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PERA Fix A Day Late and Dollar Short

Contributed by: Francis Miller on 4/30/2006

Today's Rocky had an "with regards to" the Legislature's fix for PERA. I have generally decided that this situation is FUBAR and that it would be in my best interests to refocus on my own pension problems. But, let me make one last set of comments before I ride into the sunset.

The idea of expanding PERA's board to 20 people has about as much merit as expanding Douglas County's commissioners to five. Why enlarge the confederacy of dunces? Does anyone really believe this is a fix? Governance is one of the big issues the Legislature should worry, but, 20, give me a break!

Why is it that we hire prestigous architects to build skyscrapers and contract with national firms to put in a computer, but think something as big as PERA can be micro-managed by politicos with absolutely no requisite skills in the matter. Give me a list of the people involved in this and their resumes and I will prove to you they know nothing about fixing pension problems.

PERA's problems are fundamental because as a "system" it has evolved organically and gotten itself close to a tipping point that could eventually lead to collapse. Without "intelligent design" it is a disaster looking for a place to happen and, then, all of the munchkins and hobbits who need it to survive will march down to the Legislature, elbow their way past the illegal immigrants protesting, and clamor about the need to bail PERA out so as to fulfill society's social contract with public employees. No matter that schools and local government are grossly inefficient, lacking in capability or competence. The social contract is destined to become entitlement and, in this case, our children will have to pay it off, along with their school loans, the national debt and with deflated dollars to boot. The only people destined to benefit from this are the attorneys and the money changers.

PERA's problems are many, but structural design problems represent tragic, fatal flaws. Take for example, rates of return on the portfolio. During the 1990s, PERA fund managers migrated away from low risk/low yield bonds toward equities, real estate and a variety of risky investments. That put the "nest egg" at risk, but like the craps player in Vegas who wins $100 and thinks he is "on-a-roll" PERA liberalized payouts to retirees and created a whole new set of expectations for this generation of retirees who think they can retire at 57 and get 70% of their salary until they are 87. This has two fundamental structural problems. First it is unlikely PERA will be able to get 8% returns on its investments without taking high risks. If market cycles repeat as they are destined to do, or the value of the dollar on the world markets falls, as it is destined to do, then PERA could sustain a fatal blow to the "nest egg" and it would take an entire generation to get back to where they started. That could potentially cause the unfunded liability to balloon to $20 or $30 billion, an amount that is politically untenable.

Now, if you ask Joan Fitz-Gerald, the Duchess of Coal Creek Canyon, she will tell you PERA is not a problem today, but a potential future exposure, which is the mantra of people who do not want to spend their person political capital on problems they can lay off to the next cadre of elected officials. She is willing to have our children to spend their precious resources. Not exactly the hallmark of Margaret Thatcher with whom she would like to be compared.

There is one other issue that PERA employees should consider: Life Expectancy. The British have just published a study that says for every one year increase in life expectancy, a pension plan's costs will increase by 3.5% compounded. That may not sound like a lot but it is huge over a 20 to 30 year period. I was born in 1950 and my life expectancy at that time was 65. I am now 55 and my life expectancy is 75. When I do get to 65, the retirement age for schmucks in the private sector, my life expectancy will be 85. For PERA it is even worse. People who only work 180 days a year live longer. So, if PERA employees retire at 57 and live to be 87, they will be milking the retirement system longer than they worked. Couple lower rates of return, loss of part of the nest egg and life expectancy and you can call mission control in Houston.

What needs to be done is not an enlarged committee of fools. The PERA board and the governor and the Legislature need to put a Pension Czar into the system for 2 to 3 years Give him Mike Coffman's .45 revolver and tell him to fix the problem, or leave no man standing.
That person does not exist in Colorado and should come from a national search.

Meanwhile the Legislature should focus on rationalizing the governance structure, transparency and contribution formulas to the plan. Employees need the option to choose other pension portfolio management alternatives should PERA not manage it's affairs later. And, the State should define a realistic "contribution" to employee's pensions and stick with it. If the plan sets sail and then goes over the edge of a cliff 20 years from now PERA employees and retirees should bear the brunt, not taxpayers, who by then will be recovering from collapse of the industrial economy, pandemic, natural disaster, terrorism and international monetary crisis.

If Colorado's PERA can fix its problems, then maybe other pension plans nationwide can embrace the "Colorado Model". We as citizens cannot expect Social Security to be reformed unless we are operating from a strong moral position that we have cleaned up our own local mess and therefore have the right to expect the national problems to be fixed. Then we can demand our Congressional delegation to focus on the issue.

This problem is heading for a band-aid being applied unless there is a hue and cry from the masses. At some point people need to look their children and grandchildren in the eyes and begin to question how much of a burden we are willing to lay off to them and their children.


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CONTRIBUTOR INFORMATION

Francis Miller

Parker , CO

Francis Miller has posted 699 stories and 9 comments since joining on 11/17/2005. Francis Miller's average story rating is 4.2.
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