Wednesday, February 9, 2011

PERA should lower expectations, treasurer says

Posted By on Wed, Feb 9, 2011 at 1:58 PM

A proposed federal law that would urge public pension plans to lower its expectations for future returns gets the support from Colorado's state treasurer, Walker Stapleton, the Republican says in a press release issued today.

  • Stapleton

The Public Employee Pension Transparency Act would ask state and local pension systems to base their rate of return to Treasury bond rates, which range from 3 percent to 4.5 percent, rather than the 8 percent used by pension funds in many states, including Colorado.

Those expectations, experts say, haven't been met, leading to huge unfunded liabilities, as reported by the Indy last month.

Stapleton, who became a member of the Public Employees Retirement Association board in January by virtue of his office, said in his release:

Colorado’s public pension system, PERA, currently reviews its return expectation once a year. Last December, in a 10-4 vote, the board of trustees decided to keep an 8 percent assumed return. However, over the past decade PERA has averaged a 3.3 percent return and the unfunded liability is approximately $20 to $30 billion, depending on how the portfolio is performing.

“PERA needs to take a hard look at their assumed rate of return. Right now the 8 percent return expectation is, in my opinion, way too optimistic” Said Treasurer Stapleton. “It is high time we make some hard choices and show some leadership.”

The bill encourages states and localities to open the books of their public pension systems by taking away federal tax exemptions from locally issued bonds for those localities who decide not to comply.

“This is a small request from the federal government, which has the authority to levy taxes and give tax benefits. States and local governments need to be realistic with their expected rate of return. Colorado has not been realistic. If this is what it takes to nudge them in to doing the right thing—I am all for it,” Stapleton continued. “These unfunded liabilities affect localities as small as municipalities and school districts. Collectively, they have an impact on the larger economic health of our state and nation."

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