The Colorado Public Employees\u2019 Retirement Association plans to recommend changes this fall to its incentive pay policies, which have resulted in many of its investment managers doubling their pay through bonuses over the past six years.<\/p>\n
An initial review suggested PERA might be \u201cgetting too far out ahead\u201d of its peers in how much it pays its investment staff, Executive Director Andrew Roth said at the pension\u2019s board of trustees meetings last week.\u00a0<\/p>\n
\u201cWe don\u2019t want to be an outlier,\u201d Roth told the board\u2019s Compensation and Budget Committee on Wednesday. \u201cAnd so, if the incentive compensation philosophy generates numbers that would put us ahead of our peers, then I think we need to refine that philosophy, so that the maximum award opportunities that our philosophy drives are consistent with those of our peers.\u201d<\/p>\n
PERA\u2019s incentive policies have come under increased scrutiny from state lawmakers, pension member groups, and some on the board after The Colorado Sun\u2019s investigation<\/a> into its compensation practices. Earlier this month, The Sun reported that PERA pays its investment staff much larger bonuses than other pensions its size in the region.<\/p>\n Of the 38 people who managed PERA\u2019s investments since 2020, nearly half of them doubled their salaries through incentives, The Sun\u2019s analysis found. And the average bonus payout per employee rose to $294,000 last year from $187,000 in 2020.<\/p>\n Roth\u2019s comments came as PERA released its 2025 financial report<\/a>, which comes out each June.<\/p>\n The report showed another year of mixed results for the pension and its 700,000 members. On the one hand, PERA notched large gains on its investments thanks to a strong year for the stock market. As a result, contribution rates and retiree cost of living raises will remain unchanged in 2027. And all five of its divisions are now on track to reach 100% funding by 2048, the target required by state law.<\/p>\n Today, PERA is about 69% funded \u2014 meaning it has 69% of the money needed to pay all of the retirement benefits it owes now and into the future.<\/p>\n But on paper, PERA\u2019s unfunded debts increased and its overall funding declined slightly for the third straight year. That\u2019s due to the lingering effects of a disastrous 2022 investment year, when PERA lost 13.4% on its portfolio. PERA\u2019s accounting practices attempt to spread out investment volatility over time, so those losses have only now been fully captured on the pension\u2019s balance sheet.<\/p>\n PERA\u2019s investment staff, meanwhile, missed its performance targets for the third year in a row. The pension\u2019s investment portfolio earned 14.1%, while the index funds it uses as a benchmark returned 16.3%.<\/p>\n As pressure grows, some defend bonuses<\/p>\n At Wednesday\u2019s committee hearing, Roth said PERA remained committed to offering incentive pay in some form, pointing to a 2022 academic study<\/a> of public pensions that found that higher paid chief investment officers outperform their peers.<\/p>\n Most large pensions in the U.S. pay bonuses to investment staff, according to the National Conference on Public Employee Retirement Systems.\u00a0<\/p>\n \u201cI think it\u2019s really important that PERA remains competitive in the marketplace, and also remains appropriately situated in its peer group,\u201d Roth said.<\/p>\n One board member pushed back against the idea that PERA should change course.<\/p>\n \u201cI\u2019m comfortable with us being an outlier as long as there is a benefit to being an outlier,\u201d said Marcus Pennell, a former board chairman who leads PERA\u2019s investment committee. \u201cI don\u2019t want to be an outlier where there\u2019s no benefit. But if we have a strategic advantage or a competitive advantage that we can take advantage of in any arena \u2014 this one or any other \u2014 that makes us an outlier, but also makes us an outlier in terms of performance, I wanna take advantage of that.\u201d<\/p>\n But if PERA\u2019s board doesn\u2019t take steps to bring its incentive pay in line with its peers, it runs the risk of lawmakers doing it for them.<\/p>\n After reading The Sun\u2019s investigation, state Sen. Chris Kolker, a Democrat from Centennial, said earlier<\/a> this month he plans to introduce a bill next year to prevent PERA from paying bonuses when its investments lose money. Roth told the board he subsequently met with Kolker to discuss the senator\u2019s concerns.<\/p>\n Roth said his takeaway from his conversation was that while the legislature is supportive of the incentive pay program, pay levels have to be \u201cjustifiable.\u201d<\/p>\n PERA reviewed its compensation philosophy just last year, when the board reaffirmed its support for a policy that put PERA ahead of other public pensions its size. Colorado\u2019s public workers pension targets the top quartile in bonus pay among a peer group that includes public pensions and private sector firms.<\/p>\n But Roth said PERA had not reviewed the maximum payout levels since 2018, the year that PERA doubled its budget for bonuses just months after the legislature slashed benefits for retirees.<\/p>\n Today, PERA employees can earn maximum payouts of 75% to 225% of their base salary. The Sun\u2019s review found that puts PERA more in line with much larger pensions like CalPERS in California or the Teacher Retirement System of Texas<\/a> than with those closer to its size. For instance, Oregon and Arizona limit incentives to 30% of salary, while Washington doesn\u2019t pay incentives at all.<\/p>\n Finances stay on track, investments underperform<\/p>\n At Thursday\u2019s full board meeting, PERA released its annual financial report for 2025.<\/p>\n The good news: PERA earned nearly double the 7.25% annual investment return it needs to stay on track to meet its goal of full funding by 2048.<\/p>\n And, after three straight years of booming market returns, PERA is no longer at a high risk of automatic benefit cuts<\/a> in the next few years. Instead, PERA\u2019s actuaries say, the pension is now on track to see some previous benefit cuts reversed as early as 2034.<\/p>\n In part, that\u2019s thanks to a new law<\/a> passed by the legislature this year that gave PERA the ability to divert all of the state\u2019s $225 million annual payment to where it\u2019s needed most: the pensions of public school workers, which are the most underfunded of any of PERA\u2019s five divisions.<\/p>\n \u201cWe\u2019re making steady progress,\u201d said Brad Ramirez, an actuary at Segal<\/a>, a consulting firm that contracts with PERA.<\/p>\n The news wasn\u2019t all good, though. The investment staff missed its benchmarks for the third straight year, undercutting PERA\u2019s case that the incentive program is delivering higher returns. And PERA\u2019s private equity returns continue to lag behind those of public stocks, dragging down the pension\u2019s investment earnings.<\/p>\n PERA\u2019s total portfolio has now underperformed its target index funds over the last five years, earning 7.6% versus a benchmark of 7.7%. PERA officials argue that they have still outperformed the market over the long term, earning 9.5% over the past decade versus a benchmark of 9.1%.<\/p>\n