In a legislative session full of terrible ideas, it’s nice to see one idea that Colorado taxpayers should be able to get behind. House Bill 23-1176 would create a defined contribution (DC) plan, similar to a 401(k), for public school employees, who are currently ineligible to participate in the limited DC plan run by Colorado’s Public Employee Retirement Association (PERA).
PERA opposes this bill, as it has opposed all expansions of DC plan eligibility, because employees who choose the DC plan are not contributing to the defined benefit (DB) plan, depriving it of those funds to invest. However, school districts would divide their current 21.5% contribution, putting at least 6.5% into the new DC plan, and 15% into the existing DB plan.
The Colorado Coalition for Retirement Security (CCRS), a group that defends PERA’s defined benefit plan, makes the traditional argument that DC plans are less secure than DB plans. To the extent that is true, it’s because the public is always on the hook to backstop DB plans. Those plans are only more secure because taxpayers must make them more secure.
Consider the market performance in 2022. PERA doesn’t submit full quarterly estimates like some other public pensions, but it does have to file a report with the Securities and Exchange Commission, listing its US stock holdings. At the end of 2021, those holdings were $24.5 billion; at the end of 2022, they were 25% lower at $18.4 billion. If taxpayers are called on to pay more into PERA – or any other public pension – they’ll be doing so even as their own IRAs and 401(K)s are suffering from the same markets.
The PERA and CCRS arguments infantilize teachers, patronizing them under the condescending assumption that they can’t handle investment decisions. It creates an imaginary species of teacher who is bold, generous, public-spirited, and self-sacrificing on the one hand, and yet so innocent and tender as to need benevolent protection from their own financial decision-making on the other.
It’s also worth pointing out that PERA is using taxpayer dollars to oppose this bill. If the leadership wants to argue against it, that’s one thing, but filings with the secretary of state shows that PERA has engaged no fewer than four separate lobbying firms and as many as eight individual lobbyists to fight against its members having this choice. PERA leadership typically and repeatedly disclaims any responsibility for policy. I have always found that to be at least slightly disingenuous. The legislature may have the final vote, but PERA has the loudest voice in influencing it.
I also don’t generally call out fiscal notes attached to bills. My experience has been that Legislative Council does a good job neutrally and factually presented the potential costs to the taxpayer. In this case, however, the fiscal note reads like a brief from PERA management. It quotes the baseline school district contribution of 10.4% of salary, ignoring the actual current contributions being paid. It claims that should members choose the DC plan over the DB plan, that could affect the automatic adjustment provisions that try to keep PERA on track for full funding by 2047, but makes no comment on just how it would affect those adjustments.
The fiscal note does make one potentially important point: it is possible that the DC plan proposed here runs afoul of Internal Revenue Code provisions for government DC plans. I’m unsure why the bill’s sponsor, Rep. Don Wilson (who’s doing the Lord’s work here) would propose a separate DC plan rather than simply allowing teachers, administrators, bus drivers, janitors, and other staff to join the existing DC plan. If that turns out to be an actual sticking point rather than merely a talking point, the remedy is obvious.
In fact, the right answer would be to convert PERA to a defined contribution plan. Per PERA management’s own testimony, the reforms from 2018 ensure that new employees and their employers’ matches are paying the expected cost of their own pensions; they’re not making up the unfunded promises to prior members. Tie off the DB plan, and let new employees join the DC plan, instead of putting communities on the hook for promises that politicians made on their behalf.
Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, a free market think tank in Denver.
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