Colorado PERA’s strong 2025 return did not erase its pension shortfall

Colorado PERA earned a 14.1% investment return in 2025 and ended the year with about $75.1 billion in assets, but its funded status remained 69.1%. Employee and employer contribution rates and retiree cost-of-living adjustments will remain unchanged in 2026 and 2027.

PERA presented the figures Aug. 10, 2026, to the Colorado Legislative Audit Committee alongside a clean financial-statement audit. Auditors issued an unmodified opinion and reported no material weaknesses, significant deficiencies, unresolved recommendations, material misstatements or applicable legal noncompliance, according to the committee hearing.

The audit is not a solvency finding. Auditors said it tests the financial statements, including investment values, actuarially calculated liabilities, compliance with investment policy and the reasonableness of estimates. It does not determine whether PERA can pay every promised benefit.

What 69.1% means

A funded ratio compares the actuarial value of assets with the value of benefits members have earned. At 69.1%, PERA had about 69 cents in actuarial assets for each dollar of accrued liability under its valuation assumptions. The remaining liability is to be covered over time through contributions and investment earnings.

The ratio does not mean retirees are receiving only 69.1% of their promised benefits. It is a point-in-time measure that can change with investment results, payroll, demographics and actuarial assumptions. PERA says Senate Bill 18-200 established a path to full funding by 2048.

That date is a modeled objective, not a guarantee. Colorado law also requires review of whether PERA has at least a 67% likelihood of reaching full funding by 2048. PERA told lawmakers that the probability test and the system’s automatic-adjustment provisions can conflict, so being on track is not the same as meeting a specific probability threshold.

What it means for members and employers

PERA said its 2025 results did not trigger an automatic adjustment for 2026 or 2027. Under the adjustment framework, a deteriorating funding position can eventually lead to higher employee and employer contribution rates and a lower cap on annual retiree increases, within statutory limits. A stronger funding position can allow changes in the opposite direction.

Higher required contributions would affect compensation costs and government budgets. The state also makes a statutory direct distribution to PERA under specified conditions. The available record does not establish that the General Fund would cover the entire unfunded liability, and the financial exposure differs among PERA’s divisions and employers.

PERA reported $5.6 billion in retiree benefit payments in 2025, including about $4.8 billion paid to Colorado residents. The system attributed additional economic activity and tax revenue to those payments, but those estimates were not independently audited.

The assumptions behind the target

The 14.1% return was a one-year market result, net of fees. PERA smooths investment gains and losses over four years. After smoothing earlier results, the 2025 valuation recognized a 5.9% return, below the system’s 7.25% long-term investment-return assumption.

The actuarial presentation said accrued liability rose from $93.9 billion to $97.3 billion and unfunded liability increased from $28.9 billion to $30.1 billion. Higher-than-expected salary increases added to liabilities but also produced more contributions, the presentation said. PERA made no actuarial-assumption or funding-methodology changes for the year.

PERA’s latest detailed annual report located for this review lists other long-term assumptions, including 2.3% price inflation, 3% wage inflation and 0.7% real wage growth. It says the 7.25% investment assumption is net of investment expenses and serves as the long-term discount rate for valuing future liabilities, the 2023 annual comprehensive financial report says. Those inputs are used for long-term valuation, not as predictions of annual investment returns.

PERA planning materials published in 2024 modeled a 51% probability of reaching full funding by 2048 and an 18% probability of being below 50% funded by then. The analysis predates the 2025 return and is not a current forecast.

Investment risks

PERA’s current long-term target allocation is 51% global equity, 23% fixed income, 10% private equity, 10% real estate and 6% alternatives, according to its investment stewardship report. The allocation is designed to balance long-term growth, liquidity, diversification and risk, but leaves the system exposed to market declines, interest-rate and credit risk, illiquid private assets and real-estate losses.

PERA said more than 62% of its portfolio was managed internally in 2025, mostly in global equities and fixed income. It reported $248.5 million in total investment-management costs and said its internal program cost $23.6 million while saving roughly $100 million compared with external management. The savings figure is PERA’s estimate, not an independent audit finding.

Committee members questioned PERA about private-equity exposure to software companies, artificial-intelligence disruption and mobile-home-park investments. PERA said it was monitoring those risks and conducting due diligence. Its chief investment officer identified AI’s reach across the portfolio as a major current risk but said the system’s 30-year-plus horizon does not support trying to time the market by exiting an entire theme.

The 2025 results improved PERA’s asset position without eliminating its funding gap. The clean audit means the financial statements passed the auditors’ tests; it does not resolve the system’s exposure to future investment performance, actuarial assumptions or policy decisions about how shortfalls are funded.