Colorado state pension members can breathe a sigh of relief.<\/p>\n
Contributions to the Public Employees\u2019 Retirement Association and cost of living raises for public sector retirees will hold steady for a while longer, after a good investment year helped offset a dip in the pension\u2019s long-term financial outlook.<\/p>\n
PERA earned 10.8% on its investment portfolio in 2024, according to its latest financial report<\/a>, eclipsing its 7.25% target for annual returns.<\/p>\n But the pension\u2019s funding still slipped by $1.4 billion last year, thanks to the lingering effects of a market downturn in 2022 and a failure to fully account for how recent pay bumps for public workers will increase retirement benefits in the long term.<\/p>\n At PERA\u2019s June board meeting, trustees learned that the pension is no longer on a path to full funding by 2048, the target set by Colorado\u2019s landmark 2018 pension law. But PERA\u2019s close enough to meeting its financial goals that it won\u2019t trigger an automatic round of benefit cuts and contribution hikes, as its actuaries had feared a few months ago<\/a>.<\/p>\n \u201cWe\u2019re not out of the woods yet \u2014\u00a0although we\u2019re cautiously optimistic,\u201d PERA Executive Director Andrew Roth told The Colorado Sun in an interview. \u201cWe are getting a lot of money in from a contributions perspective, and that\u2019s helpful.\u201d<\/p>\n But ultimately, he added, the biggest factor in whether PERA\u2019s funding improves from here is what happens in the next few years in an uncertain economy.<\/p>\n Here are some of the key takeaways from PERA\u2019s annual financial update.<\/p>\n Investment returns remain strong<\/strong><\/p>\n PERA had another good investment year in 2024 \u2014 but its returns still look disappointing on paper.<\/p>\n The pension smooths out its market performance over four-year periods to prevent market volatility from causing wild swings in its funding status. So while the 10.8% PERA made on its investments would normally improve its financial position, a 13.4% loss in 2022 is still weighing on its finances.<\/p>\n When you factor in the deferred losses, PERA made the equivalent of a 5.8% return \u2014 $927 million shy of its expected return of 7.25%. That accounts for most of the $1.4 billion PERA added to its long-term debt in 2024.<\/p>\n The 2022 losses will hurt PERA\u2019s funding for six more months before coming off the books next year. But spreading its investment performance over time cuts both ways. PERA now has unrealized gains from 2023 and 2024 that will give it a financial cushion in the future.<\/p>\n So far in 2025, PERA\u2019s investments are doing well \u2014 \u201chowever, what happens moving forward is anyone\u2019s guess,\u201d Roth said. \u201cBetween tariffs and the big (federal) budget bill, it\u2019s difficult to predict what the consequences from those things would be.\u201d<\/p>\n Private equity and real estate continue to be a drag on PERA\u2019s investment portfolio. PERA earned 17% from publicly traded stocks in 2024 versus 6.4% from private equity and -0.6% from real estate.<\/p>\n PERA last year voted to increase its stake in private equity to as much as 10% of its portfolio, even as other large institutional investors are souring on the asset class. Yale University \u2014\u00a0a leading investor in private equity \u2014 and dozens of U.S. and Asian pensions are looking to sell off much of their holdings this year, the New York Times reported<\/a>.<\/p>\n Missed assumptions<\/strong><\/p>\n For at least the fifth straight year, PERA missed the mark<\/a> on its demographic assumptions, which help determine how much money the pension will owe in benefits over time.<\/p>\n The biggest misstep: Public employees continue to get larger pay raises than PERA projects in its financial modeling. That added $700 million to the pension\u2019s unfunded debt.<\/p>\n Monthly retirement benefits are determined by how long you work and how much you earn in your highest paid years of public sector employment. So when salaries increase for older workers who are closer to retirement, it costs PERA more than it gains through higher contributions.<\/p>\n In January, PERA updated its demographic assumptions<\/a> for the first time in four years, an exercise that its actuaries said was likely to trigger a round of benefit cuts and contribution hikes. But the strong investment year helped keep the pension on financial track \u2014 or close enough to it to avoid a mandatory course correction.<\/p>\n Funded status treading water<\/strong><\/p>\n PERA ended 2024 with 69.2% of the funding needed to pay all of the future benefits owed to public sector retirees, present and future. That\u2019s down slightly from 69.6% the year before.<\/p>\n The average public pension in the U.S. is 76% funded, according to Public Plans Data<\/a>, a research database for U.S. pensions.<\/p>\n