Funding a retirement program is a long-term commitment, and it’s important to remember that all benefits are not payable and due at once. One of PERA’s stated funding objectives is to be able to pay long-term benefit promises through contributions that remain relatively level from year to year as a percent of salaries earned by members. This means that each year, members and employers pay their share for benefit service accrued in that year.
A primary measure of a pension fund’s health is its funded status. This measurement is shown as a ratio, which represents the plan assets as a percentage of the plan liabilities, or in other words, the measurement compares the assets available to the benefits that must be paid. To the extent promised benefits outweigh the current assets, there exists an unfunded liability.
PERA’s liabilities are determined at the end of each year by the Board’s actuary. The actuary performs a study, or a valuation, to estimate these long-term costs or liabilities. The liabilities of PERA are determined based on assumptions the Board selects, most recently updated in 2016, which include the following:
- Life expectancy of retirees receiving benefits
- Future salary increases for working members
- Rate of return for PERA’s investments
The actuarial valuation performed for funding purposes is a valuable tool to help the Board assess the health of the system. The table below shows the funded status and the amortization periods for each defined benefit trust fund. The amortization periods shown below are one method of estimating how long
it will take to pay off the unfunded liabilities.
Funded Status of Colorado PERA1
Based on Current Funding as of December 31, 2016
|Trust Fund||Funded Ratio2||Amortization Period
with Future Contribution
|State Division||54.6%||65 Years|
|School Division||56.3%||128 Years|
|Local Government Division||74.4%||42 Years|
|Denver Public Schools Division||75.9%||Infinite|
|Health Care||17.4%||37 Years|
|Denver Public Schools Health Care||26.0%||13 Years|
1 Results reflect revised actuarial assumptions adopted by the Board in 2016.
2 Funded ratio based on actuarial value of assets.
More information about the actuarial valuation for funding purposes can be found in the Actuarial Section of PERA’s CAFR.
The table below provides summarized results of the actuarial valuation for funding purposes as of December 31, 2015, and December 31, 2016. This information is produced on a snapshot of the last day of the plan year and does not consider future members or contributions.
Aggregate Funded Status1
|Division Trust Funds3||12/31/2015||12/31/20162|
|Actuarial accrued liability||$70.9 billion4||$76.9 billion5|
|Assets held to pay those liabilities6||$44.0 billion||$44.7 billion|
|Unfunded actuarial accrued liability||$26.8 billion||$32.2 billion|
|Health Care Trust Funds3||12/31/2015||12/31/20162|
|Actuarial accrued liability||$1.6 billion4||$1.6 billion5|
|Assets held to pay those liabilities6||$303 million||$289 million|
|Unfunded actuarial accrued liability||$1.3 billion||$1.3 billion|
1 Based on the actuarial valuation performed for funding purposes.
2 Based on revised actuarial assumptions adopted by the Board in 2016.
3 The data in this table is aggregated for informational purposes. The assets of each trust fund are for the sole purpose of its members and cannot be used by another fund.
4 Based upon an assumed rate of return on investments of 7.50 percent and an assumed rate of 7.50 percent to discount the liabilities to be paid in the future to a value as of December 31, 2015.
5 Based upon an assumed rate of return on investments of 7.25 percent and an assumed rate of 7.25 percent to discount the liabilities to be paid in the future to a value as of December 31, 2016.
6 The actuarial value of assets is a smoothed market-related value, calculated by spreading any market gains or losses, above or below the assumed rate of return, over a four-year period.
To better understand the condition and sustainability of the plan, PERA’s actuaries also perform actuarial projections on each division. Based on the current market value of assets as of December 31, 2016, and the same underlying actuarial assumptions including anticipated growth in active membership, the actuaries project that the complete amortization of unfunded liabilities will occur in approximately 58 years for the State Division, 78 years in the School Division, 55 years in the Local Government Division, 54 years in the Judicial Division, and 56 years in the DPS Division.