What does this provision do?

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.

Why is this action necessary?

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.

Next Step: funding from the state

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.

BOTTOM LINE: THE CONTRIBUTION RATE OF THE PLAN WAS SIGNIFICANTLY LESS THAN THE ACTUAL COST. ADJUSTING THE RATE INCREMENTALLY BY 0.2% ANNUALLY WILL ALLOW THE CONTRIBUTION RATE TO ULTIMATELY EQUAL THE ACTUAL COST OF THE PLAN AND EVENTUALLY PAY OFF THE UNFUNDED LIABILITY. HOWEVER, FURTHER ACTION WILL LIKELY BE REQUIRED.


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