The proposed Public Employees’ Retirement Association rescue plan passed the Senate Finance Committee 5-2 Tuesday after members approved key changes of interest to school districts, to teachers and classified employees and to retirees.

The committee vote was the first formal test of Senate Bill 10-001, although the bill has gone through plenty of informal tests during intensive negotiations between lawmakers, PERA officials and a coalition of employee and retiree groups.

Tuesday’s hearing consumed more than five hours in a packed Old Supreme Court Chambers, the Capitol’s largest meeting room.

The hearing provided an interesting contrast in views, with established public employee groups testifying in favor of the plan while many individual retirees opposed it. (More than 40 witnesses signed up to testify.)

• One key change would set 58 as the retirement age for school employees with 30 years of service. Under the terms of the bill, the retirement age for other PERA members would rise to 60 starting in 2017.

• Retired school employees – and all other PERA retirees – would receive no cost of living increase in 2010, and the COLA would become 2 percent in 2011.

• Direct school district contributions to PERA would grow at a smaller rate over the next several years than originally proposed. However, contributions from a second fund would increase, and total increased contributions would remain the same. (The second fund, known is PERA-speak as the SAED, is supposed to be paid from funds that otherwise would have gone to employee salaries.)

• School districts and colleges could rehire a certain number of retired employees for longer periods of time than is allowed now.

Representatives of major education interest groups – the Colorado Education Association, Douglas County Federation, Colorado Association of School Executives and the Colorado Association of School Boards, plus a group of retired educators – all expressed support for the amended bill during the hearing.

The education groups and other employee organizations have been working together as the Colorado Coalition for Retirement Security, which was a key player in negotiations on the bill.

But, those organized employee and retiree voices weren’t the only ones heard by the committee. Other witnesses – most speaking for themselves – vigorously protested the bill even in its amended form, arguing especially that the legislature shouldn’t – or can’t – reduce the current, 3.5 percent annual COLA paid to retirees.

At the center of the COLA argument is the phrase “actuarial necessity,” a legal requirement for the legislature to make benefit changes.

PERA officials argue that the need to make changes so that the system can become solvent again in 30 years constitute actuarial necessity, and the current 3.5 percent annual increase for retirees can be reduced. The retirement system was battered by the 2008 stock market decline but also has been weakened by past legislative decisions that reduced contributions but increased benefits.

Several witnesses vociferously argued against the PERA view, saying the 3.5 percent is a contract that can’t be broken.

The committee defeated several amendments proposed by Sen. Keith King, R-Colorado Springs, who made it clear he’s skeptical of the rescue plan and doesn’t think it’s sustainable. “This plan will last two or three years. It’s too rich,” King said.

King unsuccessfully proposed amendments to allow all PERA members to choose a defined contribution plan, change the mix of employer and employee contributions, ban member purchase of extra years of eligibility, alter PERA’s investment assumptions and change the salary base for calculating benefits. His only committee supporter for those ideas was Sen. Mark Scheffel, R-Parker.

A number of conservative Republicans share King’s concerns about the rescue plan.

Those views seem to be crystalized in another bill, House Bill 10-1207, introduced Tuesday by King and Rep. Kent Lambert, R-Colorado Springs. The bill would change the calculation of retirement benefits,  define actuarial necessity, require more state treasurer oversight of PERA, require PERA to use a different rate of estimated return, require employees to contribute 10 percent of salary, eliminate the SAED and AED, require annual legislative review of contributions, ban purchase of service credits, lower the COLA and  offer defined contributions plans to all employees.

While that measure likely has little chance, it will offer PERA skeptics a platform for airing their views.

The main PERA bill, SB 10-001, has bipartisan support. Senate Minority Leader Josh Penry, R-Grand Junction, has teamed with Senate President Brandon Shaffer, D-Boulder to push the bill. And, Sen. Greg Brophy, R-Wray, sided with Finance Committee Democrats in Tuesdays votes. All 21 Democratic senators are bill cosponsors.

Shaffer is pushing hard to have the issue decided before March 1, when the annual PERA 3.5 percent COLA is due to be paid out for 2010.

PERA’s net assets available for benefits dropped from $43.1 billion at the end of 2007 to $30.8 billion at the end of 2008, a loss of more than 25 percent. The system pays about $3.1 billion in benefits a year and receives about $1.7 billion in contributions from covered employees and their employers. PERA overall is about 70 percent funded. Without changes, the system is projected to go bankrupt in 16 years.

The plan has four divisions with separate trust funds – school, state (including some higher ed employees), local government and judicial. DPS employees are in a separate, fifth division. PERA-covered employees aren’t eligible for Social Security.

Overall, the system has 190,684 active members, 81,248 benefit recipients and 143,619 inactive members (people with eligibility but no longer working in PERA-covered jobs.)

While often thought of as the state pension system, PERA membership is dominated by employees of schools and colleges. Of PERA’s 190,684 active members, 118,547 are in the school division, which includes all districts in the state except Denver. Some 44,806 people receive benefits from the school division.

In 2008 employers paid more than $430 million into the school division trust fund while employees contributed about $304 million. There were about $1.4 billion in benefit payments. Because of the hit taken in PERA’s investments, in 2008 the net assets of the school division trust fund dropped from about $23 billion at the beginning of the year to about $16 billion at year’s end.

The state division includes employees of 28 colleges, universities and other education agencies, with 11,679 members (about 20 percent) accounted for just by the University of Colorado, Colorado State, Metro State and Front Range Community College. Some higher ed employees have access to other retirement plans.

Use the Education Bill Tracker for links to bill texts and status information.