher’s union or any other bargaining organization. The state legislature makes the final decision.

PERA contribution rates also cannot be changed through this November’s election.  Money from 3A supports local schools and prevents further cuts to instruction; money from 3B goes to badly-needed maintenance and repair on the schools.  Money from 3A and 3B does not go to PERA.

Currently, it is not possible for the Jeffco Board of Education to ask district employees to pay a higher percentage of their own PERA contributions to offset budget shortfalls.  Senate Bill 11-074 was introduced in February 2011 and would have allowed school districts like Jeffco to raise the employee contribution rate and lower the employer rate, but that bill died in committee.  No new legislation has been presented since 2011.

Because no new legislation has been introduced since 2011, changes made to PERA contribution rates can only made through legislation by the Colorado General Assembly at the state capitol.

Others have suggested that PERA is a union issue.  It is not.  Unions cannot change the state-mandated rates.  PERA is a state issue and citizens who want to see it changed need to lobby their state representatives to do so.

Voting either for or against will have no effect whatsoever on PERA contribution rates. Citizens who wish to see changes in PERA should contact their state representative and ask them to write new legislation.

PERA and 3A and 3B

The budget for Jeffco’s 2013-14 school year includes all fixed costs such as PERA.  Because cutting Jeffco’s employer contribution to PERA is not an option under current state law, a defeated mill/bond will mean less money for classrooms.

Without 3A and 3B, a projected $43 to $45 million in cuts is forecast for 2013-14.  Those cuts cannot come from PERA, and the district, by law, is not allowed to raise employee contributions and lower their own.

Jeffco has already cut $78 million from its budget since 2009 — a number that includes the loss of 447 jobs.  Further cuts will affect children in the classroom, reducing the number of teachers and further increasing class sizes that have already been raised over several years.  Further cuts will not, however, affect PERA’s state-mandated rates.

Voting for the mill/bond will put more money into classrooms to maintain class sizes, music, teacher librarians, and allow Jeffco to compete with neighboring school districts in continuing to recruit high-quality teachers for every classroom.

PERA is a Social Security substitute

For most Jeffco PERA members, PERA is a substitute for Social Security, meaning that retired PERA members receive PERA benefits instead of—not in addition to—Social Security.

Like Social Security, PERA is a defined benefit plan, and member benefits are based on a benefit formula set by law.  Members contribute a percentage of their salary as mandated by the state; employers also contribute a percentage of employee salaries. This is also the case for Social Security.

The Colorado state legislature established PERA in 1931, at a time when Social Security did not exist.  PERA members include not only those who work for Jeffco Public Schools, but also all Colorado school districts, all state employees, all judges in the Colorado judicial system, many police officers and firefighters, and several other local government entities.

PERA members do not receive Social Security credits while working for Jeffco Public Schools or any other PERA employer.  Likewise, the district does not pay Social Security for PERA members.

Some have confused PERA with additional retirement plans, such as a 401k.  It is not.  All workers in Colorado, whether public or private, pay into one of two retirement plans:  Social Security or PERA.  All public and private workers may also opt to participate in additional forms of retirement savings, such as 401k plans, IRAs and more, but those plans do not take the place of Social Security or PERA.

In fact, one glaring difference between the public and private sector is that private employers may choose to fund an contribution to an employee’s 401k plan in addition to the employer’s share of Social Security, but the Jeffco School District does not provide an employer contribution to employee 401ks or similar plans.

PERA contribution rates

In 2012, Jeffco Public Schools pays a PERA employer contribution of 15.65 percent and employees pay a contribution rate of 8 percent.  At first glance, those numbers appear to be heavily skewed toward the employer.

The real situation, however, is much more complex.

In 2004 and 2006, state lawmakers passed legislation that required increased contributions to PERA.  These two contributions are the Amortization Equalization Disbursement (AED) and Supplemental Amortization Equalization Disbursement (SAED).

When the AED and SAED were passed in 2006 and 2008, the AED was an additional contribution from employers with gradual 0.4 percent increases mandated each year from 2006 to 2012.  Likewise, the SAED was another additional contribution mandated to increase by 0.5 percent each year between 2008 and 2013.

The additional contributions are split because the AED is considered an employee contribution, but the law is written to make SAED an employee contribution for all practical purposes.

Money to fund the SAED is, by law, required to come from money that otherwise would have been used for salary increases.  In other words, if had money for a 1 percent cost-of-living adjustment (COLA) in a given year, the district was required by law to first take half that increase — 0.5 percent — and use it to pay the SAED contribution to PERA.  Employee paychecks would reflect only the half-percent raise and they would not be credited for their additional PERA contribution.

The AED and SAED were legislated before the recession, and at the time it was reasonable to assume that state employees would continue to see annual cost-of-living adjustments.  COLA during that period varied from 2 to 3 percent, making a 0.5 percent increased contribution seem reasonable.

The possibility of a recession and pay cuts was not taken into account in 2004 or 2006. However, the recession also reduced the rate of return on PERA’s investments. To keep the PERA system solvent, more revenue was needed, and PERA contribution rates had to be increased again.

In 2010, the legislature passed further legislation, Senate Bill 10-001 (SB 1), further modifying the AED and SAED.  The bill lengthened the amount of time the AED and SAED rates would increase.  Under the new bill, the AED continues to increase by 0.4 percent through 2015; the SAED continues to increase by 0.5 percent through 2018.

SB1 also capped the AED contribution rate at 4.5 percent, and the SAED contribution rate at 5.5 percent.  As a result, annual increases of 0.9 percent (AED and SAED combined) will be implemented through 2015, followed by a smaller increase of 0.8 percent in 2016, and then 0.5 percent in 2017 and 2018.

The statutory employer contribution rate remains 10.15 percent, and the statutory employee contribution rate remains at 8 percent.

According to PERA, the AED and SAED allow the employers and employees to share the rate increases.  In response to a Denver Post article, PERA explained that if the AED and employer statutory rate are added together and compared to the sum of the SAED and employee statutory rate, the numbers are comparable.

In 2011, PERA calculated the total PERA employer rate at 11.73 percent, in comparison to a total member rate of 10 percent.  (PERA’s analysis of the employer statutory rate does not include the 1.02 percent contribution that goes to the health care fund; with the health care fund contribution, the employer rate is 10.15 percent.)

In 2012, PERA calculated the total employer rate at 12.13 percent (minus the health care contribution, with it the rate is 13.15 percent) and the employee rate at 10.5 percent.

Because the SAED increases more quickly than the AED, the imbalance between the rates decreases each year.

By 2018, PERA calculates the effective rates to be 13.63 percent for employers and 13.5 percent for employees (again with the employer statutory rate not including the 1.02 percent health care contribution).

Why not just raise employee contribution rates?  Increased contribution rates would mean increased PERA benefits at retirement under current laws, and the fund cannot afford this.  Because the additional contributions were needed just to keep PERA fully funded, increased PERA retirement benefits are not an option.

Current employees are foregoing additional salary in order to keep PERA solvent, without seeing any additional benefits at retirement from these contributions.  In addition, to taxpayers it appears that employees are paying much less, even though the effective amount paid by employees in terms of lost wages and PERA credits is much greater.

The SAED works the same way many health insurance increases do:  an employer may choose to cover an increase in health insurance costs, but doing so may reduce or wipe out the raise an employee otherwise would have received.

Please also note that while Jeffco health insurance premiums have increased more than 300 percent during the past eight years, Jeffco has passed all of those costs on to Jeffco employees.

What citizens can do about PERA

Citizens who are concerned about PERA’s impact Jeffco Schools or state finances in general should contact their state representative and ask them to write new legislation.  If enough concerned citizens take the issue to the legislature, change will happen.

Change can only happen, however, if the issue is taken to the state.  Voting against 3A and 3B in November will not change anything about PERA, nor will it send a message to state representatives.

Voting for 3A and 3B will allow Jeffco Schools to continue serving students in safe, warm and dry classrooms.

For more detailed information about PERA, see PERA 101.