On Tuesday, the second-to-last day of the legislative session, House Bill 22-1029, the Public Employee Retirement Association (PERA) bill, finally passed out of the state House of Representatives. As expected, it did so with considerable modification, at the behest of Governor Polis, who has shiny, newer promises to keep than ones made by previous legislatures.
As expected, this year’s payment will empty the PERA Cash Fund at $380 million, instead of being tied to a missed 2020 payment and its missed returns, which would have come to $307 million. And rather than simply shorting the future payments, the 2023 and 2024 payments will vary depending on PERA’s 2021 calendar returns (due to be reported in a few weeks) and its 2022 returns.
Because the payments will depend on PERA’s returns, and because those returns are variable, I created a Monte Carlo simulation in Excel to see what the likely returns are under the current case (SB18-200) and the proposed bill (HB22-2019). According to PERA’s 2021 Signal Light Report, prepared by the actuaries at the Segal Group, its annual returns will average 7.47% with a standard deviation of 13%.
Running 100,000 iterations, the current contributions would be worth about $880 million on average after three years, but only about $750 million under the proposed changes. While this is better than what the governor was proposing before, it still leaves PERA an expected $130 million short of where it would have been in July of 2025, a year after the last modified payment.
The standard deviation of this value is $125 million, which means that while there’s about a one-in-six chance that PERA comes out even or ahead on the deal, there’s also about a one-in-six chance that it ends up $250 million or more worse off.
In short, the added $73 million from the PERA cash fund and its returns simply aren’t enough to make up for shorting the next two years’ payments, even if the returns from 2022 are good.
Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, a free market think tank in Denver
