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Tom Tancredo: Colorado can save $400 million a year by fixing PERA; backs Walker Stapleton’s reforms

Conservative gubernatorial candidate Tom Tancredo is telling audiences that Colorado can save $400 million a year by changing the Public Employees' Retirement Assn. of Colorado (PERA) into a defined contribution program from a defined benefit program. Tancredo said he wouldn't take PERA benefits from teachers as the Colorado Education Assn. is falsely charging in emails to its members. As noted below, this puts Tancredo on the same page with Walker Stapleton, the Republican candidate for state Treasurer. Stapleton's comments and links are below the jump. This is what Tancredo said at a meeting with supporters this morning:

The Republican candidate for Colorado Treasurer, Walker Stapleton, is on the same page as Tancredo. In an interview on Feb. 24, Stapleton told me:

 

Stapleton said that his goals as Treasurer would be to use the Treasurer’s position on PERA’s board of directors to help the General Assembly fix the beleaguered state employees pension fund. He also would work to improve the state’s returns on its investments.

“One my top priorities as Treasurer would be to find a long-term fix for PERA. I don’t think Kennedy has taken an activist role on the PERA board. Given that taxpayers will be required to back up PERA” if it can’t recover its recent losses on its investments.

The recent legislative fixes for PERA, which Governor Bill Ritter just signed into law, were in the right direction but don’t go far enough to serve the long-term liabilities problems, Stapleton said.

“We need to give current enrollees in PERA the option to pay higher contributions or to go to defined contribution from a defined benefit plan,” he said, adding, “If you look at defined contribution plans, it allows the enrollee and the retiree to be a partner with PERA in investing. Defined benefit it is built on an optimistic assumption of 8.5% return on PERA’s investments.” He thinks it would be more conservative and reasonable to assume a 4.5% return.

“The underlying assumptions are erroneous,” Stapleton said. This will cause losses that will “end up on backs of kids and grand kids.” What’s important, he said, is that to achieve the assumed 8.5% return, “You have to have 75% of the portfolio in risky equities and be more vulnerable to the stock market. Most pension plans have more in real estate, bonds, because they’re not on the high speed treadmill to meet these unrealistic return expectations.”

Over last fiscal year, 2009, in a number of quarters PERA took in $500 milllion in contributions from state employees and paid out $1 billion to pensioners, Stapleton said. “What assets were they selling?” he asked.  He said that he sat down with PERA’s investment officer to talk about how PERA tracks its investments. PERA’s managers told him, Stapleton said, that “they had no program to track sales of investments in their portfolios, which I found to be surprising.”

Stapleton sees a major conflict of interest on the PERA board. This is because state employees are PERA beneficiaries and make decisions that favor beneficiaries rather than taxpayers.

“I would immediately push for change in makeup of board. The board shouldn’t have beneficiaries who have their hands in the cookie bar on the board. You have to have board members who have no interest in PERA. Otherwise they are compromised,” he said.

The Treasurer also is a PERA beneficiary. “I would opt out so that I’m not conflicted. People on the board should opt out of benefits until the system is truly fixed,” Stapleton said.

LINKS: 

Interview: Walker Stapleton would make fixing PERA top priority as Colorado Treasurer, The Business Word, 2.24.2010.

How to save a billion dollars in other post-employment benefit costs: A case for shifting to defined contribution retiree health plan, by Barry W. Poulson.

Posted by Donald E. L. Johnson on 10/02/2010 at 05:42 PM

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