Months before five Colorado school districts took the drastic step of suing the state pension plan, their elected representative tried to bring their concerns to the Public Employees’ Retirement Association Board of Trustees.
“We (the Board) rarely hear from people in the field about how PERA staff decisions affect their organizations,” Scott Smith — a PERA board trustee at the time — wrote in a November 2023 email to school administrators. “If you have issues or concerns with any recent PERA staff decisions, I would encourage you to sign up for public comment.”
The exercise got the board’s attention — just not the way Smith intended.
After 15 school administrators showed up to testify, the board voted to limit the public’s ability to comment at future meetings. Two days later, Marcus Pennell, the board chair, filed a complaint against Smith for what he called “a pattern of problematic behavior.”
One example of Smith’s alleged misconduct: his November email encouraging PERA’s members to talk to the board about their concerns.
For the first time since the legislature passed its landmark pension reform effort of 2018, PERA is facing intense scrutiny from its members and state lawmakers, who are beginning to question the board’s oversight and its transparency with the public.
The growing criticisms of PERA come from across the ideological spectrum, with policy aims that are at times incompatible with one another. Some, like Smith, want relief from the 2018 benefit cuts and contribution hikes, while others think PERA hasn’t gone far enough to shore up its finances.
But many of PERA’s detractors are nonetheless united on one front: PERA’s 16-member board, they say, has isolated itself from the general public and the 700,000 members it was created to serve.
“During the 20 years that I’ve been involved in school district finance, I’ve seen the focus of PERA shift from serving its members to what I perceive as serving itself as a corporation,” said Terry Kimber, the chief financial officer of Widefield School District 3 in Colorado Springs.
“It’s hard to get information,” he added.
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PERA officials insist they’re working on it. Last month, for instance, PERA for the first time posted recordings of its board meetings online, as most other public entities in Colorado have done for years. (For years, board meetings were accessible virtually only if you watched them live while the meeting was in progress — often in the middle of the work day.)
“It is a legitimate concern that certain employers have raised where they would like for us to be more transparent,” Executive Director Andrew Roth told The Colorado Sun in an interview. “I want to continue engaging so that they get this message of, we’re here to provide information for you.”
But even PERA’s staunchest supporters say there’s more to be done to repair its relationship with its members after six difficult years of austerity.
“I think the more we’re having the pressure put on participants to keep PERA on track, the greater the responsibility is to involve and partner with those participants,” said Karen Wick, the program manager for Secure PERA, a coalition of PERA members and retirees. “When all of these decisions are being made, participants really deserve to understand the pieces and components behind it and have input on it.
“That’s why public comment is important,” she said. “That’s why communication back to the board members is important.”
A board censure
After Pennell’s complaint, the board hired an investigator to conduct a monthslong review of Smith’s behavior on the board. At the board’s June meeting, while Smith was on a family vacation and could not respond in person to the allegations, the board censured him for misconduct.
The disputes leading up the investigation appear to have had as much to do with personality clashes and decorum as disagreements over the proper role of the board.
Smith himself acknowledged that his combative tone in meetings and emails bothered those around him, and he apologized on multiple occasions, the investigation found.
“Hindsight being 2020, are there some things I could have said differently or approached a little bit differently? Absolutely,” Smith told The Sun in an interview. “But at the end of the day, I continue to believe that this board is failing our membership.”
The board’s censure of Smith went far beyond his interactions with staff. It rebuked him in large part over fundamental disagreements over the proper role of a board member.
For this story, The Sun reviewed board meeting audio, emails and a report produced by the investigator hired by the board.
Pennell declined an interview request, citing a busy finals week at the Jefferson County public school where he teaches. He responded to written questions posed by The Sun on Friday.
“That report highlights many instances of Mr. Smith’s behavior that did not meet the standards of ethical and professional conduct,” Pennell wrote. “PERA trustees are tasked with representing all members of the plan and acting for the benefit of the entire membership. One of the expectations is to avoid even the appearance of a conflict of interest.”
When Smith — the chief financial officer at Cherry Creek Schools — invited school administrators to give public comment, the board accused him of representing the interests of school districts over that of the pension fund.
On another occasion, when Smith said he thought PERA’s rate of return was too low, noting how austerity measures were affecting retirees and public agencies, the board accused him of appearing to represent the interests of his employer, Cherry Creek Schools.
Even a perceived conflict of interest could put the pension at risk of a lawsuit, the investigator said, citing a legal dispute in California that dragged on for 11 years over allegations that a pension board had put the financial concerns of the county government over that of the fund as a whole.
“This is akin to shouting ‘fire’ in a crowded theater,” the investigator wrote. “It is imprudent conduct that creates potential legal risk to the system.”
Smith, however, insists he was performing his fiduciary duty to PERA as a whole — just not in the way the board typically views it.
He argues PERA also has a responsibility to ensure that measures intended to restore the pension to full funding don’t go so far that they threaten the government’s ability to hire workers across Colorado. As PERA’s benefits decrease and contributions rise, Smith and other school district officials worry that many prospective hires no longer see PERA as a benefit, but instead as a deterrent to working for the public sector.
“When you get elected as a fiduciary, you have an obligation to put the members interest above all else,” said Smith, who was elected to the board in 2022 by the members of PERA’s school division. “The decisions they make have very real consequences on employers, employees and retirees.”
Notably, Smith’s argument is similar to the winning side of the California case. The appeals court ultimately sided with the pension board, which argued that the county government’s budget problems were worth considering as part of its fiduciary duty to the fund.
Limiting public comment
In July, five school districts sued PERA over the issue Smith invited them to testify on — a decision by PERA’s staff to start treating all substitute teachers as public employees who would have to contribute to PERA, even if they were hired as third-party contractors.
The use of such services is a long-running debate in the public sector. Contractors can save public agencies money and alleviate staffing shortages, but they can also allow employers to avoid hiring unionized workers and forgo expensive contributions to the pension.
Last November, school administrators told the board they were upset they hadn’t been consulted before the change was made. And they insisted they weren’t trying to circumvent the pension — they would prefer to hire teachers of their own, but couldn’t find enough without help from outside services.
The comments that morning, limited to 3 minutes per speaker, went on for about an hour. The duration was both a sign of how contentious the issue was, and an annoyance to some on the board.
“To put it mildly, the length of the public comment period threw the remainder of the board meeting way off schedule, potentially compromising the orderly and prudent conduct of PERA business,” an investigator hired by the board wrote.
The investigator found that Smith violated the board’s code of conduct in part by not warning anyone that there could be an abnormal amount of commenters. And the board later changed its policies to ensure that a surge of public feedback wouldn’t disrupt future meetings.
Today, PERA limits public comments to 30 minutes per meeting, no matter how many people sign up.
In his email to The Sun, Pennell said the board “values public comment and also values the important work that is scheduled at each board meeting on behalf of its members.”
He said the reductions to the public comment period were not in response to Smith, but “wholly in response to what we have seen occur at some other organization’s board meetings both locally and across the country where raising unrelated topics takes valuable time away from the business of the organization.”
The pressures of austerity
A year after Smith’s invitation, school district administrators now routinely attend board meetings to complain about the high contributions they’re forced to make to the pension system, which faces $27.5 billion in unfunded debts to its members.
Retirees, in turn, insist they’ve sacrificed more than their fair share in benefits to shore up the pension’s finances, arguing that public agencies should have to contribute even more.
After multiple rounds of financial course corrections in the last six years, retiree cost of living increases have been cut to 1% a year, while most public sector agencies and their employees have to contribute a combined 30% of pay to PERA.
Roth says he hears the concerns. But there’s no easy solution that can make everyone happy.
“I’m willing to listen to all groups — we’ve got the legislature, the plan sponsor, we’ve got the employer community, we’ve got our retirees, got our board, we’ve got other associations that are stakeholders,” Roth said. “And many times the positions they hold are somewhat in conflict with each other, and so that puts us in a difficult place.
“How do we pick one group over another in order to advocate for relief? Because typically relief for one group comes at the expense of another group.”
Likewise, Pennell, the board chair, told The Sun “the PERA board takes member concerns very seriously.”
“We recognize that the financial health of the fund directly impacts each of these stakeholders,” he wrote. “That is one of the reasons why the PERA board remains steadfast in its commitment to a sustainable path to fully funding the plan and supports the state legislature in measuring carefully the financial health of the plan along the way.”
But critics like Kimber, the Widefield CFO, don’t see much evidence that the board is even listening — let alone wrestling with those hard decisions.
“Nearly one-third of every salary dollar in a school district goes right to PERA,” Kimber said. “It makes it very difficult for us to be able to hire enough staff to be able to be in front of kids and to be able to give significant enough salary compensation.”
Despite its pledges of transparency, PERA still makes public access difficult.
On the board’s website, there’s no contact information listed for any of the trustees. Instead, the public is directed to email questions to a PERA email address — a system that Smith says board members can only access after staff has replied on their behalf and uploaded it to the board’s communication interface.
Complaints about PERA have drawn the attention of state lawmakers, who plan to bring a bipartisan bill next legislative session to require more transparency from the quasi-public agency, which oversees $62 billion in public employee retirement funds.
Sen. Byron Pelton, a Republican from Sterling, recalled trying to find information on PERA’s website in 2019 when he was a Logan County commissioner.
“I could not find meeting minutes. I couldn’t find financial statements. I could not find anything,” he said.
Pelton says the website has improved since then, but not enough. He plans to introduce a bill next year with Sen. Chris Kolker, a Democrat from Centennial, that would require PERA to meet the same levels of transparency online as the local government entities that it serves.
Kolker and other members of the legislature’s Public Review Commission and its subcommittee have complained repeatedly in recent months about their inability to get more detailed information on PERA’s investments and how it compensates its employees.
Frequently, PERA has also failed at what lawmakers view as the bare minimum of disclosure for a public entity. Last month, it approved a 20% budget increase to hire dozens of new employees. The budget documents weren’t available online until a week after the vote, preventing PERA’s members from weighing in on the proposal.
Pelton also took issue with the board’s decision to limit public comments.
“I’m fine with you limiting the public comments to like, three to five minutes, that’s fine,” Pelton said. “But when you have a bunch of people waiting and just cut it off because you don’t want to hear anymore? That’s not right.”
“We are now awake”
In September, Smith resigned from PERA’s board after being elected the president of the Colorado Association of School Executives — a potential conflict of interest at a time when a handful of school districts are suing the pension.
Cherry Creek, where Smith still works, is not among them.
“I personally don’t believe any school district should be outsourcing substitute teachers,” Smith said.
Nonetheless, Smith said he considers PERA’s decision unfair, noting that a number of essential state workers hired through contract services, including some prison guards in the Department of Corrections, aren’t held to the same rules.
At the November 2023 meeting, Smith pushed for a board vote to suspend the ruling until PERA could assess whether other public employers were using third-party contractors in a similar way.
State law explicitly gives the board the authority to oversee who qualifies for PERA membership. But the board rejected his attempt, and later investigated Smith for trying to overrule the staff’s decision.
The board’s investigator sided in part with Smith, but still found him in violation of the board’s standards — in part for disagreeing with the staff and its fiduciary counsel.
“It is entirely appropriate for a Board member to question a staff decision even if it has been appropriately delegated,” the report reads in part. “What provokes concern in this scenario is Trustee Smith’s steadfast insistence on halting the staff’s decision, despite being informed (on) two occasions that these actions do not present any issues and do not compromise the Board’s fiduciary duty.”
Smith’s censure only added insult to injury for some school administrators.
“Your PERA members have been asleep for too long,” Jana Schleusner, the chief financial officer for Douglas County Schools, told the pension board at a meeting in September. “We have seen you attack your own board members who dare to ask the hard questions of management.
“We are now awake and we will be at board meetings, helping to ask those hard questions that apparently are not appreciated by some, and we are going to start looking for some accountability to the members and the districts that you are here to serve.”