Colorado retirement plans gird for legislative duel

DENVER — The veto of a bill that would have helped Colorado's $26 billion pension plan become fully funded is setting up a knock-down, drag-out match between the state's largest pension plan and its defined contribution plans when the Legislature resumes in January.

The fight will center on whether counties can voluntarily leave the $512 million Colorado County Officials and Employees Retirement Association, which offers a 401(a) and 457 plan, and join the Public Employees' Retirement Association of Colorado — bringing their assets with them.

"This strikes at the core of the DB vs. DC issue," said Katie Kaufmanis, director of communications for the Public Employees' Retirement Association of Colorado. "I think January will be very interesting."

Over the summer, Gov. Bill Owens vetoed a bill that PERA executives say would have helped the pension plan become fully funded. At the same time, one of the largest counties in the state, Jefferson County, wanted to take its money from the county officials' plan and switch to PERA. At the time, Jefferson County employee assets comprised about 40% of CCOERA assets.

However, CCOERA's plan does not allow money to leave the plan unless an employee retires or has a "distributable event" like leaving county employment, said Jerry Allen, interim executive director of CCOERA.

"Just because the county moves its money does not mean there's been a distributable event," Mr. Allen said.

So Jefferson County officials went to the Legislature to get a bill passed to allow any county that so desired to leave the CCOERA, with its money. The legislation was tacked onto an existing PERA bill by a conference committee. The Jefferson County amendment was defeated.

Instead, the Legislature passed a separate bill to audit CCOERA, investigate its IRS qualification status and determine its compliance with state laws.

Mr. Allen denies that the audit is related to the effort to allow counties to leave CCOERA, adding he does not know why the state chose to audit the plans.

This is the first time CCOERA has been audited by the state, Mr. Allen said. Colorado PERA is audited every year, Ms. Kaufmanis confirmed.

Earlier this fall, Jefferson County officials decided not to join PERA because it would be too costly. However, the CCOERA issue could rise again in the next legislative session that starts in January. PERA officials have been approached by county officials from four other large counties in the metropolitan Denver area interested in moving to PERA. Currently, there are no counties affiliated with PERA, although its pension and 401(k) plans are available to all public employees in the state, Ms. Kaufmanis explained.

"We have no counties but we are actively talking to some that approached us this year," Ms. Kaufmanis said. She would not name them.

Still more legislation passed during the summer allows district attorney employees to affiliate with PERA on a majority vote of the employees in those offices. Many of those people are already participants in CCOERA. Some officials in the state have speculated that the district attorneys may approach legislators to get a law passed allowing money to move out of CCOERA into PERA.

But it is unclear whether the governor would support such an effort.

Mr. Owens has said he will oppose all PERA bills that do not switch the state's defined benefit plan to a defined contribution plan. In his veto message, Mr. Owens noted PERA's lack of progress toward his goal of allowing more state employees the opportunity to join a defined contribution plan.

Mr. Owens' public information officer did not return requests for an interview on the issue.

The vetoed PERA bill included provisions that:

c required funding levels between 85% and 95% to be amortized over 30 years;

c ended matching contributions to the $849 million 401(k) plan administered by PERA in 2003, resuming only when PERA was more than 110% funded; and

c required that funding levels below 85% or above 115% be amortized over 20 years.

Currently, the pension plan is 88% funded. In order to close its funding gap, Colorado PERA will be backing a bill when the Legislature reconvenes in January that again seeks to eliminate the matching contribution to the 401(k) and apply that money to its defined benefit funding. The board is expected to create its legislative agenda at its Oct. 17 meeting, Ms. Kaufmanis said.

PERA officials also will be reducing the assumed rate of investment return on Jan. 1 to at least 6.8%. The board has left room to lower the rate on member contributions even more, but that would require a separate bill.

Also expected to help the funding level is the merger of PERA with the state's largest school pension plan, the $2.3 billion Denver Public Schools Retirement System. The Denver system is 90% funded.

In the past, the cost was prohibitive, Ms. Kaufmanis said. Under the law permitting the merger, any additional cost can be amortized over 10 years, she said.

"The merger will allow current teachers and new hires portability throughout the state," she said. "It had been the only separate (school retirement) system in the state."

Under a new law, the two plans are to be merged Jan. 1, 2005, subject to the approval of the boards of the Denver Public Schools Retirement System, the Denver Public Schools and Colorado PERA, said David Stella, outgoing executive director of the Denver Public Schools Retirement System. The merger agreement is being drafted and could be brought to the boards for approval as early as this month.

Adding to the tension between PERA and the county officials' fund is a very lucrative buy-in formula that is enticing counties to join PERA and leave CCOERA. (Effective Nov. 1, however, PERA officials are expected to increase the cost of switching to its defined benefit plan by increasing the cost of purchasing the service credits and limiting the number of years that can be bought.)

To counteract employees' desire to switch plans, CCOERA executives will be backing a bill to increase the maximum employer match of the defined contribution plans to 8% from 6%.

At the same time, an alleged cover-up by longtime CCOERA Executive Director Jay Shoemaker has led to his dismissal and the dismissal of Rick Rodgers, CCOERA director of marketing and client services, said Mr. Allen. Mr. Allen was chairman of CCOERA's board before he relinquished that job to become interim director. He is still on the board.

However, others in the state say Mr. Shoemaker and Mr. Rodgers were fired for their performance on behalf of CCOERA during the last legislative session. During the legislative fight, there were charges of dirty tricks and numerous articles about PERA and CCOERA in the local press. One charge was that Mr. Shoemaker and other CCOERA employees placed copies of unfavorable newspaper articles about PERA on legislators' desks while the legislators were deciding whether to pass the amendment allowing counties to leave the fund.

The board last week drafted a job description for an executive director and launched a search for a new executive director. Mr. Rodgers' position will not be filled because CCOERA officials will be reorganizing this year, Mr. Allen said.