The Legislative Audit Committee released a statutorily required study on the cost and effectiveness of the Public Employees'9 Retirement Association'9s retirement plans on July 1, concluding that Colorado'9s PARA hybrid defined-benefit (DB) plan is a cost-effective design that favors long-career public employees by providing stable lifetime income, while alternative designs shift risks and benefits in different ways.

What the study did: The Office of the State Auditor contracted with Chiron, an actuarial firm, to compare the PARA hybrid DB plan with nine alternative designs (including standalone defined-contribution plans, DB/DC combinations, variable cash-balance plans, and DB plans with different cost-of-living increase mechanisms). The firm set alternatives to the same expected cost so the comparison focused on distribution of benefits and risk.

Key findings: Chiron reported the hybrid DB plan typically produces larger income-replacement ratios for career employees than most alternatives. For example, the report shows a sample career employee hired at age 25 and retiring at 65 could expect the hybrid DB plan to replace about 94% of pre-retirement income, while the money-purchase formula or a DC-like design would replace substantially less. By contrast, shorter-term or noncareer employees often receive higher benefits from front-loaded designs such as standalone DC plans, which offer greater portability for mobile workers.

The study highlighted trade-offs: back-loaded accrual patterns (traditional DB) reward retention and guarantee pooled longevity protection, while front-loaded DC patterns favor portability and transferability. Chiron also examined post-retirement purchasing power and found the PARA hybrid DB plan'9s expected annual benefit increases (subject to the plan'9s automatic adjustment provisions) may not fully match high inflation; DB designs with stronger COLA provisions can better preserve purchasing power but come with different cost and risk profiles.

Numbers and member views: Employees currently contribute 11% of salary (10% basic plus an additional 1% under automatic adjustments in statute) and employers contribute roughly 20.61% for the state division per the report. Chiron'9s survey of current and former state employees (conducted January 2025) drew 2,923 responses; 81% said retirement benefits were a factor in taking a state job and 44% called benefits a major factor. Among respondents who spent a great deal of time considering plan choice, 77% elected the hybrid DB plan.

Policy implications and recommendations: Chiron concluded no single design is best for every worker; the choice is a policy question balancing retention and portability. The firm advised against closing the hybrid DB plan to new members because closing a plan would shrink the payroll base used to amortize the unfunded actuarial liability and could increase costs. If the General Assembly adopts an alternative, Chiron recommended creating a new tier within the existing plan structure so transitions do not imperil the path for paying down the unfunded liability.

PERA response and next steps: PERA staff, including Executive Director Andrew Roth and Chief Investment Officer Amy McGarity, participated in the hearing. PERA said it will use the study findings for member education and ongoing benefit discussions. The committee voted to release the study; the motion to release was recorded without opposition.

Ending: The study frames the choice among plan types as explicit policy trade-offs: the state can adjust accrual patterns, cost-sharing, and COLA design to prioritize retention, portability, or risk-sharing, but any change will create winners and losers among different member cohorts.