Fire and Police Pensions in Colorado, Five Years Later

This article originally appeared in a publication by the Colorado Society of CPAs (COCPA)

Like many public pension plans, Colorado’s Fire & Police Pension Association (FPPA) has faced challenges in the last few years. Members and beneficiaries are living longer, and investment returns going forward are projected to be lower than historical trends.

FPPA’s original plan design required both the employee and the employer to contribute 8% of pay each month. The economic downturn in 2008 forced the trustees to take a look at FPPA’s fixed funding method. The trustees and the members asked the question, “Will a 16% combined rate be enough to provide a reasonable pension upon retirement?” The members asked for and the trustees created a task force to look at options for a source of future funding increases. The task force recommended the members increase their contributions by four percent over eight years.

The members voted in June 2014 to increase their contributions beginning in January 2015. The annual increase is an additional half percent of pay. The full member contribution will be 12% in 2022. Currently the employer contribution remains at 8% for a combined 20%.

As of Jan. 1, 2018, FPPA’s Statewide Defined Benefit Plan is 103.7% funded with over $5 billion in assets. The plan uses a discount rate of 7.5%. In 2017, the plan earned 14.95% return net of fees. The trustees, along with their investment consultants, explored investment trends in the current environment. Fixed income products are expected to stay low for the foreseeable future. The equity markets are beginning to cool here in the United States while the emerging markets remain soft. At FPPA’s September 2018 meeting, the trustees voted to lower the discount rate to 7% to address the expected future earnings for the plan.

FPPA’s trustees grant cost of living adjustment (COLA) increases only to the extent the fund can pay the increase over 30 years while remaining 100% or greater funded. In recent years, the adjustments have been significantly less than the cost of living. The plan currently is projected to provide miniscule COLAs over the next few years.

Firefighters and police are not necessarily young twenty-two or twenty-three-year-olds anymore. Departments across the state are hiring older people – even into their forties. Some of the hires are transfers from other departments. For other individuals, this is a career change. A young child’s dream to be a firefighter or police officer is being realized later in life. This change in hiring activity impacts the plan. The older first-time firefighter or police officer member does not contribute as long to the plan.

In addition, firefighters and police officers are living longer, resulting in the plan having to pay out a benefit over a longer period of time. In 2016, FPPA’s actuaries recommended increasing the plan’s life expectancy of its members. The trustees agreed to make the adjustment. The impact on the fund was to decrease available funds for future cost of living amounts.

FPPA’s trustees desire to provide meaningful COLAs to retirees in the future. They are asking whether the combined twenty percent contribution from the employers and employees is enough to provide an adequate benefit. If not, what options exist to change the situation.

To answer these questions, the trustees recently created a task force of employers and employees to look at potential options. The task force will present its recommendations to the Board of Trustees in spring 2019. Any needed legislative changes will occur in 2020.

In conclusion, Colorado’s firefighter and police pension plan continues to be among the most healthily funded in the country. The foresight and leadership of FPPA’s Board of Trustees, the Colorado legislature, employers, and police and fire unions continues to serve us well.

For more information, visit the FPPA website, FPPAco.org