Office of Sen.

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

FACT SHEET MEMORANDUM

SB 12-149 Allow Local Government Retirement Plan Modifications Sen. Steadman & Rep. Priola Staff Name: John Feeney-Coyle What the Bill Does: Under current law, Colorados local governments have control over the management of their public employee pension funds, including control over the types of retirement plans to participate in.1 SB 12149 would allow the local government boards for defined benefit pension plans to make necessary modifications to their plans to ensure the plans sustainability. For the purposes of this bill, a defined benefit plan is anything that is not a defined contribution plan.2 The boards for those defined benefit plans may modify the benefits, as well as the age and service requirements of the plan in order to ensure the sustainability of the plan. However, any modification made by the boards must not have an adverse effect on vested benefits already accrued by members, including those benefits enjoyed by retired members and those eligible to retire as of the effective date of the modification. The bill does not preclude the boards from modifying future benefit accruals, or to make any modifications permitted or required under State or Federal law. The proposed legislation also allows the boards to provide written notice of any pending modifications to each member, inactive member, or beneficiary of the plan.3 Colorado Context: Colorados local government employees receive their benefits from a retirement plan provided by their respective counties,4 municipalities, political subdivisions, or by the Colorado County Officials & Employees Retirement Association (COCERA).5 COCERA is a non-profit association formed in 1968 to provide retirement benefits to employees of local government members.6 COCERA administers a Defined Contribution Plan and a Deferred Compensation Plan.7 Unlike the boards for retirement plans

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C.R.S. 24-54-108 Id. (defining a Defined Contribution Plan as a retirement plan that provides an individual account for each participant. The benefits for that account are based solely on the amount contributed by the participant, including income, expenses, gains, losses, or forfeitures of other account from other participants). 3 Id. 4 For example, Denver public employees receive their retirement benefits are administered by the Denver Employees Retirement Plan (DERP), http://www.derp.org/about_us.asp. 5 Colorado County Officials & Employees Retirement Association, http://www.ccoera.org/about/whoweare.html. 6 Id. 7 Id.

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

administered by local counties, municipalities, or political subdivisions, which have 5 governing board members, COCERA has a 7 member governing board.8 Colorado courts have interpreted Art. 2 11 of the State Constitution to protect vested pension benefits from modification. However, any unvested benefits can be subject to modification, and any adverse modifications to partially vested benefits must be offset with corresponding beneficial modifications.9 National Context: State and local retirement plans vary widely from state to state, as do statutory provisions allowing modifications to those plans. Similarly, state court opinions vary widely on state and local governments ability to modify public employees contractual rights in their retirement plans.10 Some state constitutions expressly preclude modification to public employee retirement benefits,11 while other states convey those rights through statute or case law.12 Many of those court decisions rest on the premise that employees are not entitled to any specific term of the plan, but rather are entitled to the substance of the benefit which they should reasonably expect to receive. Bill Provisions: Grant authority to local government retirement plan boards to modify the benefits and age and service requirements for public defined benefit pension plans for public employees. Those boards cannot modify the benefits of those plans that have already vested, or of those employees who are eligible for retirement as of the date of the proposed modifications. The boards may provide notice to those employees whose plans will be modified. Fiscal Impact: There is no fiscal note for this bill at this time.

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C.R.S. 24-54-107; COCERA, http://www.ccoera.org/about/whoweare.html. See Police Pension & Relief Board v. Bills, 366 P.2d 581 (Colo. 1961); Peterson v. Fire & Police Pension Assn, 759 P.2d 720 (Colo. 1988) cited in National Conference on Public Employee Retirement Systems (NCPERS), State Constitutional Protections for Public Sector Retirement Benefits, http://ncpers.org/Files/News/03152007RetireBenefitProtections.pdf (last visited Feb. 22, 2012). 10 NCPERS, http://ncpers.org/Files/News/03152007RetireBenefitProtections.pdf. 11 Those states include Alaska, Arizona, Hawaii, Illinois, Michigan and New York. Congressional Research Service, State and Local Pension Plans and Fiscal Distress: A Legal Overview, FN 28 (2011), http://www.nasra.org/resources/CRS%20state%20and%20local%20legal%20framework%201104.pdf. 12 Id. at 5-6.

DRAFT 2/26/2012 9:27 PM

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