The Public Employees’ Retirement Association (PERA) of Colorado has received encouraging news regarding its financial stability, as contributions from members and cost-of-living raises for retirees will remain steady for the foreseeable future.
A strong investment performance in 2024 has helped to offset some of the challenges facing the pension system, which reported a substantial return of 10.8% on its investment portfolio, surpassing the target return of 7.25%.
However, despite the positive investment gains, PERA’s funding situation has deteriorated by $1.4 billion over the past year. A combination of factors, including a downturn in the market in 2022 and the impact of recent pay increases for public employees on future retirement benefits, has contributed to this decline.
At a recent board meeting held in June, trustees were informed that the pension fund is no longer on track for full funding by 2048, a milestone established by Colorado’s 2018 pension reform law. Nevertheless, PERA is currently at a level of funding that is sufficient to avoid triggering automatic benefit cuts and contribution increases, which had been a concern among actuaries just a few months earlier.
Andrew Roth, PERA’s Executive Director, expressed cautious optimism about the association’s financial situation in an interview with The Colorado Sun.
“We’re not out of the woods yet — although we’re cautiously optimistic,” Roth stated.
He noted that increased contributions are helping to bolster PERA’s finances, but the overall funding of the pension system largely depends on the economic conditions of the coming years.
PERA’s most recent financial update reveals that investment returns have been strong, yet they still appear underwhelming when viewed in the context of the previous years’ losses.
The pension fund employs a strategy of smoothing its market performance over four-year periods to mitigate the effects of market fluctuations. While the 10.8% investment return in 2024 would generally enhance the fund’s financial standing, the prior year’s significant loss of 13.4% continues to overshadow these gains.
Considering the deferred losses from previous years, PERA’s actual performance reflects a more modest return of 5.8%, falling short of its anticipated return by approximately $927 million. This underperformance accounts for a substantial part of PERA’s increased long-term debt in 2024.
Despite the challenges posed by past losses, Roth noted that PERA has unrealized gains from 2023 and 2024 that could provide a financial buffer in the future.
As of early 2025, the pension’s investments are performing well, although the uncertain economic landscape raises questions about sustainability.
Factors such as tariffs and government budget bills create difficulty in forecasting future financial outcomes.
Interestingly, PERA’s investment portfolio continues to face obstacles, particularly in the realms of private equity and real estate. The pension reported a remarkable 17% return on publicly traded stocks, but only managed 6.4% from private equity and suffered a decline of 0.6% from real estate investments.
In a bid to revitalize its investment strategy, PERA decided last year to increase its allocation in private equity up to 10%, an unusual move given that other large institutional investors are beginning to divest from this asset class.
The pension’s challenges also extend to its demographic assumptions, which have proven inaccurate for the fifth consecutive year.
PERA has consistently underestimated the salary increases of public employees, which have added approximately $700 million to its unfunded debt.
Retirement benefits are influenced by the duration of employment and the salaries earned during peak earning years. Therefore, higher salaries in the years leading to retirement increase costs for PERA significantly compared to the additional contributions received from those employees.
Earlier in the year, PERA updated its demographic projections for the first time in four years. While this update was expected to necessitate benefit cuts and contribution hikes, favorable investment outcomes helped maintain some stability within the pension system, averting an immediate crisis.
At the end of 2024, PERA reported that its funding status sits at 69.2%, a slight decrease from 69.6% the previous year.
For context, the average public pension in the United States is currently 76% funded, according to data from Public Plans Data.
Though PERA’s funded status shows a marginal decline, it is still in a considerably stronger position compared to 2018, when the funding level dropped below 60%, and unfunded liabilities soared beyond $32 billion.
Currently, PERA’s unfunded obligations stand at $28.9 billion, an increase from $27.5 billion in 2023.
Roth commented on the improvement, stating, “While we still have a ways to go for sure, we’re in pretty good shape.
I don’t think that our retirees and our members should be concerned.
However, retirees face the pressure of a limited cost-of-living adjustment capped at 1%, which is unlikely to change in the near term. Employers, too, carry the burden of contributing 20% of payroll, with this rate expected to remain steady for the foreseeable future.
It is worth noting that nearly all of PERA’s divisions are still on course to achieve 100% funding by 2048, as mandated by state law.
The schools division, however, is currently at only 66.1% funding, which places it five years behind schedule with a projection of reaching full funding by 2053.
Conversely, the state division is on track for full funding by 2044, while local government entities aim for full funding by 2036.
image source from：coloradosun
