Reason Introduces Interactive Visualization of Colorado’s Unfunded Pension Liability


Reason Introduces Interactive Visualization of Colorado’s Unfunded Pension Liability

The visualization uses annual PERA reports to break down the sources of the system’s added unfunded liabilities over the past 20 years.

Reason Foundation’s Pension Integrity Project has published an interactive website to help policymakers and the general public understand the current condition of Colorado’s Public Employees’ Retirement Association (PERA). This dynamic visualization demonstrates that many factors contributed to the state’s current $32 billion in unfunded pension liabilities. The visualization uses annual PERA reports to break down the sources of the system’s added unfunded liabilities over the past 20 years. At a time when Colorado’s legislature is considering ways to reform PERA, this information is extremely important to understand the various components that have prompted the current underfunding problem in the state.

PERA serves as the retirement system for 547,500 Coloradans, which accounts for nearly one-tenth of the state’s entire population. According to PERA reports, the fund was fully funded in the year 2000 with assets that exceeded the calculated amount of promised benefits. Since that time, the system’s growth in liabilities has outpaced the growth of its assets, resulting in Colorado’s currently stated $32 billion unfunded liability.

The problem may even be worse—using accounting methods recommended by the Government Accounting Standards Board (GASB), PERA’s unfunded liabilities may actually reach $50 billion. In 2016, the pension’s stated funded ratio was 58.1 percent using PERA’s accounting and 46.1 percent using the higher liability number derived from GASB’s suggested methods. Colorado’s extended pension woes have put the state at risk of a credit rating downgrade.

The Colorado legislature attempted to stop PERA’s expanding unfunded liability in 2010 with a bill that made minor increases to contributions (both employee and employer) and the retirement age for some workers. However, as the final slide in the website shows, PERA’s unfunded liability continued to grow at a similar pace post-reform. The changes from 2010 have been ineffective because they were based on unrealistic assumptions and did not address the underlying factors that were causing PERA to slide towards insolvency.

As the interactive site shows, the source of Colorado’s pension woes stems from more than just an underpayment of contributions. To effectively reform PERA, policymakers need to familiarize themselves with the results found on this site and learn that there are a variety of challenges to tackle.

According to data collected from PERA’s annual reports, only $4.6 billion of Colorado’s unfunded liability comes from poor contribution policy. Another $6.5 billion is the result of interest on the system’s debt. This means that problems associated with contributions only account for about a third of the plans’ $32 billion in unfunded liability. The remaining two-thirds of the shortfall comes from problems with how PERA made assumptions to predict future trends. Part of that—$8.4 billion—came from investment returns that performed below the system’s lofty expected rate of return. Another $7.7 billion was added over the past 20 years from other missed assumptions on things like mortality and retention rates.

Reason’s testimonies to the Colorado Senate Finance Committee last month and to the House Finance Committee this week reflected this analysis. As state policymakers weigh the options for reforming PERA, they should keep in mind that the current $32 billion in unfunded liabilities is the result of several factors, not just poor contribution policy. Reforming only one facet of this issue leaves the door open for more problems down the road, which will likely require another round of reforms.

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