The Colorado Public Retirement Association posted nearly $3 billion in gains in 2012, but board members still grappled Tuesday with how to fund a $23.5 billion unfunded liability for the retirement benefits of past and present state employees.
"Due to the strength of PERA's investment return in 2012, $4.6 billion in asset value was added to the trusts, which was $1.8 billion more than our anticipated return," said PERA Executive Director Gregory Smith.
PERA invests and manages more than $42 billion in assets for a half-million state employees. The 19-member Board of Trustees received the 2012 annual report Tuesday along with a forecast of the retirement fund's future.
According to 40-year projections prepared by Cavanaugh MacDonald Consulting, PERA's retirement funds for state, school and local government employees will be 100 percent funded by 2048, 2045 and 2039 respectively. All trust funds are currently funded at a collective level of 62 percent.
The upward trend for the fund to gain assets while paying down liabilities is the result of legislative reforms passed in 2010, Smith said.
Those reforms increase employer and employee contributions to the fund over time while decreasing the benefits future retirees will receive.
Board member Susan Murphy, who was appointed by the governor, reminded board members that "current employees are paying for previous benefits promised."
Essentially, a new hire today can expect to get a benefit that is about a third received by the employee they are replacing who retired a month ago, the board summarized.
The future success of PERA also depends on the rate of return received on the billions of dollars invested.
The 40-year projections require an 8 percent rate of return, which was exceeded in 2012 with a 12.9 percent return. And over the past 10 years the fund has averaged an 8.4 percent return.
However, during times of economic downturn the fund lost staggering amounts of money while the liability grew steadily. In 2011 PERA posted a net loss of assets of $1.2 billion.
If the pension fund's performance is slightly less than forecasted it could make a big difference. With a less optimistic projection of, say, 6.5 percent, PERA's school retirement fund would be 37 percent funded in 2045 instead of being fully funded, assuming the 8 percent annual gain.
"When I think pessimistic I think 4 percent or 3 percent returns," said PERA board member Ben Valore-Caplan. "I just wanted to keep that in the forefront . to many people the concern is that 6.5 percent is a median or an expected return."
The most skeptical board member of the assumed 8 percent return has been Colorado Treasurer Walker Stapleton, who was out of the country for a wedding Tuesday. Michael Fortney, a spokesman for the treasurer, said they are pleased with the returns in 2012.
"We can not let this one year distract us from the fact that they achieved under 2 percent last year," Fortney said in an e-mail. "We maintain that an 8 percent average rate of return is still way too optimistic. We should be more conservative with the retirements of over 400,000 Coloradans."
A county-by-county breakdown released by PERA Tuesday shows that El Paso County has 10,422 pension recipients who receive a total of $376 million annually.
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