DENVER – The state’s lackluster 1.5 percent return on retirement investments last year either outperformed or set the state back significantly, depending on whom you ask.
State Treasurer Walker Stapleton said Tuesday’s announcement from the Public Employees’ Retirement Association is evidence of a mishandling by the board, in line with concerns he has raised for several years.
PERA Executive Director Greg Smith, however, said the overall return on investment has outperformed a PERA benchmark for anticipated return and the median return for public funds.
The total fund has outperformed for the three- and five-year time periods, with the long-term investment return for 35 years at 9.5 percent, according to PERA.
“It was a very challenging year in terms of the investment markets,” Smith said. “We were able to achieve a positive return in an environment when a number of other public funds did not.”
But Stapleton is outraged. For several years, the Republican has shouted for more conservative assumptions. He worries about long-term stability under a high projected rate of return.
“PERA has assumed the moon and the stars from an investment standpoint,” Stapleton said.
“I’ve been the voice crying in the wind for years now because the patient doesn’t realize that the patient is sick ... and they continue to whitewash the problem.”
The 1.5 percent return for the year on its $43 billion portfolio falls well short of PERA’s assumed investment rate of return of 7.5 percent. Under the projections, it would take PERA 44 years to be fully funded, the treasurer’s office said.
The independent Governmental Accounting Standards Board, which establishes accounting and financial reporting standards for governments, said the maximum amortization period for a term more than 10 years is 30 years.
By missing the assumed rate of return in 2015 by 6 percent, PERA’s unfunded liability increased by $2.2 billion to $26.8 billion, according to Stapleton. The result could be that PERA will not be able to meet obligations to retirees in the future, he said.
“The saddest part is for the younger generation of public workers. The 22-year-old that wants to go to work for the city of Durango, or the 23-year-old that wants to be a school teacher in La Plata County schools,” Stapleton said.
“All this kicking the can further down the road ... it’s only going to result in unfulfilled promises to younger public workers in Colorado.”
Smith received a nearly 20 percent pay raise last year. His base salary is $394,000, but he could receive a discretionary bonus of up to 30 percent, bringing his salary to at least $512,200. PERA calls the bonus an “annual performance award.”
Smith also is eligible for a “retention award” at the end of the three-year contract extension, which is equal to one month’s salary for every year served.
Between his salary and total bonuses, Smith could receive nearly $900,000 in total compensation in 2018, according to Stapleton, who said the board might want to consider tying Smith’s salary to investment goals.
“He could just basically have a couple more years of negative returns, punch the clock, collect a substantial six-figure retirement for himself, and let his successor deal with the mess,” Stapleton said.
The Legislature in 2010 reached a compromise on PERA reforms, which included workers taking a hit on their annual cost of living adjustment, while employers increased contributions.
But Stapleton said additional reforms are needed for the state’s more than 547,000 PERA members. In addition to a more conservative anticipated rate of return, Stapleton said the board should consider increasing the retirement age.
For its part, PERA underscored that last year it distributed $4.3 billion to retirees.
A report released last year studying progress since reforms were put into place in 2010 stated that PERA was advancing toward becoming fully funded.
The report said that PERA saved about $15 billion in unfunded liability.
“We recognize that getting the math right in a public retirement plan is indeed important, which is why we supported the General Assembly’s independent study of our plan,” Smith said.
“That study concluded that PERA will be able to pay benefits in perpetuity.”