The state of Colorado's exclusion of a $225 million supplemental pension contribution to the $52.1 billion Colorado Public Employees' Retirement Association, Denver, is a credit negative, Moody's Investors Service said in a sector comment issued Monday.
The exclusion of the contribution in the state's budget for fiscal year 2021, which began July 1, is negative because it will "simply defer the pension costs to later years and allow the associated unfunded liability to grow at a compounding rate of 7.25%," Moody's says.
PERA's assumed rate of return and discount rate for calculating its liabilities is 7.25%.
Colorado's credit rating is Aa1 stable, according to Moody's. The credit rating agency also said even with the supplemental contribution, state and local contributions to PERA, which consists of five divisions covering a variety of judicial, municipal, school district and state employees, have fallen below Moody's "tread water" indicator.
According to the report, the funding ratio of PERA's five divisions ranged from 62% to 86% as of Dec. 31.
Colorado Gov. John W. Hickenlooper signed pension reform into law in 2018 that was meant to improve PERA's funding ratio. Provisions included increasing employee contributions by a total of 2 percentage points by July 1, 2021, and allowing new school district and local government employees to choose between the PERA defined contribution plan and the hybrid defined benefit plan beginning Jan. 1, 2019.
While not in the final version of that bill, the state's fiscal year 2020 budget included an extra state contribution of $225 million to PERA and an increase of employer contributions by 0.25 percentage points for all employers excluding those in the local government division on July 1, 2019.
PERA spokesman Patrick von Keyserling could not be immediately reached for comment.