Paul J. Epley: Connecting Referendum C and PERA


The dictionary defines "fiduciary" as held or founded in trust or confidence.

Legal documents, regardless of how extensively they delineate responsibilities and restrictions on a fiduciary, usually include a "catch-all" called the "prudent man" standard. The classic example is that a prudent man does not assign the fox to guard the henhouse. Thus, the refusal of 80 percent of our esteemed legislators to make a full disclosure regarding their Public Employees' Retirement Association interests before a bailout vote is not only ethically reprehensible, it cries out for a prudent man to seek to explain their aberrant behavior.

Let us take what we know and see whether we can connect the dots.

By way of introduction, one does not have to be a prudent man to readily observe that the PERA emperor is $12.8 billion short of being fully clothed. PERA is a Defined Pension Plan available to Colorado legislators and other Colorado state employees, and for years, participants have contributed monthly to the PERA fund based on their annual salary. Depending on the participant's age and years of service, and independent of the average salary used to compute their contributions, when they retire, they receive a defined benefit based on an average of their highest three years of compensation. The actuarial calculations used to derive the percentage of salary to be contributed each month to have adequate funds at the time of retirement is quite complex and takes into account, among other factors, mortality rates and an assumed average annual rate of earnings growth (8.5 percent) for the fund. It is what the actuaries did not take into account that has resulted in the emperor being as naked as a jaybird.

One dirty little secret, not accounted for by the actuaries, is that for years, teachers would announce their pending retirement three years out. The school administration would employ various methods of increasing the teacher's salary to significantly increase the average compensation used to calculate and thus inflate retirement benefits. However, the greatest concern to the prudent man today is

(1) one that the actuaries could not have fathomed or even remotely factored into their equations and

(2) one that would have made Charles Ponzi proud. During the dot-com led stock market boom that peaked in 1999 and 2000, the PERA Board (fiduciaries) apparently convinced themselves that average growth rates do not have a down side and began selling years of service at fire sale prices.

How, you ask, does this relate to Referendum C? Well, suppose five years ago you were a legislator dutifully doing your legislative duties as you had been doing for 10 or so years, trying not to live too high on the hog on your $32,000 salary and putting a little aside for your golden years. A human resources type, always looking to curry a little favor with the folks who control the purse strings, asks you how you would like to purchase 10 to 15 years of service for about $2,000 per year. Before you can blurt out, "Where do I get the forms?" the HR types tells you that PERA will even finance your purchase. Sweeeeet.

You do the deal and the stock market starts to crash in July 2001 and does not bottom until March 2003. PERA's rate of growth is no longer way above the 8.5 percent bogey. In fact, the value of the fund has plummeted. "Oh well," you say to yourself, it is still a great deal if we can find a way to make PERA whole. The nice thing is there are probably a lot of other state senators, representatives and high-ranking state officials with the same vested interest as me.

Now bear with me here, but as I remember the old song, just about the time things were totally bleak and hopeless, "along came Referendum C." Referendum C was sold to the voter after the lost horse had been returned to Colorado's fiscal barn and was touted to be a paltry $3.1 billion, has now grown to $4.5 billion in a five-month period.

In the next five years, Ref--erendum C probably will generate 90 percent of what is needed to fatten the golden calf of PERA, which to the credit of our politicos, means they "really did need the money" and helps us common folk understand the so-called "bi-partisan" zeal for Referendum C's passage.

But wait, allow a little of the cynical side of me to express itself and suppose the politicos learned a lesson from the teachers. Suppose as an added incentive, the supporters of Referendum C were further promised a PERA qualifying position? For those too young to remember the original "Amos & Andy" TV show, a government position is a job (usually funded by the taxpayer) where the pay is high and inversely proportional to the effort needed to perform it. These positions come in many forms, too numerous to enumerate here, but all are appointments. Suppose this position pays $64,000 or even $96,000 per year. Guess what? After three years, our former legislator has doubled or tripled his retirement.

We may not be able to equalize the vertical position of the seats of the privy but we can demand that our elected officials come clean with their PERA interests, including any service-year purchases before voting their newfound tax money from Referendum C on a PERA bailout. Paste this editorial to your refrigerator and write or e-mail your state House representative and senator today and every day until they make a full disclosure.


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