{"id":1897,"date":"2022-08-16T12:05:00","date_gmt":"2022-08-16T19:05:00","guid":{"rendered":"http:\/\/financegourmet.com\/blog\/?p=1897"},"modified":"2022-10-17T13:40:25","modified_gmt":"2022-10-17T20:40:25","slug":"colorado-pera-good-bad-truth","status":"publish","type":"post","link":"https:\/\/financegourmet.com\/blog\/retirement\/colorado-pera-good-bad-truth\/","title":{"rendered":"Colorado PERA Good or Bad The Truth"},"content":{"rendered":"\n

As a former financial planner in Colorado, I get a lot of questions about Colorado’s PERA program<\/a> and is PERA a good retirement plan.<\/p>\n\n\n\n

For those of you who are not from Colorado, PERA stands for Public Employment Retirement Association. It is a public pension plan for employees of the State of Colorado and public-school teachers, similar to CalPERS, the public pension plan for California. Most Colorado PERA jobs are with state and local governments, as well as many teachers in Colorado. <\/p>\n\n\n\n

Recently, PERA has taken some lumps in the media. For whatever reason, Republicans hate PERA, even though it is a version of exactly what they want to do by reforming Social Security to be based on investing in the markets.<\/p>\n\n\n\n

Sometimes, these criticisms are valid, and sometimes they are not. What is true is that PERA is not just another ordinary pension plan, and to really understand it requires delving into those details.<\/p>\n\n\n\n

PERA and Social Security<\/h2>\n\n\n\n

The most important thing to understand about PERA is that it replaces Social Security<\/em>. You know how people are always saying that Social Security would be better off if it invested worker’s contributions in the stock market? That is exactly what PERA does.<\/p>\n\n\n

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\"PERA<\/a><\/figure>\n<\/div>\n\n\n

When Social Security was first started, state government employees were not covered by the program. <\/p>\n\n\n\n

If you remember your Constitutional history, you’ll recall that the federal government cannot tax the state governments. The original thought was that the taxes required to make Social Security work could not be taken from state employees without violating this separation of powers. Prior to 1983, state and local governments could opt-out of Social Security and run their own programs instead. <\/p>\n\n\n\n

In 1983, Congress saw that only a fool would willingly stay in the Social Security program and was alarmed that it might lose out on the contributions of state workers if they flocked to better state-run pension plans. The law was changed to stop more states from establishing their own retirement plan, however, any states that had already opted out were allowed to continue their own programs. Colorado’s PERA pension plan was grandfathered in under this provision.<\/p>\n\n\n\n

PERA or Social Security<\/h3>\n\n\n\n

The choice then is for the State of Colorado to run a PERA-type retirement plan or enroll its employees in Social Security. This is where so many criticisms fall down. If you are against PERA then that means you are FOR moving back into Social Security. There is no third option. Can you opt out of PERA? Sure, but then you pay Social Security taxes instead.<\/p>\n\n\n\n

This is important because the State contributes a percentage of an employee’s salary to PERA on behalf of the employee. This amount varies but is currently 16 percent. <\/p>\n\n\n\n

Three percent of this amount comes from the budget for employee salaries. In other words, the pool available for salary increases for employees is 3 percent smaller for increased contributions. <\/p>\n\n\n\n

Employer contributions to Social Security<\/a> are 6.2 percent. When comparing the cost to the State for PERA, it is important to remember that the entire 16 percent could not be saved by eliminating PERA because then the State would, by law, have to contribute the standard 6.2 percent to Social Security instead.<\/p>\n\n\n\n

It is also important to note that unlike most other large employers, the State of Colorado offers its employees no match on 401k contributions as an offset to higher contributions to employee pensions.<\/p>\n\n\n\n

Is PERA Better Than Social Security<\/h3>\n\n\n\n

So, is PERA better than Social Security?<\/p>\n\n\n\n

For employees, there is no doubt that PERA is better than Social Security. PERA allows employees to retire with full benefit after reaching the age of 60 and meeting the “Rule of 90.” The Rule of 90 requires that the employee’s age plus their total years of service add up to at least 90. <\/p>\n\n\n\n

Thus, the earliest someone could retire with a full benefit would be at age 60, with 30 years of service. In contrast, Social Security is raising its minimum retirement age to receive full benefits to 67 for anyone born after 1960. <\/p>\n\n\n\n