COLA Wars: Yesterday's Colorado Supreme Court Ruling on PERA

My parents don’t often let me drink soda, but I like to think of myself as a Coca-Cola guy. Pepsi just doesn’t quite do it for me. And don’t even get me started on the off-brand colas. Big K Cola? Yuck!

I have to admit, though, that I haven’t yet tasted this PERA COLA thing I’ve heard so much about. Maybe that’s for the best; judging by some of the reactions I’ve seen to yesterday’s Colorado Supreme Court ruling on the issue, I’m thinking I’d probably find it a bit too heavy.

I wrapped up last week’s policy adventures by writing about Colorado’s Public Employees Retirement Association (PERA), which provides pensions for many Colorado’s public school teachers (roughly  and a large number of other public employees in the state. In that post, I briefly mentioned a 2010 bill that aimed at partially correcting one of PERA’s biggest problems: Unfunded liabilities.

While that bill was a small—perhaps inadequately small—step in the right direction for Colorado, it required some tough changes to be made. Among those changes was a reduction in annual cost-of-living (COLA) adjustments for those covered by PERA’s pensions—including the more than 100,000 retirees who are already receiving benefits. More specifically, the bill cut yearly COLA increases from 3.5 percent to 2 percent or inflation, whichever happens to be lower.

As you may have guessed, this move made some folks rather unhappy. A lawsuit was filed, legal battles were fought, and the case eventually wound up in front of the Colorado Supreme Court. The question: Does the 3.5 percent yearly COLA increase represent a contractual, constitutionally protected obligation for PERA?  According to the Court, the answer is no.

We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires.

The decision has ruffled a few feathers, and it’s not hard to imagine why. Nobody likes to have their benefits cut. Yet the fiscal sustainability of PERA also has to be considered. We do, after all, want to make sure that future retirees are also able to enjoy a secure retirement without compromising the long-term financial health of the state.

While yesterday’s ruling is undoubtedly important, it is only one piece of the PERA puzzle. If the work being done by the Colorado Pension Project work is any indication, we may soon see more reforms aimed at improving PERA’s financial situation and the fairness with which it treats young and new employees.

Now, where did I put that Coke?