In 2018, the FPPA Board of Directors created a task force to study the statewide plans managed by FPPA. The Statewide Plans Task Force was comprised of eight employer representatives and eight member representatives. The task force convened 11 times over seven months to review possible changes with the goal of improving the health and longevity of the statewide plans.
To that end, at the task force’s conclusion, the group recommended that the Board pursue several proposals in the upcoming legislative session. Then, in September 2019, the Board officially directed FPPA staff to draft legislation containing proposed statute changes. The resulting bill, HB20-1044, was introduced at the Colorado state capitol during the 2020 legislative session, where it passed both chambers and was signed into law on April 1, 2020 by Governor Polis.
Both the FPPA Board and staff are pleased by the passage of this bill. The successful passage of this bill represents the most effective way to address the unique challenges that we currently face, and to position the plans for long–term success moving forward. The resulting changes will not only protect the plans, keeping them financially secure, but will also provide lasting, meaningful benefits for the first responders of Colorado.
The component provisions of HB20-1044, as signed into law, are detailed below. The legislation affects individual FPPA plans as indicated. Read more about the individual provisions below, or read the full bill text here. Please note that provisions affecting the SWDB Plan also apply to members of the Statewide Defined Benefit Plan: Supplemental Social Security Component (SWDB-SS). Different rates apply for SWDB-SS members.
Increases employer contributions for each member by 4% over an 8 year period
Provides for normal retirement as early as age 50, if a member's combined years of service and age equals 80—funded by increasing employer contributions by 1% over 2 years
Converts existing base and reentry SRAs to self-directed investment accounts; Members are eligible to withdraw funds upon retirement. Base SRAs can no longer be used to correct unfunded liabilities
Increases Board's ability to adjust plan contributions by up to 0.2% every year
Allows the FPPA Board to set plan-specific contribution policies for affiliated Old Hire Fire and Police plans as they wind down
This statutory change implements a 4% increase in employer contributions over 8 years. It also allows the FPPA Board to further increase the required contributions, equally between employer and employee, upon approval through an election by both members and employers. The Board retains its statutory authority to roll back benefits to maintain actuarial soundness.
Moreover, this provision authorizes the FPPA Board to lower the reentry contribution rate to partially compensate for the 4% reentry surcharge, should the total contribution rate be in excess of what is necessary to fund the plan. The adjustment will vary by department. FPPA is currently drafting rules regarding the process to implement this provision.
In the past few years, experience has led FPPA to adopt new assumptions about things like retiree life expectancy and investment returns. Based on the results of what’s called an experience study—a comparison between what we assumed would happen and what actually happened during a specific period of time—we determined that our members are living longer in retirement, and that we have a lower expected rate of return.
Making changes to these assumptions has lowered the funded status for the Statewide Defined Benefit Plan below the 100% funded mark. Being less than 100% funded reduces our ability to protect the plan from things like a market downturn or to provide meaningful benefit adjustments.
Increasing employer contributions by 4% over 8 years (at a rate of 0.5% per year) will help protect the plan from adverse market conditions and make it more likely that the Board will be able to authorize more meaningful benefit adjustments in the future.
This increase will also equalize the contribution rates paid by members and employers. Up until 2014, contribution rates for both members and employers were set at 8%. Then in 2014, FPPA’s members elected to increase their contributions by 4% over an eight year period, raising their contribution from 8% to 12% between 2015-2022. The election did not affect employer rates, which stayed at 8%. This provision will raise employer contributions to once again match the rate paid by members.
Please also note that the official bill included language about increasing member contributions by 4%. This simply memorialized the results of the member election mentioned above, officially putting the increase into statute. This was not a new change to member contributions.
A note for members of the Statewide Defined Benefit Plan: Supplemental Social Security Component (SWDB-SS): The provision described on this page also applies to members of the SWDB-SS component, but at a different rate. For SWDB-SS participants, employer contributions will increase at a rate of 0.25% per year over 8 years, for a total increase of 2.0%
This provision provides for a normal retirement as early as age 50, if a member’s combined years of service and age totals 80 or more. In order to fund the Rule of 80, a corresponding 1% increase in employer contributions will be implemented (0.5% per year over two years) in 2029 and 2030.
Under this rule, members are eligible to commence a normal retirement with the following combinations of age at retirement and years of service in the plan:
Benefit percentage charts (compared to page one of the plan brochure) for eligible retirees will vary based upon individual circumstances. Here's one example of what the chart could look like:
In order to qualify for an unreduced benefit under the Rule of 80, a firefighter or police officer would most likely need to begin working at an FPPA department in their early 20s, and then work their entire career as a first responder in Colorado. In many cases, working as a first responder for so long takes an enormous physical and mental toll, and often these members must consider taking a reduced, early retirement. This rule helps to reduce such instances and recognize these members’ service.
Due to the requirements, not all of our members will be eligible to claim a Rule of 80 retirement, but those that do will be among the longest serving public safety officers in Colorado. The goal of the Rule of 80 is to allow members to end their career on their own terms with an unreduced pension benefit.
A note for members of the Statewide Defined Benefit Plan: Supplemental Social Security Component (SWDB-SS): The provision described on this page also applies to members of the SWDB-SS component, but at a different rate. For SWDB-SS participants, employer contributions will increase at a rate of 0.25% per year over 2 years, for a total increase of 0.5%
In years when the Statewide Defined Benefit Plan takes in more contributions from members and employers than are necessary to fully fund the plan, the FPPA Board may, but is not required to, deposit some or all of those funds into the Separate Retirement Accounts (SRAs) for active members in the plan. The SRA is currently invested in the FPPA Member’s Benefit Investment Fund until the member distributes or transfers the balance of their SRA upon retirement or enters into DROP.
There are also two different types of SRAs. The Base SRA, as described above, is applicable to all members of the Statewide Defined Benefit Plan. In addition, members who joined the SWDB plan through the reentry process also have a Reentry SRA due to the higher contribution rate paid by these individuals.
It should be noted that due to things like benefit adjustments, market downturns, changes in actuarial assumptions and other factors that have affected the plan over time, significant contributions haven’t been made to Base SRAs in over two decades. Thus, most members with significant Base SRA balances are already at or near retirement age.
This statutory change converts existing SRAs to defined contribution accounts. Members will now control investments for their individual accounts and the funds will be available for withdrawal upon retirement. FPPA maintains the ability to make deposits into active member SRAs should the opportunity arise.
The bill also allows for reentry departments to reduce the required reentry surcharge of 4% to reflect the actual cost of reentry. Any contributions received above the actual cost of reentry will be allocated to the member’s self-directed account.
This legislation directs FPPA to convert all existing SRAs into self-directed Defined Contribution accounts controlled by the member. Members are eligible to withdraw funds from these accounts when they retire.
Additionally, Base Separate Retirement Accounts can no longer be used to shore up unfunded liabilities. Historically, the FPPA board had the ability to use all or a portion of SRA funds from active members if they were necessary to shore up the plan. However, FPPA has never used this safeguard.
Allowing each reentry department the option of reducing the required reentry surcharge of 4% not only reflect the actual cost of reentry, but provides options for each department. Contributions in excess the actual cost of reentry will be allocated to the members self-directed account.
By giving members control of their SRA balances, they are better equipped to make sound decisions regarding their financial future.
This statutory change allows the FPPA Board to adjust the required contribution rate to the Statewide Death & Disability (SWD&D) Plan by up to 0.2% per year.
The Statewide Death & Disability Plan provides benefits to Colorado first responders and their families in the event that the member is seriously injured or killed. Members are covered 24/7, both on- and off-duty, until they are eligible for normal retirement, retire or otherwise separate from the plan. The plan and its benefits are greatly appreciated by the members and their families, knowing they have a safety net should the unthinkable happen.
In the last decade, FPPA has seen a significant increase in disability claims by plan members. This influx in claims, coupled with increasing life expectancy and reduced investment return assumptions, has resulted in a funding shortfall. As of January 1, 2019, the funding level for the SWD&D Plan was 72.7%, and without action the plan would have been in serious trouble.
In order to make up for the funding shortfall, we need to increase contributions into the plan. However, the previous mechanism to change contribution rates—which allowed the Board to adjust rates by up to 0.1% every other year—was insufficient to make up this shortfall. Allowing the Board to adjust contribution rates as enacted in this provision (up to 0.2% every year) puts the plan on a path towards being fully funded. However, further action might be necessary in the future.
The original draft of this bill included a one-time cash infusion from the state to cover unfunded liabilities for members enrolled prior to 1997. During the legislative process, this funding source was amended out of the bill.
When the original funding mechanism was established, the State of Colorado made a one-time payment to cover benefits for members hired prior to January 1, 1997. However the cost of those benefits was larger than anticipated, and FPPA covered the difference using funds meant to pay benefits to members hired after the state's one-time payment. The funds requested by the original legislation would have made up for that shortfall, and helped the plan regain fully funded status in a shorter period of time. Without an adequate cash infusion, the path toward full funding is longer and potentially problematic.
So while the changes in this provision—as signed—are a good first step, further action in the form of a state funding will likely be necessary.
Old Hire plans cover employees hired prior to April 8, 1978, whose employers chose to affiliate with FPPA for certain administrative functions but maintained independent status outside of our larger Defined Benefit System. These plans are managed by FPPA and are no longer adding new members. As a result, these plans primarily consist of members who are retired.
Thus, these plans are ‘winding down’ and will only exist until they have finished paying benefits to existing members and their beneficiaries. More than 50% of the remaining Old Hire plans have 10 or fewer payees.
This provision allows the Board to set contribution policies for so-called Old Hire plans that are different from other plans currently managed by FPPA, in order to address the unique needs of each plan. This policy is focused on:
• Stabilizing the annual required contribution
• Maintaining the funded ratio of the plan
This action allows FPPA to manage affiliated Old Hire plans more effectively as they reach the end of their lifespan.
Taking this action allows the FPPA Board to pursue a more individualized funding approach for each Old Hire plan. This policy helps employers better predict annual contributions by allowing plans nearing closure to invest more conservatively than those plans that expect to pay benefits for a longer period of time.
I appreciate the sponsors’ and stakeholders’ efforts to pass HB 20-1044. During this novel coronavirus-2019 (“COVID-19”) state of emergency, we are especially aware of the important contributions that our firefighters and law enforcement officers make in our communities. For that, we are incredibly grateful.
-Jared Polis, Governor of Colorado
Read the Signing Statement
Colorado Professional Fire Fighters
Colorado Police Protective Association
Special Districts Association of Colorado
Colorado State Fire Chiefs
Denver Police Protective Association
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