Two Colorado PERA Bill Proposals: An Open Letter to My State Representatives

I just contacted my Colorado state representatives to ask them to consider running a couple of bills in the upcoming session of the legislature (beginning in January). Both bills regard provisions of Colorado PERA, and both would benefit PERA members without costing the state or PERA employers anything, nor would they impact PERA’s funded status. In other words, they are bills that would do tremendous good but cost nothing.

I’m including the text of my email below. If you are a Colorado PERA member (or resident), I urge you to consider contacting your state representatives as well. You can use the text of my email exactly (other than the representatives and your address/phone number) or modify it as you wish.

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Representative Marshall/Senator Van Winkle,

I live in Highlands Ranch and am your constituent. Thank you for your work in the state legislature.

I have two ideas that I’m hoping you would be willing to explore regarding legislation in relation to Colorado PERA. Both ideas would be very helpful to PERA members yet would not cost the state any money or impact PERA’s funded status.

1. Purchasing PERA Service Credit
   
   PERA members are currently allowed to purchase service credit if they are eligible. For those hired after January 1, 1999, they are eligible to purchase up to five years of nonqualified credit (non-public service) and up to ten years total (including other public service). This means that some folks who worked at, say McDonalds (just as an example), for enough hours during high school and college might be able to purchase five years of nonqualified credit. Which is great. But a PERA member who takes five years off to stay at home with their children is not eligible to purchase those years because it’s not considered “work.”
   
   As I’m sure you can guess, the vast majority of PERA members who take time off to stay home with young children are women. Staying home for a number of years with kids can end up having a dramatic effect on their future retirement security and the age at which they can retire. I would like you to explore the idea of running a bill that changes the PERA rules to replace the ability to purchase five years of nonqualified service with simply being able to buy five years (with no “paid employment” work documentation required), so that parents who stay home with their children would be eligible. Some other pension systems offer this and refer to this as “Air Time”.
   
   Please note that purchasing service credit is actuarially neutral, it has no effect on PERA’s funded status and requires no additional funding from the state legislature. Yet it would have a huge positive impact on the retirement security of some PERA members and would also communicate that we value raising children as much as we value working at McDonalds.
   
   
2. PERA’s 401k and 457b Plans
   PERA employers are currently required by state law to offer the pre-tax version of PERA’s 401k to all employees, but employers have to opt-in to the Roth version. Employers also have to opt-in to offering PERA’s 457b plan (both pre-tax and Roth versions). While many PERA employers do, unfortunately not all of them do. Often it is the smaller employers, like rural school districts, that don’t offer the 401k Roth or the 457b at all, but it can also include larger employers like Denver Public Schools and Douglas County Public Schools, neither of which offer PERA’s 457b plan.
   
   The reason this is a concern is because it can have a serious negative impact on PERA members. Many employers who don’t offer the Roth version of PERA’s 401k and/or the 457b plan do offer plans from other 403b and 457b vendors. Unfortunately, those plans are sold by so-called “advisors” (really, sales people) who have no fiduciary duty to PERA members. As a result, many of these plans have outrageous fees attached to them, often in excess of 2%, that can cost PERA members hundreds of thousands of dollars over their careers. And even some of the larger employers like DPS and Cherry Creek, who have put their 403b plans out to bid, end up with plans that are better than the standard 403b offerings, but still are two to five times more expensive than PERA’s plans, costing PERA members tens of thousands of dollars and subjecting them to possible cross-selling of dubious high-cost insurance products.
   
   Here’s an example that compares investing in the Target Date fund in PERA’s 401k versus investing in the Target Date fund (same target year) in an AXA/Equitable 403b plan, which is a very common vendor offered in Colorado school districts. Let’s look at a teacher who contributes $500 a month to their retirement account for 30 years and we’ll assume a 7% return. They would end up with about $175,000 less in their Equitable 403b than in PERA’s 401k after 30 years, even though they were invested in exactly the same target date. But, as you know, investing doesn’t stop at 30 years, what about after 40 years, when a career-teacher might be age 63 or so. They’d have about $500,000 less in their Equitable 403b than their PERA 401k, again invested in the same target date. What about 50 years, think about a career teacher waiting until RMDs kick in to start withdrawing. It’s a difference of about $1.2 million.
   
   I would like you to explore the idea of running a bill that changes the PERA rules to require all PERA employers to offer both PERA’s 401k and 457b to their employees, in both pre-tax and Roth versions. There is no cost to employers to offer these plans, other than a little bit of staff time to configure the software, and they could still continue to offer their other existing 403b and 457b vendors if they wanted to, so it’s not limiting those employers in any way. There is no cost to the state or to PERA (in fact, due to economies of scale it would likely lower PERA’s overall costs slightly), yet could benefit some PERA employees by tens or even hundreds of thousands of dollars.

I hope you are willing to explore both of these ideas and I am happy to talk with you further about both of them if that would be helpful. Again, thanks for your work in the state legislature and I hope to hear from you soon.

Sincerely,

Karl Fisch
Address
Phone Number

Postscript: I should’ve mentioned that I brought up both of these ideas during public comment during the PERA Board meetings. I brought up the purchasing service credit in the September Board meeting and will be commenting on Friday on the 401k/457b during the November Board meeting. But, again, it’s not a PERA decisions, it has to be proposed and passed by the state legislature.