Imagine that you and your neighbor are friends and professional peers. You belong to the same professional organizations. You each have worked for your respective employers for a long time as retirement approaches.
But one of you works for a private employer, the other for the State of Colorado.
If you don’t think this scenario is fair, you’re not alone.
As detailed in Complete Colorado, a recent survey of Coloradans, found almost two-thirds support for raising the PERA retirement age to match the Social Security retirement age, with only a quarter of those polled opposing. Support for the idea cut across all races, ages, political affiliations, regions, and both sexes. The survey was commissioned by the Independence Institute and conducted by Magellan Strategies.
The early retirement for long-term PERA members isn’t notional; it’s real. PERA Executive Director Greg Smith has said the actual average age of retirement is 60, still well below the current Social Security age, and well below the age at which most people actually stop working and paying into PERA’s system.
Support for equalizing the retirement age shouldn’t come as a surprise. Last year’s statewide income tax increase, Amendment 66, was billed as necessary to properly fund education in Colorado. It failed in large part because voters feared — with reason — that the revenue would instead be diverted from classrooms to shore up the School Fund of PERA.
In a few weeks, PERA will release its annual Comprehensive Annual Financial Report, which Smith has said will show that 2013 produced returns north of 13 percent. PERA will tout this success story as evidence that the system is on track to long-term solvency.
Do not be misled.
An investment portfolio designed for higher returns means one designed for higher risk, as well. Because PERA is still substantially underfunded, and because it has annual obligations it can’t delay, all it takes is one or two years of substandard returns to more than undo the progress of the last two years.
Coloradans are becoming increasingly concerned about the state of PERA’s finances. The pressures on politicians to meet current needs at the expense of retirees’ future needs are strong. The requirement to fully fund a defined benefit plan is weakening our communities, while failing to provide real retirement security to our state employees and teachers.
We all understand that change must come to the system, and phasing in the equalization of retirement ages is a key element in that change.
From an actuarial point of view, there is almost no single change that can make as big a difference to the benefits security as adding a couple of years to an employee’s working life. It allows a lifetime of accumulated assets to continue earning returns when the balance is at its highest, and thus, when they will earn the most.
Far from robbing an employee of years of retirement, it helps to prevent the delivery of an unpleasant surprise: that benefits she had been counting on won’t be there. Such a surprise could come far too late for her to return to the workforce at her previous salary or seniority.
Indeed, phasing in such changes is among the fairest and most compassionate things PERA could do. Older employees, those nearing retirement, wouldn’t be asked to make any adjustment at all. Those who are younger would have more time to adjust their plans to the new reality, one that more closely mirrors that of their fellow citizens who are helping to provide their retirement.
To repeat: Change is coming to PERA.
Equalizing the retirement age with that of Social Security can help provide a more secure retirement for state and school employees, helping us keep our promises to them, while strengthening our communities, and reducing the pressures on politicians to use today’s dollars at retirees’ expense.
Joshua Sharf manages the PERA Project at the Independence Institute, a free market think tank in Denver.