An Associated Press news story said actuary Thomas Cavanaugh of Cavanaugh Macdonald Consulting, told lawmakers that they would have to spend 40% of state payroll on retiree benefits if the pension system runs out of money. “Your assets over 30 years would get to the point where it’s fully funded. If there were no money at all, you’d be looking at 40% of payroll,” Cavanaugh told lawmakers on the Legislative Audit Committee, according to the AP.
KPMG auditors reported that the Public Employees Retirement Association (PERA) had $5.2 billion in net income last year after losing $11 billion a year earlier. Net assets rose from $29.5 billion in 2008 to $33 billion in 2009.
However, the AP said, even with the fund’s 17% 2009 investment return, the actuarial loss was $2.9 billion because of losses from the prior two years. Cavanaugh said the benefits changes saved the state $8.8 billion.
State budget officials had warned that without changes, the plan would go broke in 20 years. Under a new law that took effect March 1, retirees who normally get a 3.5% cost-of-living increase get no such increase this year. That saved PERA $80 million (see CO Governor Signs Bill Cutting Pension Benefits).
Next year, retirees will get the lesser of inflation or 2%. After that, annual increases could be no greater than 2%. The retirement age for new employees rose from 55 to 60, and contributions will increase for both employees and their government employers.
The pension system covers 450,000 state workers, teachers, and local government employees, as well as lawmakers.