The Colorado Public Employees’ Retirement Association is one of 21 state pension funds that are not “fiscally sound,” according to a national investment research firm.

The report, from Morningstar Inc., found that 21 states’ aggregate funded ratios were below 70 percent, the threshold which Morningstar considers a system to be “fiscally sound.” The funded ratio was determined by dividing a pension plan’s assets by its liabilities.

PERA has $26 billion in unfunded liabilities. Lawmakers in 2010 passed a bipartisan piece of legislation that raised retirement ages for government workers, reduced annual cost-of-living adjustments and required increased contributions from government employers and their workers.

The Morningstar study said Colorado’s PERA funded ratio for its state division was 57.7 percent, the number it based its “not fiscally sound” determination on. However, some of PERA’s individual divisions were better off.  The Denver Public Schools fund, for example, was funded at 81.5 percent, while the local and judicial divisions were each at 69.3 percent. The school division fund, however, was only a little better off than the state division, registering at 60.2 percent.

PERA has been continually under fire from some critics for not changing its 8 percent rate-of-return assumption. The fund in 2011 saw a 1.9 percent rate of return, and this month, PERA board members narrowly approved keeping the 8 percent standard.PERA officials contested the findings of the Morningstar report, saying the firm conducted its per-capita analysis only on the state division, getting the 57.7 percent figure. PERA says its overall funded ratio is actually 60 percent.

That would still put it under the 70 percent threshold, though PERA officials say that’s why the 2010 reforms are so important.

 “The Morningstar analysis looks at only the State Division trust fund and draws misleading conclusions about the burden of funding the plan, a particularly concerning conclusion in light of the reforms enacted in 2010,” said Greg Smith, executive director of PERA. “These reforms were recommended by PERA, adopted by the General Assembly and are missing from the Morningstar analysis.

“Recall that Colorado PERA was the first public plan in the nation to recommend comprehensive changes that ensure PERA’s funded status going forward,” Smith said. “These significant reforms, enacted in 2010, must be allowed time to work. Actuarial projections using year-end 2011 data show that the PERA trust funds are on track to be fully funded in 35 years.

“Finally, it is misleading to use a flawed per-capita calculation for liabilities as Morningstar has done because PERA’s liabilities are long term and cannot be made due and payable at once.”   But State Treasurer Walker Stapleton, a Republican who has been a constant critic of PERA’s assumed rate of return, said the Morningstar report was just the latest in a growing chorus of voices agreeing with him.

“It just shows you how fragile a system PERA is and how at some point the state of Colorado is going to have to figure out how to pay for these retirement systems,” Stapleton said.  Incoming state House Speaker Mark Ferrandino, D-Denver, also pointed to the 2010 reforms, saying, “I think we’ve done some steps to definitely move it in the right direction.”

Adjustments may need to be made at some point, he said, adding, though, “There are some who would like to use the economic downturn to take away people’s pensions.”  Eric Brown, a spokesman for Gov. John Hickenlooper, a Democrat, said the governor wanted to monitor the progress from the reforms closely.

“We are committed to changes if the fix isn’t working,” Brown said.

Tim Hoover: 303-954-1626,thoover@denverpost.comortwitter.com/timhoover