Business School research suggests better oversight needed for defined benefit public pensions
DENVER – A series of studies by two University of Colorado Denver Business School professors indicate a large level of surplus deferred compensation and near-retirement salary growth among both K-12 and university employees.
Overall, the three studies point to potential conflicts between agents managing employee compensation and taxpayers providing the benefits. At the very minimum, the studies suggest, improved oversight is needed for these pension plans. With state and local public employee defined benefit public pension plans facing underfunding problems, many state and local governments are considering ways to reduce large deficits.
The first two studies used data sets of retiree characteristics and salary histories from two groups — non-faculty university employees (278) at the University of Colorado Denver, University of Colorado-Boulder and Metropolitan State University of Denver and K-12 Denver Public Schools retirees, all of whom retired between 2001-06. The K-12 retirees were members of the Denver Public School Retirees System, which was a separate retirement plan for all K-12 retirees. Now it is a division of the Colorado Public Employees’ Retirement Association (PERA) defined benefit pension plans.
The state pension bill passed in 2009 addressed some of the issues by stretching the salary period and placing more limitations on salary increases in the pension calculation period, Mannino said. However, the study concludes, there should be better oversight associated with large salary growth that occurs just outside the pension benefit calculation period. An even better policy is to consider defined contribution pension plan now provided for many exempt employees at CU Denver, the study suggests.
Abstracts of the first two studies published in the Journal of Pension Economics and Finance: