2014 Total Comp: Comparing PERA and private sector retirement benefits

How do we compare PERA to private sector retirement benefits?

Certainly one of the most important parts of any compensation package in either the public sector or the private sector is the retirement benefits. In Colorado most state employees participate in a defined-benefit pension plan administered through the Colorado Public Employee’s Retirement Association (PERA).

What is important to remember, and which is often lost in the debate over public employee pensions, is that state employees do not earn Social Security while they are employed by the state. When someone in the general public hears about a PERA pension they often are not aware of this fact and assume that a state employee’s pension is an add-on to their Social Security benefits, similar to the role of a 401k or a pension in the private sector.

Apples to apples: normal vs. actuarial costs

Doing a true “apples to apples” comparison of PERA benefits to the retirement benefits available in the private sector is a complex process and one that even DPA admits they are not fully equipped to do. The key issue in making such comparisons comes down to the differences in “normal costs” versus “actuarial costs.”

In layman’s terms normal costs are the percentage of salary necessary to pay for the future benefits of an existing employee. The actuarial costs however include moneys needed to make up for years when the state underfunded their portion of the PERA contribution and all other such accrued liabilities and any other contributions made to PERA.

In their analysis of retirement compensation in the 2014/15 total compensation report, DPA compared the actuarial costs to private sector retirement plans. WINS strongly believes that this is an incorrect comparison and that such an analysis gives an overinflated sense of the state’s PERA contribution as it relates to individual employee compensation. On page 17 of the total compensation report we see in Table B9 that DPA has concluded that the state contributes 10.15% to the defined benefit/defined contribution pension plans based on analysis that relies on actuarial costs.

Table B9
Components of pension benefits Market State
Social Security 6.20% N/A
Medicare 1.45% 1.45%
Defined Benefit/ Defined Contribution N/A 10.15%
AED for PERA N/A 3.60%
Average Tax Deferred matching 4.45% N/A
Total Contribution from Employer 12.10% 15.20%



How much does the state pay toward retirement?

In PERA’s most recent Comprehensive Annual Financial Report (CAFR) for the year ending December 31, 2012 and released in June of 2013 we see that the employer contribution normal cost is just 1.64%. The total contribution normal cost is 9.69% of an employee’s salary, of that total the employee pays 8.05% with the state paying the remaining 1.64%[1].

Based on PERA’s report we see that a state employee pays 83% of the contribution necessary to pay for their future retirement benefits – this is significantly higher than what an employee pays in the private sector.

This chart will make the comparison more clear:

Components of Retirement Benefits

Private Sector Employer Contributions

State Employer Contributions

Social Security






PERA Contribution



Avg. Tax Deferred Matching



Total contribution from employer:



As this chart makes clear, the State of Colorado lags the private market by slightly over 9% in their contribution to employee retirement benefits.


Why does the DPA analysis show a 15% employer contribution but the WINS analysis shows a 3% contribution?

The added employer costs in the DPA analysis are a result of underfunding of the State’s pension obligation by the State in previous years. In order to make up that difference the General Assembly passed legislation in 2004 and 2006 mandating payments to restore the PERA trust fund to where it would have been had the State met its prior obligations. These contributions are known as the Amortization Equalization Disbursement (AED) and the Supplemental Amortization Equalization Disbursement (SAED).

We certainly do not want to simply disregard the financial liabilities to the state that AED and SAED represent, these are real costs to the State as an employer. However we think that their appearance in the total compensation report without, in the very least, some background explanation leads some to the false belief that the State contributes more to employee retirement than private sector employers.

Some will look at the total compensation report and argue that the Table B9 shows that the state is being too generous with its retirement benefits and that the state should scale back on their PERA contributions. Such an argument ignores two important facts.

First, the underfunding that the AED and SAED are designed to address occurred through no fault of any State employees. Rather the State chose to underfund its portion of contributions. Employees should not have their benefits attacked because of an action that their employer freely took. Second, AED and SAED payments cannot be accurately categorized as part of the total annual compensation package for current employees. These are not new benefits; rather they are payments on already owed benefits.

The distortion in the numbers which occurs when the state chooses to lump in AED and SAED payments into their total compensation analysis is quite dramatic. The DPA analysis shows a total State contribution to retirement benefits of 15.20%, compared to the 3.09% normal costs demonstrated above.

If the State is trying to accurately assess their total compensation in order to be competitive with other employers in recruiting and retaining a talented workforce then it is imperative that the State provide an accurate assessment of their retirement contributions. When a prospective candidate is comparing a job in the private sector to a job with the State she will see that in the private sector she pays 6.2% to Social Security and that amount is matched by her employer and that they will likely pay another 4.45% into a 401k or similar plan[2]; however when she looks to the State she will see that she pays in 8.05% and the state kicks in just 1.64%. In that analysis it is clear that the State is simply not competitive in any real world, practical analysis of their retirement benefits plan.


[1] Colorado Public Employee’s Retirement Association, Comprehensive Annual Financial Report For the Year Ended December 31, 2012, “Schedule of Computed Employer Contribution Rates for the 2014 Fiscal Year,” page 138

[2] Annual Compensation Survey Report for FY2014-15, August 1, 2013;  Table B9, page 17

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One Response to “2014 Total Comp: Comparing PERA and private sector retirement benefits”

  1. […] the latest PERA Comprehensive Annual Fiscal Report (CAFR) the state’s normal cost [1] for 2012 was just 1.64% of payroll. Compare that to the private sector where employers pay 6.2% of payroll into Social Security and […]

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