K-12 Pension Reform
COMMITTEE ON JOINT EDUCATION
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07:57 AM -- K-12 Pension Reform
Tony Lewis, Executive Director of the Donnell-Kay Foundation, made introductory remarks. Mr. Lewis explained the Donnell-Kay Foundation's interest in funding the paper that would be presented to the committee: "Deferred Retirement Compensation for K-12 Employees: Understanding the Need for Pension Reform." He highlighted the fact, as stated in the paper, that defined benefit plans promise workers a defined pension amount based on age and years of service, regardless of contributions and earnings generated from investment of contributions. Mr. Lewis talked about the importance of keeping good teachers in teaching positions. The committee members were provided two handouts, including a copy of the paper and the PowerPoint presentation (Attachments C and D).
Ben DeGrow, Policy Analyst at the Independence Institute, introduced himself, and introduced Dr. Michael Mannino, the author of the paper.
Dr. Mannino explained that he would talk about two studies he has conducted regarding deferred compensation plans. He said the paper before the committee is part of a larger study that is still in progress. Dr. Mannino talked about his goals in completing the study.
Dr. Mannino talked about measuring retirement compensation and provided information comparing retirement compensation of the Public Employee Retirement Association (PERA) and the private sector, talking about the findings of a survey conducted by the Colorado Division of Human Resources.
Dr. Mannino explained the items he looked at in his study, including present value of retirement benefits, account balance, and the amount of retirement benefits in excess of account balance. He talked about the elements of deferred compensation, referring to "withheld value" versus "extra value." Dr. Mannino discussed measures of deferred compensation, including lump sum deferred compensation, deferred compensation ratio, and supplemental contribution ratio.
Dr. Mannino talked about the data he assembled in conducing the study, including samples of retiree characteristics and salary histories, samples of interest rates in the Single Premium Immediate Annuity market, and mortality tables from the Denver Public Schools Retirement System (DPSRS) and PERA. He highlighted some of the data he collected in conducting the study, including the value of retirement benefits of three employee groups: administrators, teachers, and non-professional employees. He also shared information on supplemental contribution rates, discussing the median value.
Dr. Mannino next talked about DPSRS outliers, speaking to highest average salary and salary increases, as well as retirement age. He noted that the average retirement age in his study was 57 years.
Dr. Mannino concluded, talking about policy implications of his study. He said the compensation structure is poorly designed, as it is heavily backloaded, results in the loss of employees during peak years, and places an emphasis on pension spiking practices. He stated that the employer contribution rate is a poor measure of retirement compensation, and talked about the gap between public and private retirement compensation. He clarified that the study does not reflect the current state of the PERA portfolio.
Dr. Mannino highlighted his policy recommendations, saying a defined contribution plan option should be provided to all employees, administrators should be moved to a defined contribution plan, early retirement subsidies for other groups should be reduced, and pension spiking practices should be reformed.
Dr. Mannino responded to committee questions and comments. Representative Merrifield and Dr. Mannino discussed pension spiking practices. They also discussed the final paragraph of the paper.
Dr. Mannino responded to a question from Senator King about whether the study looked at the management of moneys by PERA.