Office of Sen.

Mike Johnston
Colorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864

FACT SHEET MEMORANDUM

HB 12-1150 PERA Seven Year Highest Average Salary Calculation Rep. Priola & Sen. Lambert Staff Name: John Feeney-Coyle What the Bill Does: In an effort to ensure PERAs actuarial sustainability, the Colorado legislature passed Senate Bill 1 in 2010; making numerous changes to the provision of PERA benefits to state employees. The proposed legislation seeks to make additional changes to the provision of benefits for employees hired on or after January 1, 2013 by increasing the number of years used to calculate a members highest annual salary (HAS). The bill seeks to calculate an employees retirement benefit based on that employees HAS over 7 years, instead of over 3 years under current law. Colorado Context: Colorado PERA members are eligible for a service or reduced service retirement benefit based on their date of hire, years of service credit, and age of retirement. A PERA members retirement benefit amount is equal to 1/12th of the average of the HAS on which PERA benefits were paid. HAS is based on 4 periods of 12 consecutive months of employment, one base year and three subsequent years. Those years need not be the final 3 years of employment, nor do they need to be earned under the same state employer they need only be consecutive. The proposed legislation would calculate that final benefit based on 7 consecutive years on an employees HAS rather than 3. National Context: Across the country concerns about salary spiking has prompted calls for state legislatures to extend the number of years by which a public employees HAS is calculated.1 For instance, Californias pension program calculates a public employees HAS based only on that employees final year of employment. Indiana similarly proposed calculating their public employees HAS based on the the sum of the highest completed twelve (12) months of salary that was paid to the participant before retirement.2

Public officials will convert incentives like education expenses, longevity bonuses, and unused vacation time into cash payments in their final year of employment in order to increase their HAS, thereby increasing their retirement benefit. In some instance, public employees will earn more in retirement than they did while employed because of salary spiking. Catherine Saillant, Maloy Moore & Doug Smith, Salary Spiking Drains Public Pension Funds, Analysis Finds, L.A. TIMES (Mar. 3, 2012), http://www.latimes.com/news/local/la-me-county-pensions20120303,0,6677861.story. 2 BOARD OF TRUSTEES OF THE INDIANA PUBLIC RETIREMENT SYSTEM, Resolution No. 2012-2-01: Section 3. 35 IAC 1.2-4-7(b), http://www.in.gov/legislative/iac/20120222-IR-035120095ONA.xml.pdf (last updated Apr. 3, 2012, 7:25 PM EDT).

DRAFT 4/3/2012 9:11 PM

For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.

Bill Provisions: Changes the calculation of a PERA members retirement benefit from 1/12th of the average of an employees HAS over 3 consecutive years, to 1/12th of the employees average HAS as calculated over 7 consecutive years of that employees employment. For a member who does not have the requisite 7 years by which to average the HAS, the HAS for that employee will be calculated based on the number of years that employee was employed by the State. Fiscal Impact: The impact of the proposed legislation on state revenue cannot be estimated at this time. The reduction in future liabilities through 2041 under the proposed legislation totals $322.3 million.

Vote History: This bill passed the House with a vote of 33-32.

DRAFT 4/3/2012 9:11 PM

For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.