Colorado Legislative Council Staff

STATE and LOCAL

FISCAL IMPACT

TITLE:            CONCERNING BENEFITS OF THE PUBLIC EMPLOYEES' RETIREMENT ASSOCIATION, AND, IN CONNECTION THEREWITH, AUTHORIZING AFFILIATED EMPLOYERS TO OBTAIN HEALTH CARE COVERAGE FOR EMPLOYEES, INCREASING THE AMOUNT OF MATCHING EMPLOYER CONTRIBUTIONS PAID BY THE ASSOCIATION, AND PROVIDING MATCHING EMPLOYER CONTRIBUTIONS TO TAX-DEFERRED RETIREMENT PROGRAMS.

Summary of Legislation

            This bill changes the Public Employees' Retirement Association (PERA) health care program as follows:

            •   increases the portion of the employer contribution to the health care trust fund from 0.8 percent to 1.1 percent of member salaries;

            •   allows any employer affiliated with PERA to elect to provide its members health care coverage provided by PERA and requires the premium to be collected directly from the employer; and

            •   modifies the premium subsidy, effective July1, 2000, based upon the age of the benefit recipient and whether the recipient is entitled to Medicare hospital insurance benefits.

            The bill makes the following changes to PERA retirement benefits:

            •   reduces the member contribution rate for state troopers from 11.5 percent to 11.0 percent;

            •   increases the amount of the matching employer contribution for employees who have met age and service requirements from one-half an amount to an amount equal to the member contribution less certain deductions;

            •   increases the amount of the matching employer contribution for employees who receive a refund prior to meeting age and service requirements from one-fourth an amount to one-half an amount equal to the member contribution less certain deductions;

            •   establishes the amount of the matching employer contribution for municipal employees to be 80.0 percent of the amount paid to members of the other divisions with respect to age and service, subject to an actuarial study which specifies the contribution will not cause the amortization period to exceed 30 years;

            •   allows the PERA board, beginning January 1, 2001, to establish the level of matching employer contributions to tax-deferred retirement programs to which members voluntarily contribute, subject to the plan having an amortization period of zero years;

            •   prescribes the manner to determine the level of matching employer contributions depending upon the length of the amortization period;

            •   requires the PERA actuary to determine a reduction in the respective employer contribution rate in the event any division is found to be over funded;

            •   specifies adjustments to the employer contribution rates when matching employer contributions first begin;

            •   requires employers to submit a monthly report to PERA; and

            •   provides a formula for determining a retirement benefit for members of the judicial division hired prior to July 1, 1973 having service credit in excess of 20 years.

State Revenues

            Section 2, effective July 1, 1999, reduces the employee contribution rate for State Troopers from 11.5 percent to 11.0 percent of member salary. The amount of the employee contribution is tax-deferred for state and federal income tax. Therefore, this rate reduction will increase the amount of salary subject to state and federal income tax. Based upon total current trooper salaries, the amount of annual state General Fund income tax revenue will be increased by less than $10,000.

            Section 3, effective July 1, 1999, increases the amount of the matching employer contributions paid to members who elect to receive a refund upon termination of employment. Any amount of this refund that is not rolled over to a qualified retirement plan is subject to state and federal income tax. This fiscal note assumes some number of employees will elect to not roll the refund amount into a qualified retirement plan. Therefore, this provision of the bill will increase state General Fund income tax revenue.

            Section 4 provides an employer match on employee voluntary contributions to defined contribution plans, beginning January 1, 2001, subject to certain conditions. This provision may influence an increase in voluntary contributions by members which would reduce the amount of member salary subject to state and federal income tax. Therefore, this provision will decrease state General Fund income tax revenue. However, PERA does not anticipate the qualifying conditions will be met until some time later than calendar year 2001.

State Expenditures

            Section 4 provides an employer match on employee voluntary contributions to defined contribution plans, beginning January 1, 2001, subject to certain conditions. When those conditions are met, the employer contribution rate paid by state, school, and judicial employers will decrease by 1.0 percent of member salary. As of June 30, 1998, the total salary for PERA members was approximately $3.752 billion. Therefore, the amount of that total reduction is estimated to be approximately $37.5 million. However, PERA does not anticipate the qualifying conditions will be met until some time later than calendar year 2001.

Local Government Impact

            The Public Employees' Retirement Association provides a pension system for most state employees, as well as municipal, city, county, and school district employees. Therefore, any local government entity affiliated with PERA will be affected by the provisions of this bill in a manner similar to the state. School members of PERA are covered in the same division as state members. Contribution rates for school members are the same as those for state members. Any change in employer contribution rates for school members would apply to K-12 employers participating in PERA . All school districts, except Denver, are covered by PERA.

Public Employees' Retirement Association Impact

            Section 1 increases funding for the PERA Health Care Fund by increasing the amount of the employer contribution that is allocated to the Health Care Fund from 0.8 percent to 1.1 percent. Section 10 of the bill, effective July 1, 2000, revises the premium subsidy paid from the Health Care Fund for benefit recipients subject to certain conditions. The net effect of these revisions reduces the amortization period of the Health Care Fund from 43 years to 30 years.

            The cost of providing the increased benefits in this bill will be absorbed by the PERA trust funds rather than be recovered by increasing employer contribution rates. The period for amortizing the unfunded liability increases as a result of the increased liability. Per statute, the amortization period for the following three divisions cannot exceed 40 years. The PERA board and actuary indicate the resulting amortization periods and funding ratio would not jeopardize PERA's actuarial soundness. The bill will affect the amortization period for the PERA unfunded liability as follows:

*The Judicial Division includes state judges; Judicial Department employees are covered in the State and School Division.

State Appropriations

            This fiscal note would imply no new state appropriations are required for FY 1999-2000.

Departments Contacted

            Public Employees' Retirement Association     Judicial        Personnel Public Safety