What’s all the fuss about PERA?

If you’ve been following the contract negotiations between the Jeffco School Board and JCEA, you may have wondered why the PERA piece is causing so much turmoil. 

 

PERA, the Public Employee Retirement Association, is Colorado’s version of Social Security for state employees.  The Colorado legislature established PERA in 1931, four years before the federal government established Social Security.  Since that time, state employees — including police officers, judges, local government officials, state employees and public school teachers pay into the system now and receive benefits when they retire.  Like Social Security, PERA is a defined-benefit plan, based on a benefit formula set by state law.   Employees who are part of PERA do not receive Social Security benefits because PERA takes the place of Social Security.

 

As is the case with Social Security, both employees and employers contribute a percentage of salary to PERA.  School employees contribute 8 percent of each paycheck to PERA, and until 2006, employers contributed 10.15 percent.  Those rates have varied over time, and the employer contribution has been as high as 12.5 percent as early as 1981.  The 10.15 percent employer contribution rate became effective in 2003.

 

In 2004 and 2006, however, additional contributions were required to keep the system solvent.  Colorado lawmakers mandated two additional increases, tagged AED (Amortization Equalization Disbursement) and SAED (Supplemental Amortization Equalization Disbursement). 

 

The AED is the employer’s share of the increase, and the SAED is the employee’s share of the increase, according to PERA.  Once established, the employer contribution increases 0.4 percent each year until 2015, and the employee contribution increases by 0.5 percent each year until 2018.   The AED is the employer’s share of the increase, and the SAED is the employee’s share of the increase, according to PERA.  Once established, the employer contribution increases 0.4 percent each year until 2015, and the employee contribution increases by 0.5 percent each year until 2018.  The AED rate was capped at 4.5 percent and the SAED rate at 5.5 percent by Senate Bill 10-001.

 

Some PERA divisions, such as the state employee division, have collected the SAED contribution as a separate deduction on employee paychecks because special laws were passed.  The other state organizations that are part of PERA, including Jeffco Schools, deduct the additional increase while planning the budget, so that money available for raises is automatically reduced by that amount before negotiations take place.

 

In 2011, PERA responded to a misleading article in the Denver Post to explain how this employee contribution really works:

 

“…legislation in 2006 created the SAED, which calls for public employers to remit contributions that would have otherwise been used for pay raises for their employees. The result is that employees pay more and public employers pay less than the Post described. The SAED is by law an employee contribution…”

 

There are some who continue to feel that the SAED contribution should come out of paychecks (which is not legal unless a new law is passed to allow school districts to do that), or that it should otherwise be made very clear in the budget that the SAED increase is coming from employees.  Jeffco Schools budgets several years in advance, so both the additional employer and employee contributions are already accounted for, making it easier to see what is left for compensation when they receive funding amounts from the state. 

 

What was different this year was that at both the March 13 and April 3 school board meeting, the proposed budget showed a compensation line item of nearly $16 million for compensation.  After the PERA increases (both employee and employee) were subtracted, along with an additional expense related to the Affordable Care Act, $11.7 million was left for compensation increases. 

 

During the April 3 board meeting, however, members John Newkirk, Julie Williams and Ken Witt voted to subtract the PERA increases and related costs from the $11.7 million number, leaving a much smaller amount — $7.5 million — available for salary increases.  While one might understand school board members voting to deduct the employee part of the contribution (the SAED portion, $2.1 million) from the $11.7 million amount, their decision to also deduct the employer portion, at an additional $1.6 million, from the compensation number is extremely questionable.  The increases will not result in increased amounts of retirement benefits for our Jeffco Schools employees because the increases are only intended to keep PERA solvent.  If anything, this will negatively impact their retirement, by making very little available for raises in a system in which benefits are based on an employee’s three highest years of income.

 

The manner in which the action was approached is also questionable.  The school board knew negotiations would be starting and that compensation increases would be one of the top issues.  They knew the proposed budget numbers were made public at both meetings in March, and yet they didn’t take any action for a month, leading a number of people to believe that $11.7 million would, in fact, be available for raises.  By the time the three new members of the school board voted to deduct PERA from the $11.7 million, negotiations had already started.  Why the month-long delay?  Concerns about PERA have been raised repeatedly by the new board members, so why they waited so long to address it, and then why they did so in such a stunningly disrespectful fashion is something to ponder.