The Colorado Public Employees’ Retirement Association plans to recommend changes this fall to its incentive pay policies, which have resulted in many of its investment managers doubling their pay through bonuses over the past six years.
An initial review suggested PERA might be “getting too far out ahead” of its peers in how much it pays its investment staff, Executive Director Andrew Roth said at the pension’s board of trustees meetings last week.
“We don’t want to be an outlier,” Roth told the board’s Compensation and Budget Committee on Wednesday. “And so, if the incentive compensation philosophy generates numbers that would put us ahead of our peers, then I think we need to refine that philosophy, so that the maximum award opportunities that our philosophy drives are consistent with those of our peers.”
PERA’s incentive policies have come under increased scrutiny from state lawmakers, pension member groups, and some on the board after The Colorado Sun’s investigation into its compensation practices. Earlier this month, The Sun reported that PERA pays its investment staff much larger bonuses than other pensions its size in the region.
Of the 38 people who managed PERA’s investments since 2020, nearly half of them doubled their salaries through incentives, The Sun’s analysis found. And the average bonus payout per employee rose to $294,000 last year from $187,000 in 2020.
Roth’s comments came as PERA released its 2025 financial report, which comes out each June.
The report showed another year of mixed results for the pension and its 700,000 members. On the one hand, PERA notched large gains on its investments thanks to a strong year for the stock market. As a result, contribution rates and retiree cost of living raises will remain unchanged in 2027. And all five of its divisions are now on track to reach 100% funding by 2048, the target required by state law.
Today, PERA is about 69% funded — meaning it has 69% of the money needed to pay all of the retirement benefits it owes now and into the future.
But on paper, PERA’s unfunded debts increased and its overall funding declined slightly for the third straight year. That’s due to the lingering effects of a disastrous 2022 investment year, when PERA lost 13.4% on its portfolio. PERA’s accounting practices attempt to spread out investment volatility over time, so those losses have only now been fully captured on the pension’s balance sheet.
PERA’s investment staff, meanwhile, missed its performance targets for the third year in a row. The pension’s investment portfolio earned 14.1%, while the index funds it uses as a benchmark returned 16.3%.
As pressure grows, some defend bonuses
At Wednesday’s committee hearing, Roth said PERA remained committed to offering incentive pay in some form, pointing to a 2022 academic study of public pensions that found that higher paid chief investment officers outperform their peers.
Most large pensions in the U.S. pay bonuses to investment staff, according to the National Conference on Public Employee Retirement Systems.
“I think it’s really important that PERA remains competitive in the marketplace, and also remains appropriately situated in its peer group,” Roth said.
One board member pushed back against the idea that PERA should change course.
“I’m comfortable with us being an outlier as long as there is a benefit to being an outlier,” said Marcus Pennell, a former board chairman who leads PERA’s investment committee. “I don’t want to be an outlier where there’s no benefit. But if we have a strategic advantage or a competitive advantage that we can take advantage of in any arena — this one or any other — that makes us an outlier, but also makes us an outlier in terms of performance, I wanna take advantage of that.”
But if PERA’s board doesn’t take steps to bring its incentive pay in line with its peers, it runs the risk of lawmakers doing it for them.
After reading The Sun’s investigation, state Sen. Chris Kolker, a Democrat from Centennial, said earlier this month he plans to introduce a bill next year to prevent PERA from paying bonuses when its investments lose money. Roth told the board he subsequently met with Kolker to discuss the senator’s concerns.
Roth said his takeaway from his conversation was that while the legislature is supportive of the incentive pay program, pay levels have to be “justifiable.”
PERA reviewed its compensation philosophy just last year, when the board reaffirmed its support for a policy that put PERA ahead of other public pensions its size. Colorado’s public workers pension targets the top quartile in bonus pay among a peer group that includes public pensions and private sector firms.
But Roth said PERA had not reviewed the maximum payout levels since 2018, the year that PERA doubled its budget for bonuses just months after the legislature slashed benefits for retirees.
Today, PERA employees can earn maximum payouts of 75% to 225% of their base salary. The Sun’s review found that puts PERA more in line with much larger pensions like CalPERS in California or the Teacher Retirement System of Texas than with those closer to its size. For instance, Oregon and Arizona limit incentives to 30% of salary, while Washington doesn’t pay incentives at all.
Finances stay on track, investments underperform
At Thursday’s full board meeting, PERA released its annual financial report for 2025.
The good news: PERA earned nearly double the 7.25% annual investment return it needs to stay on track to meet its goal of full funding by 2048.
And, after three straight years of booming market returns, PERA is no longer at a high risk of automatic benefit cuts in the next few years. Instead, PERA’s actuaries say, the pension is now on track to see some previous benefit cuts reversed as early as 2034.
In part, that’s thanks to a new law passed by the legislature this year that gave PERA the ability to divert all of the state’s $225 million annual payment to where it’s needed most: the pensions of public school workers, which are the most underfunded of any of PERA’s five divisions.
“We’re making steady progress,” said Brad Ramirez, an actuary at Segal, a consulting firm that contracts with PERA.
The news wasn’t all good, though. The investment staff missed its benchmarks for the third straight year, undercutting PERA’s case that the incentive program is delivering higher returns. And PERA’s private equity returns continue to lag behind those of public stocks, dragging down the pension’s investment earnings.
PERA’s total portfolio has now underperformed its target index funds over the last five years, earning 7.6% versus a benchmark of 7.7%. PERA officials argue that they have still outperformed the market over the long term, earning 9.5% over the past decade versus a benchmark of 9.1%.
The pension’s unfunded debt climbed to $30.1 billion in 2025 from $28.9 billion in 2024. And its funding status declined slightly to 69.1% from 69.2%.
The silver lining? Just as 2022’s investment losses dragged down PERA’s finances over the last three years as they were gradually absorbed onto the balance sheet, PERA’s recent stock market gains should buoy PERA’s finances for years to come.
“There’s $5.1 billion in the fund that we haven’t recognized yet for the purposes of the valuation,” Ramirez said. “That’s a tailwind that the plan will have over the next few years.”