DENVER -- Colorado will add a matching contribution to all of its tax-deferred retirement plans in 2001, only the second state known to offer an employer contribution.
Colorado participants could receive an estimated average match of about 2.2% of salary, said Carole Wright, a trustee of the Public Employees' Retirement Association of Colorado, which oversees the state's $430 million 401(k) plan.
(Tennessee is the other state that provides a matching contribution, according to a study by the National Association of Government Deferred Compensation Administrators, Lexington, Ky. Tennessee offers 100% match up to $20 per month.)
The amount of Colorado's contribution can vary, depending on the individual's employment status and the contribution rates of each of the plans. For example, judicial employees could receive about 5.5% of pay and municipal employees' match could be between 1.25% and 1.5% of pay in the first year of the match, Ms. Wright said.
Officials expect participation in all of the state's tax-deferred plans to swell after the match component is in place, Ms. Wright said.
Right now, PERA is surveying employers to determine the participation rate in the 401(k) plan, but officials think it's only about 15%, said Don Schaefer, PERA's communications director.
The match is being funded in an unusual way, Mr. Schaefer said. Last year, a new law provided that once Colorado's defined benefit plan is fully funded -- on Jan. 1, 2001 -- 1% of the employer contribution will be diverted from the $85 billion defined benefit plan to a defined contribution account to pay for the employer match in PERA members' defined/deferred contribution plans, Mr. Schaefer said.
Once the employer's matching contribution has been installed and communicated to employees, PERA officials will investigate providing participant investment advice, Ms. Wright said.
Currently, about 80% of the 401(k) plan assets are invested in equities, Ms. Wright said. Once more people join the plan because of the employer match, employees will need help in determining whether such a heavy exposure to equities is the right thing to do, she said.
Will study advice
The Colorado State Deferred Compensation Program, Denver, -- which administers the $340 million 457 plan -- also will study participant advice and will meet with PERA to discuss fiduciary responsibility and other issues, said Jack Ehnes, acting human resources director and director of risk management and employee benefits for the state of Colorado.
"In a sense, the boards of both plans . . . are moving to a more complex world," Mr. Ehnes said. "We're not clear what form that should take. It's ground we've not been on before."
Also, the deferred compensation board will be seeking legislation to create a 401(a) plan to catch the employer match for employees eligible for the 457 plan, Mr. Ehnes said. That bill is expected to be introduced in January and to pass easily during the session, he said. Officials anticipate the 401(a) plan will be in place by Jan. 1, 2001, he said.
Right now, deferred compensation officials anticipate the investment options in the new 401(a) plan will mirror those in the 457 plan, he added. But the board will not officially choose the investment options until after the bill establishing the 401(a) plan is approved, Mr. Ehnes said.
Part of what distinguishes Colorado from other states is that Colorado public employees can choose from a range of tax-deferred plans, Mr. Ehnes explained. In preparation for installment of the match, PERA and the deferred compensation board will be looking to spiff up their plans' investment options.
The deferred compensation board, which oversees the 457 plan, will be releasing in January a request for proposals for a service provider to do record keeping and enrollment. The board also will investigate whether to keep a mutual fund window to its menu of 14 options, Mr. Ehnes said.
The incumbent record keeper -- Securities First Group, Los Angeles -- will be encouraged to rebid.
Options in the 457 plan are money market, total bond market index and institutional index funds by The Vanguard Group; Fidelity Investments' Puritan fund; INVESCO's Equity Income and Dynamics funds; T. Rowe Price's New America Growth and International Stock funds;, the 20th Century Ultra Fund; and Great West Stable Value Fund and Great West Life Fixed Interest Certificates. PERA also will be reviewing the options for its unbundled 401(k) plan early next year.
Consultant William M. Mercer Investment Consulting Inc., New York, will report to the board on adding four to five new funds to its current lineup of seven funds, Mr. Schaefer said. PERA has no plans to bundle the plan, he added.
The current options are: a money market fund managed by Northern Trust; a short-term bond fund and a long-term bond fund run by Pacific Investment Management Co.; a balanced fund managed by Dodge & Cox; a growth and income stock fund run by PERA's investment staff; a growth stock fund managed by Fidelity Investments; and an international stock fund run by Capital Guardian.