Second Regular Session Sixty-fifth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 06-0506.01 Nicole Hoffman SENATE BILL 06-162 SENATE SPONSORSHIP Owen, HOUSE SPONSORSHIP (None), Senate Committees House Committees State, Veterans & Military Affairs A BILL FOR AN ACT Concerning retirement benefit plans for public employees. Bill Summary (Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments that may be subsequently adopted.) Terminates the terms of the current board of trustees of the public employees' retirement association (PERA) as of January 1, 2007, and creates a new board of trustees (board) to administer PERA as of that date. Specifies that the board shall be comprised of 11 members as follows:  The state auditor and the state treasurer;  4 trustees who are members of PERA, one from each of the state, school, municipal, and judicial divisions, who are elected by public employees who are PERA members (members) in the respective divisions;  One member who is a PERA retiree who is elected by PERA retirees; and  4 trustees who are appointed by the governor and who have experience and expertise in investment management, finance, banking, economics, accounting, pension administration, or actuarial analysis. Further modifies the board and the administration of PERA in the following respects:  Directs the board to specify the time and manner for the election of trustees and length of terms.  States that the elected trustees of the board shall not be compensated but shall be reimbursed by PERA for expenses incurred in association with their service on the board. States that the appointed trustees of the board shall be compensated and reimbursed by PERA for expenses incurred in association with their service on the board.  If PERA is deemed to be actuarially unsound for 3 consecutive years, states that the terms of the trustees of the board shall be terminated and a new board shall be elected and appointed, as applicable.  Directs the board to hire and set the compensation for an internal auditor of PERA.  On June 13, 2006, changes the maximum amortization period for the PERA trust funds that shall be deemed actuarially sound from 40 to 30 years.  States that an actuarial necessity shall exist for PERA when the defined benefit plan administered by PERA is not actuarially sound. In the event of an actuarial necessity, allows the general assembly to modify the amount of member and employer contributions.  Prohibits the attorney general from delegating his or her responsibilities as legal advisor to the board to any legal advisor or attorney hired by PERA. Specifies that PERA's attorneys shall advise PERA staff rather than the board. Modifies PERA benefits for employees who are hired on or after January 1, 2007, in the following respects:  Bases the calculation of highest average salary on 5 periods of 12 consecutive months of service credit.  For members, regardless of division membership, states that the member and employer contribution rate is 7% of the member's salary.  If the general assembly increases the employer contribution rate in order to make PERA actuarially sound, requires the general assembly to increase the member contribution rate by double the increase in the employer contribution rate.  Directs the board to present a proposal to the general assembly to reduce future benefits for members hired on or after January 1, 2007, if member contributions and employer contributions have increased a total of 3%, respectively, and PERA's liabilities for such members are not over 90% funded.  Specifies that any increase in member and employer contributions and any reduction in benefits shall remain in effect until the actuarial value of assets of the members hired on or after January 1, 2007, equals or exceeds110% of PERA's liabilities for such employees.  For members who have less than 35 years of service credit, specifies that a member may retire when the member's age and total years of service equal 85, so long as the member is at least 60 years of age.  For service retirement with a single life benefit payable for the life of the retiree, specifies that the monthly benefit shall be calculated by multiplying the member's highest average salary by 2.1% times each year and fraction of a year of service credit that the member earned.  Modifies the formula for calculating a reduced service benefit to decrease the amount of such benefit.  Allows an annual cost of living increase in a retiree's benefit only if PERA is actuarially overfunded and if 2/3 of the board votes in favor of allowing the increase. Modifies PERA benefits in the following respects:  For members whose benefits become effective on or after January 1, 2009, restricts the permissible annual increase in salary for each year that is included in the calculation of highest average salary.  Includes members' pretax contributions to flexible spending health plans and transportation plans in the definition of salary.  For the 2007-08 state fiscal year through the 2009-10 state fiscal year, for members who were hired before January 1, 2007, requires that an amount equal to one percent of each member's salary shall be deducted from each employee's salary increase and shall be transferred to PERA as a supplemental member contribution to eliminate the unfunded liability of PERA.  Codifies the PERA policy that states that the cost for members to purchase service credit is the actuarial cost of providing the future benefit resulting from the purchase and that the actuarial cost shall be determined by the members age at the time of purchase and the division of PERA membership.  Increases the retirement age for members who were hired before January 1, 2007, and who are less than 40 years of age when the act takes effect.  Requires the director of research of the legislative council, upon request of the president of the senate and the speaker of the house of representatives, to contract with a private person to conduct an actuarial analysis of PERA to determine whether increasing members' and retirees' benefits would cause PERA to become actuarially unsound.  Expands the option to participate in a defined contribution plan administered by the state deferred compensation committee to any employee who is a member of PERA.  For members who join the defined contribution plan administered by PERA and then elect to join the defined benefit plan instead, states that such members shall have the option to receive service credit for the total number of years and months that the member was in the defined contribution plan or to purchase service credit for the number of years and months that can be purchased with the value of the members defined contribution account. Allows the state deferred compensation committee, in administering the state public officials' and employees' defined contribution plans, to select one or more private vendors to provide optional coverage for disability and survivor benefits to participants of such plans. Defines terms. Makes conforming amendments. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. 24-51-101 (9), (25) (a), (25) (b), and (42) (a), Colorado Revised Statutes, are amended to read: 24-51-101. Definitions - repeal. As used in this article, unless the context otherwise requires: (9) "Board" means: (a) (I) Prior to January 1, 2007, the board of trustees created pursuant to the provisions of section 24-51-202 which that has such duties and powers authorized by this article for the management of the association. (II) This paragraph (a) is repealed, effective January 1, 2007. (b) On and after January 1, 2007, the board created pursuant to the provisions of section 24-51-203.5 that has such duties and powers authorized by this article for the management of the association. (25) (a) "Highest average salary" means: (I) For members hired before January 1, 2007: (I) (A) One-twelfth of the average of the highest annual salaries upon which contributions were paid, whether earned from one or more employers, that are associated with three periods of twelve consecutive months of service credit; (II) (B) For a member who does not have the requisite three years of service credit, one-twelfth of the average of the total annual salaries earned during membership upon which contributions were paid; (III) (C) For benefits which become effective on or after January 1, 1982, where the individual earned less than one year of service credit after December 31, 1980, one-twelfth of the average of the highest annual salaries upon which contributions were paid which were associated with five consecutive years of service credit; or (IV) (D) Notwithstanding any other provision of this paragraph (a) subparagraph (I) to the contrary, for members of the judicial division retiring on or after July 1, 1997, one-twelfth of the highest annual salary upon which contributions were paid for twelve consecutive months. (II) For members hired on or after January 1, 2007: (A) One-twelfth of the average of the highest annual salaries upon which contributions were paid, whether earned from one or more employers, that are associated with five periods of twelve consecutive months of service credit; (B) For a member who does not have the requisite five years of service credit, one-twelfth of the average of the total annual salaries earned during membership upon which contributions were paid. (C) Notwithstanding any other provision of this subparagraph (II) to the contrary, for members of the judicial division, one-twelfth of the highest annual salary upon which contributions were paid for twelve consecutive months. (b) (I) In calculating highest average salary pursuant to sub-subparagraph (A) of subparagraph (I) and sub-subparagraph (A) of subparagraph (II) of paragraph (a) of this subsection (25), if any annual salary used in said calculation was associated with service credit earned during the last three years of membership or during the last five years of membership, as applicable, each annual salary increase shall be limited to fifteen percent. This limitation shall not apply to salary decreases. (II) In calculating highest average salary pursuant to sub-subparagraph (B) of subparagraph (I) and sub-subparagraph (B) of subparagraph (II) of paragraph (a) of this subsection (25), if all annual salaries used in said calculation were associated with service credit earned prior to the last three years of membership or prior to the last five years of membership, as applicable, no fifteen percent limit shall be applied to the salary differences. (III) Notwithstanding the provisions of subparagraphs (I) and (II) of this paragraph (b), for benefits that become effective on or after January 1, 2009, in calculating the highest average salary pursuant to sub-subparagraph (A) of subparagraph (I) and sub-subparagraph (A) of subparagraph (II) of paragraph (a) of this subsection (25), the lowest annual salary used in such calculation shall not be more than a fifteen percent increase over the highest annual salary that is not included in the calculation of highest average salary. The annual increase in salary for the remaining years used in the calculation of highest average salary shall be limited to fifteen percent. (42) (a) (I) "Salary" means compensation for services rendered to an employer and, before January 1, 2007, includes: Regular salary or pay; any pay for administrative, sabbatical, annual, sick, vacation, or personal leave; pay for compensatory time or holidays; payments by an employer from grants; amounts deducted from pay pursuant to tax-sheltered savings or retirement programs; amounts deducted from pay for a health savings account as defined in 26 U.S.C. sec. 223, as amended, or any other type of retirement health savings account program; performance or merit payments, if approved by the board; special pay for work-related injuries paid by the employer prior to termination of membership; and retroactive salary payments pursuant to court orders, arbitration awards, or litigation and grievance settlements. (II) "Salary" means compensation for services rendered to an employer and, on and after January 1, 2007, includes: Regular salary or pay; any pay for administrative, sabbatical, annual, sick, vacation, or personal leave; pay for compensatory time or holidays; payments by an employer from grants; amounts deducted from pay pursuant to tax-sheltered savings or retirement programs; amounts deducted from pay for a health savings account as defined in 26 U.S.C. sec. 223, as amended, or any other type of retirement health savings account program; amounts deducted from pay for a cafeteria plan pursuant to section 125 of the federal "Internal Revenue Code of 1986", as amended, amounts deducted from pay for transportation costs pursuant to section 132 of the federal "Internal Revenue Code of 1986", as amended; performance or merit payments, if approved by the board; special pay for work-related injuries paid by the employer prior to termination of membership; and retroactive salary payments pursuant to court orders, arbitration awards, or litigation and grievance settlements. SECTION 2. 24-51-202, Colorado Revised Statutes, is amended to read: 24-51-202. Board of trustees - creation - repeal. (1) (a) There is hereby created the board of trustees of the association, which shall have the responsibilities, duties, and authorities as set forth in this article. (b) This subsection (1) is repealed, effective January 1, 2007. (2) On January 1, 2007, the board of the association created pursuant to section 24-51-203 shall be abolished and the terms of the members of the board serving as such immediately prior to January 1, 2007, shall be terminated. SECTION 3. 24-51-203, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBSECTION to read: 24-51-203. Board - composition and election - repeal. (6) This section is repealed, effective January 1, 2007. SECTION 4. Part 2 of article 51 of title 24, Colorado Revised Statutes, is amended BY THE ADDITION OF THE FOLLOWING NEW SECTIONS to read: 24-51-203.5. Board of trustees - creation - composition. (1) On January 1, 2007, there is hereby created the board of trustees of the association, which shall have the responsibilities, duties, and authorities as set forth in this article. (2) The board shall consist of the following eleven trustees: (a) The state auditor and the state treasurer; (b) Four trustees who are members of the association who shall be elected by members of the association. Of the four trustees who are members of the association, one shall be a member of the state division elected by members of that division; one shall be a member of the school division elected by members of that division; one shall be a member of the local government division elected by members of that division; and one shall be a member of the judicial division elected by members of that division. (c) One trustee who is a retiree of the association who shall be elected by retirees of the association; (d) Four trustees who are not members of the association who shall be appointed by the governor. The four trustees who are appointed by the governor shall have significant experience and competence in investment management, finance, banking, economics, accounting, pension administration, or actuarial analysis. Of the four trustees appointed by the governor, one trustee shall be a member of the Colorado society of actuaries, one trustee shall be a member of the society of certified public accountants who is an expert in pensions, and one shall be a member of the Colorado bar association who is an expert in the federal "Employee Retirement Income Security Act of 1974", as amended. The Colorado society of actuaries, the society of certified public accountants, and the Colorado bar association shall each submit a list of recommended people from their respective organizations to serve on the board. In appointing the trustees from the Colorado society of actuaries, the society of certified public accountants, and the Colorado bar association, the governor shall appoint a person from the recommendations of each respective organization. (3) (a) The board shall set the time and manner for the election of trustees elected pursuant to paragraphs (b) and (c) of subsection (2) of this section. Elected trustees may be reelected to the board for an unlimited number of terms, but such terms shall not exceed four years. (b) When a vacancy occurs among one of the five elected trustees, the person who received the next highest number of votes in the most recent election of trustees shall be appointed to serve as trustee until the next election of trustees. If the person who received the next highest number of votes is unable or unwilling to serve as a trustee or if the trustee who created the absence ran unopposed, the board shall appoint a trustee. In either case, the appointed trustee shall be from the same division as the trustee whose absence created the vacancy, or if the trustee whose absence created the vacancy is a retiree, the appointed trustee shall be a retiree. (c) Elected trustees shall serve without compensation but shall be reimbursed by the association for any necessary expenses incurred in the conduct of their official duties and shall suffer no loss of salary from an employer for service on the board. (4) (a) The governor shall determine the time and manner for the appointment of trustees pursuant to paragraph (d) of subsection (2) of this section. Appointed trustees may be reappointed to the board for an unlimited number of terms, but such terms shall not exceed four years. (b) When a vacancy occurs among one of the four appointed trustees, the governor shall appoint a new trustee to fill the vacancy as soon as practicable. (c) Appointed trustees shall be compensated _____ dollars per diem by the association for their service on the board; except that per diem compensation for a single appointed trustee shall not exceed _____ dollars in any calendar year. In addition to per diem compensation, appointed trustees shall be reimbursed by the association for any necessary expenses incurred in the conduct of their official duties on the board. (5) Any person who has been adjudicated of violating any provisions of this article or who has been convicted of a felony or any crime involving the misappropriation of funds is prohibited from being elected to, appointed to, or continuing to serve on the board. 24-51-207.5. Board of trustees - negligence. Beginning on January 1, 2007, if the state auditor determines that the association is not actuarially sound, as defined in section 24-51-211, for three consecutive years, the board shall be deemed negligent in carrying out its duties, and the terms of all of the elected and appointed trustees on the board shall be terminated. As soon as practicable, the members of the association shall elect four new trustees, each to serve a two-year term on the board, the retirees shall elect a new trustee to serve a two-year term on the board, and the governor shall appoint four new trustees, each to serve a two-year term on the board. After the expiration of the two-year terms, the members of the association shall elect four new trustees pursuant to section 24-51-203.5 (2) (b), the retirees shall elect a new trustee pursuant to 24-51-203.5 (2) (c), and the governor shall appoint four new trustees pursuant to section 24-51-203.5 (2) (d). A trustee who has been deemed negligent pursuant to this section shall not be elected or appointed to serve additional terms as a trustee. SECTION 5. 24-51-204, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBSECTION to read: 24-51-204. Duties of the board. (6.5) The board shall hire and set the compensation for an internal auditor of the association. SECTION 6. 24-51-211, Colorado Revised Statutes, is amended to read: 24-51-211. Amortization of liabilities. An amortization period for each of the state division, school division, local government division, and judicial division trust funds shall be calculated separately. A maximum amortization period of forty years shall be deemed actuarially sound; except that, on and after June 13, 2006, a maximum amortization period of thirty years shall be deemed actuarially sound. Upon recommendation of the board, and with the advice of the actuary, the employer or member contribution rates for the plan may be adjusted by the general assembly when indicated by actuarial experience. SECTION 7. Part 2 of article 51 of title 24, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SECTION to read: 24-51-211.5. Actuarial necessity. An actuarial necessity shall exist for the association when the defined benefit plan is not actuarially sound pursuant to section 24-51-211. In the event of an actuarial necessity, the general assembly may by law modify employer and employee contributions made pursuant to part 4 of this article and the benefits allowed to members of the defined benefit plan, so long as the benefits of members who are eligible for a service retirement benefit or a reduced service retirement benefit under the defined benefit plan pursuant to sections 24-51-602 and 24-51-604, respectively, are not modified. SECTION 8. 24-51-216, Colorado Revised Statutes, is amended to read: 24-51-216. Legal adviser. (1) The attorney general shall be the legal adviser to the board and shall not delegate his or her responsibilities as legal advisor to the board to any legal advisor or in-house counsel hired by the association. (2) The association may hire legal advisors to serve as in-house counsel for the association's staff. SECTION 9. 24-51-401 (1.7) (a), Colorado Revised Statutes, is amended, and the said 24-51-401 is further amended BY THE ADDITION OF A NEW SUBSECTION, to read: 24-51-401. Employer and member contributions. (1.7) (a) (I) For members hired before January 1, 2007, employers shall deliver a contribution report and the full amount of employer and member contributions to the association within five days after the date members and retirees are paid. Except as provided in subsections (1.8) and (7) of this section and sections 22-64-220 (4) (j), C.R.S., and 24-51-408.5, such contributions shall be based upon the rates for the appropriate division as set forth in the following table multiplied by the salary, as defined in section 24-51-101 (42), paid to members and retirees for the payroll period: TABLE A CONTRIBUTION RATES Division Membership Employer Rate Member Rate State All Members 10.15% 8.0% Except State Troopers 12.85% 10.0% School All Members 1/1/2006 through 10.15% 8.0% 12/31/2012 1/1/2013 and 10.55% 8.0% thereafter Local Government All Members 10.0% 8.0% Judicial All Members 13.66% 8.0% (II) For members hired on or after January 1, 2007, employers shall deliver a contribution report and the full amount of employer and member contributions to the association within five days after the date members and retirees are paid. Except as provided in subsections (1.8), (7), and (8) of this section and sections 22-64-220 (4) (j), C.R.S., and 24-51-408.5, such contributions shall be as follows: (A) For all members, regardless of membership division, the member contribution rate shall be seven percent multiplied by the member's salary, as defined in section 24-51-101 (42), paid to the member for the payroll period. (B) For all employers, regardless of membership division of the members, the employer contribution rate shall be seven percent multiplied by the member's salary, as defined in section 24-51-101 (42), paid to the member for the payroll period. (8) If the actuarial value of assets of the members hired on or after January 1, 2007, declines below ninety percent of the actuarial accrued liabilities of the association for such members and the general assembly increases the employer contribution rate in order to make the association actuarially sound, the general assembly shall ensure that the member contribution rate is also increased by a percentage that is double the percentage increase of the employer contribution. SECTION 10. Part 4 of article 51 of title 24, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SECTION to read: 24-51-412. Supplemental employer contribution - amortization equalization. (1) For members hired before January 1, 2007, for the 2007-08 state fiscal year through the 2009-10 state fiscal year, from the amount of recommended changes to state employees' salaries and any adjustments to the recommended changes made by the general assembly in the annual general appropriation act pursuant to section 24-50-104 (4) (d), an amount equal to one percent of each member's salary shall be deducted from each member's change in salary and such amount shall be appropriated to the association as a supplemental employer contribution to the association. Each employer shall deliver to the association the supplemental employer contribution for each member who is employed by the employer pursuant to the same procedures specified for employer contributions in section 24-51-401 (1.7). (2) If the amount of the recommended changes to state employees' salaries and any adjustments to the recommended changes made by the general assembly in the annual general appropriation act pursuant to section 24-50-104 (4) (d) is less than one percent of employees' salaries, then the total amount of the recommended changes to employees' salaries and any adjustments to the recommended changes made by the general assembly in the annual general appropriation act shall be appropriated to the association in order to make the supplemental employer contribution required pursuant to subsection (1) of this section. (3) The supplemental employer contribution shall be in addition to the amortization equalization disbursement required pursuant to section 24-51-411 and shall not be subject to the limitations imposed on such disbursement. SECTION 11. Part 5 of article 51 of title 24, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SECTION to read: 24-51-510. Purchase of service credit - cost. On and after November 1, 2005, the cost to purchase service credit shall be based on the actuarial cost of providing the future benefit resulting from the purchase. The actuarial cost shall be determined by the member's age at the time of purchase and the division of the member's membership in the association. SECTION 12. 24-51-602 (1), Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW PARAGRAPH to read: 24-51-602. Service retirement eligibility. (1) (a.7) Notwithstanding paragraphs (a) and (a.5) of this subsection (1), any person except a state trooper who becomes a member on or after January 1, 2007, and any person who became a member before January 1, 2007, but who is less than forty years of age on January 1, 2007, and whose benefits have not vested on or before such date shall, upon written application and approval of the board, receive service retirement benefits pursuant to the benefit formula set forth in section 24-51-603 (1) (c) and (3) if the member has met the age and service credit requirements stated in the following table: TABLE B.07 SERVICE RETIREMENT ELIGIBILITY Age Requirement Service Credit Requirement (years) (years) Any age 35 60 30 65 5 SECTION 13. 24-51-603 (1) (a) and (3) (c), Colorado Revised Statutes, are amended, and the said 24-51-603 (1) is further amended BY THE ADDITION OF A NEW PARAGRAPH, to read: 24-51-603. Benefit formula for service retirement. (1) (a) For members who are hired before January 1, 2007, except as otherwise provided in subsection (2) of this section, effective July 1, 1997, the option 1 benefit for service retirement for members shall be calculated by multiplying the highest average salary by two and one-half percent times each year and fraction of a year of service credit. The following formula shall be used for this calculation: Highest Average Salary x (.025 x Years and Fraction of a Year). (c) For members who are hired on or after January 1, 2007, except as otherwise provided in subsection (2) of this section, the option 1 benefit for service retirement for members shall be calculated by multiplying the highest average salary by two and one-tenth percent times each year and fraction of a year of service credit. The following formula shall be used for this calculation: Highest Average Salary x (.021 x Years and Fraction of a Year). (3) (c) Except as provided in subsection (2) of this section, on July 1, 1997, for benefit recipients whose benefits became effective prior to July 1, 1997, the association shall recalculate each recipient's option 1 base benefit as set forth in paragraph (a) of subsection (1) of this section, prospectively for benefit payments payable on or after July 1, 1997. The association shall provide benefits to all such benefit recipients based upon such recalculated base benefits effective July 1, 1997. SECTION 14. 24-51-605 (1) and the introductory portion to 24-51-605 (3), Colorado Revised Statutes, are amended, and the said 24-51-605 is further amended BY THE ADDITION OF A NEW SUBSECTION, to read: 24-51-605. Benefit formula for reduced service retirement. (1) (a) On and after July 1, 1998, For a member who is hired before January 1, 2007, who is a state trooper, and who retires upon reaching fifty years of age or older but before reaching sixty years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 section 24-51-603 (1) (a), reduced by three percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (b) On and after July 1, 1998, For a member who is hired before January 1, 2007, who is not a state trooper, and who retires upon reaching fifty-five years of age or older but before reaching sixty years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 section 24-51-603 (1) (a), reduced by three percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (c) On and after July 1, 1998, For a member who is hired before January 1, 2007, who is not a state trooper, and who retires upon reaching sixty years of age or older but before reaching sixty-five years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 section 24-51-603 (1) (a), reduced by four percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (3) Notwithstanding the provisions of subsection (1) of this section, on and after July 1, 1993, for a member who is hired before January 1, 2007, who is not a state trooper and who retires upon reaching fifty years of age or older but before reaching fifty-five years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 section 24-51-603 (1) (a), reduced by: (4) For members who are hired on or after January 1, 2007, a reduced service benefit shall be calculated as follows: (a) For a member who is a state trooper and who retires upon reaching fifty years of age or older but before reaching sixty years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 (1) (c), reduced by four percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (b) For a member who is not a state trooper and who retires upon reaching sixty years of age or older but before reaching sixty-five years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 (1) (c), reduced by five percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (c) For a member who is not a state trooper and who retires upon reaching fifty-five years of age or older but before reaching sixty years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 (1) (c), reduced by four percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1). (d) For a member who is not a state trooper and who retires upon reaching fifty years of age or older but before reaching fifty-five years of age, a reduced service retirement benefit shall be the option 1 benefit for service retirement, as calculated according to the formula set forth in section 24-51-603 (1) (c), reduced by: (I) Seven percent for each year and a proportional percentage for each fraction of a year from the effective date of reduced service retirement to the date the member would have reached fifty-five years of age, or the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1), if earlier than fifty-five years of age; and (II) Four percent for each year and a proportional percentage for each fraction of a year from the date the member reaches fifty-five years of age to the date the member would have become eligible for a service retirement pursuant to the provisions of section 24-51-602 (1), if on such date the member would have been older than fifty-five years of age. SECTION 15. 24-51-1001 (1), Colorado Revised Statutes, is amended to read: 24-51-1001. Types of benefit increases. (1) Except as otherwise provided in section 24-51-1002 (3), annual increases in retirement benefits and survivor benefits shall occur on March 1 if said benefits have been paid for at least three months preceding March 1. Such increases in benefits shall be calculated in accordance with the provisions of sections 24-51-1002 and 24-51-1003 and shall be paid from the division trust funds. SECTION 16. 24-51-1002, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBSECTION to read: 24-51-1002. Annual percentages to be used. (3) Notwithstanding the provisions of subsection (1) of this section, for members who are hired on or after January 1, 2007, the increase applied to benefits pursuant to subsection (1) of this section shall occur only if the association is actuarially overfunded based on the amortization period specified in section 24-51-211 and if two-thirds of the board votes in favor of allowing the increase to occur. The board shall vote each year in which the association is overfunded to determine whether the increase shall occur. SECTION 17. Part 10 of article 51 of title 24, Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SECTION to read: 24-51-1009. Increase in benefits - actuarial study required. (1) Before increasing benefits for any member or retiree, the general assembly shall cause to be conducted pursuant to subsection (2) of this section an actuarial study to ensure that the increases in benefits would not cause the actuarial value of assets of the association to decline below ninety percent of the actuarial accrued liabilities of the association. (2) Upon direction from the president of the senate and the speaker of the house of representatives, the director of research of the legislative council shall contract with a private person to conduct an actuarial assessment of the association. The study shall be conducted to determine whether and to what extent an increase in the benefits of members and retirees would cause the actuarial value of the assets of the association to decline below ninety percent of the actuarial accrued liabilities of the association. The study shall be completed and a final report of its findings and conclusions shall be submitted to the general assembly as soon as practicable. The person conducting the actuarial assessment of the association and such person's employees shall, during the term of the contract, have access to any necessary documents and information in the custody of the association. SECTION 18. 24-51-1502 (2), Colorado Revised Statutes, is amended to read: 24-51-1502. New state employees - election - definitions. (2) (a) For purposes of this part 15, "eligible employee" means an employee of an employer as defined in section 24-52-202 (5) who is hired on or after January 1, 2006, and who, if not commencing employment in a state elected official's position, has not been a member of the association or an active participant in a defined contribution plan established pursuant to part 2 of article 52 of this title during the twelve months prior to the date that he or she commences employment. "Eligible employee" includes a retiree of the association who is serving in a state elected official's position, but does not include any other retiree of the association or a retiree of the association who has suspended benefits or an employee of an employer as defined in section 24-51-101 (20) who works in a position that is subject to membership in the public employees' retirement association and for whom contributions are made. (b) An employee who is covered by a defined contribution plan pursuant to article 54.6 of this title or who is an employee of any state college or university as defined in section 24-54.5-102 (7), any institution under the control of the board of regents of the university of Colorado, or an institution governed pursuant to part 5 of article 21 of title 23, C.R.S., shall not be eligible to make the election pursuant to subsection (1) of this section. SECTION 19. 24-51-1505 (1), Colorado Revised Statutes, is amended to read: 24-51-1505. Contributions - vesting. (1) For eligible employees who were members of the defined contribution plan established pursuant to this part 15 prior to January 1, 2007, the contribution rates to the defined contribution plan by the state and by members of the defined contribution plan established pursuant to this part 15 shall be the same as the rates that would be payable by the state and the member pursuant to section 24-51-401 section 24-51-401 (1.7) (a) (I). For eligible employees who become members of the plan on or after January 1, 2007, the contribution rates to the plan by the state and by members of the plan shall be the same as the rates that would be payable by the state and the members pursuant to section 24-51-401 (1.7) (a) (II). SECTION 20. 24-51-1506 (2), Colorado Revised Statutes, is amended to read: 24-51-1506. Additional choices within first five years. (2) A member who elects to join the defined benefit plan pursuant to subsection (1) of this section may, upon meeting the requirements of section 24-51-505, purchase service credit for the period of employment covered by the defined contribution plan. The cost to purchase such service shall be the same as the cost determined by the board for the purchase of noncovered employment. shall have the option to receive service credit for the total number of years and months that the member was in the defined contribution plan or to purchase service credit pursuant to section 24-51-505 for the number of years and months that can be purchased with the value of the member's account, at full actuarial cost, in the defined contribution plan. If the member elects to purchase service credit, the member may elect to have any portion of the member's account paid from the defined contribution plan to the defined benefit plan to facilitate the purchase of service credit through a direct rollover in accordance with section 401 (a) (31) of the federal "Internal Revenue Code of 1986", as amended. The member may not be vested in the defined contribution plan upon purchasing service credit for employment that was covered by the defined contribution plan. SECTION 21. 24-52-203 (8), Colorado Revised Statutes, is amended to read: 24-52-203. Establishment and administration of defined contribution plans. (8) (a) On or after January 1, 2006, the committee, in its sole discretion, may provide optional coverage for disability, survivor, retiree health care, life insurance, and long-term care benefits to plan participants. The committee may choose to permit plan participants to participate in any benefit that the association may offer pursuant to section 24-51-1506 (3) or 24-51-1509 (3), and any optional life insurance or long-term care insurance that the association may offer pursuant to section 24-51-1509 (2). If the association offers and the committee chooses such benefits, the association shall make any such chosen benefits available to plan participants on the same cost, benefit, and administrative basis as available to members of the association's defined contribution plan. (b) On or after January 1, 2007, the committee, in its sole discretion, may select one or more private vendors to provide optional coverage for disability and survivor benefits to plan participants. If the committee chooses to offer such benefits, the committee shall determine whether the benefits will be offered within the existing member contribution rate or through an increase in the member contribution rate. SECTION 22. Effective date. Sections 5, 8, 15, 18, 19, 20, and 21 of this act shall take effect January 1, 2007, and the remainder of this act shall take effect upon passage. SECTION 23. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.