DENVER – Leaders of the state’s retirement fund took a victory lap Tuesday at a legislative hearing after posting strong returns last year.
The Public Employees Retirement Association gained nearly $3 billion in 2012, thanks to a strong stock market.
And its annual return of 12.9 percent was well above the 8 percent the system needs to average every year to stay on a path to solvency.
PERA officials, plus independent auditors and actuaries, presented the good news to the Legislative Audit Committee on Tuesday.
In previous years, legislators on the committee have harangued PERA officials for running a system that was on the road to ruin. But this year, legislators had little but encouraging words to share with PERA officials after auditors gave their financial statements a clean review.
“When you see no material weaknesses or problems for two years in a row, it means they are really doing a good job, so thank you. Thank you for protecting our money,” said Sen. Lois Tochtrop, D-Thornton.
A 2010 reform bill was designed to put PERA on the path to long-term solvency by cutting benefits, increasing payments into the system and lowering the expected annual rate of return to 8 percent.
Critics like State Treasurer Walker Stapleton and other elected Republicans say 8 percent is still too optimistic. In 2011, for example, PERA’s investments returned on 1.9 percent.
“We didn’t hear much from them last year when they returned 1.9 percent,” said Stapleton’s spokesman, Michael Fortney.
PERA’s independent auditor, Dave Eberly of KPMG, said it’s important to keep an eye on the 8 percent assumption, but it’s not out of the ordinary.
“When you look at the public employee retirement systems around the country, a fairly good amount of them use 8 percent as their rate of return. Some use more, some use less, but it’s probably the most commonly used rate for retirement systems,” Eberly said.
At least for the past year, the fund performed better than expected. It finished 2012 with $43 billion, compared to just short of $40 billion a year earlier.
For perspective, the budget for the entire state government is about $20 billion.
It’s the sheer size of PERA that has its critics worried. If a $40 billion system became insolvent and needed to be bailed out, it would be impossible for the state to handle without severe pain for the government and its taxpayers.
Investors in general did well in 2012. The Standard and Poor’s 500 index of stocks increased more than 13 percent.
PERA puts its money mostly in stocks, bonds, real estate and private equity.
More than half a million people are in the PERA system, with 100,000 drawing benefits. PERA handles retirement benefits for employees of the state, all Colorado school districts and 143 local governments.
