The state’s retirement system reported an improved investment rate of return of 7.3 percent, though the long-term solvency of the system remains a challenge that could lead to new reforms.

The PERA board is expected to look at changes to its retirement plan in the near future to achieve full funding, which is likely to spark a new controversial PERA debate in the legislature, perhaps as early as next year.

The number of years to fully fund the plan has increased to 75 years for the school division and 55 years for the state division, which is outside the 30-year target set by the board. Under projections from 2015, it would have taken PERA about 40 years to be fully funded overall.

The 7.3 percent rate of return for 2016 marks improvement from the 1.5 percent return on investment seen in 2015 on its $43 billion portfolio at the time, falling well short of PERA’s assumed investment rate of return at the time of 7.5 percent.

PERA officials point out that the overall return on investment at the time outperformed an internal benchmark for anticipated return and the median return for public funds.

The board took its assumed investment rate of return from 8 percent in 2010 to 7.5 percent, and then last November the board dropped it down to 7.25 percent.

The recent “PERA Comprehensive Annual Financial Report” highlighted the addition of $3 billion in net investment income in 2016.

But the average rate of return over the past decade has lagged overall.

Over three years the average return was 4.8 percent; over five years it was 8.5 percent; and over 10 years it was 5.2 percent. Over 35 years, however, the return has been 9.8 percent, which does not include the cost of investing. PERA officials say that over 35 years the rate of return has outperformed its current assumed rate of 7.25 percent.

Since 2010, when the legislature took action on PERA reform with Senate Bill 1, PERA officials have been arguing that the changes need time to work. Reforms at the time included workers taking a hit on their annual cost of living adjustment, while employers increased contributions.

Seven years later, PERA officials are beginning to look at additional reforms to address a $32 billion unfunded liability that is calculated using the board’s assumed long-term rate of investment return. A higher nearly $51 billion unfunded liability figure has been calculated based on a rate of return prescribed by the Governmental Accounting Standards Board, or GASB.

Between the growing number of years to reach full funding and the daunting unfunded liability, PERA board members are preparing for a new conversation about reforms. The board is expected to meet in September to talk about potential changes to the plan.

“Senate Bill 1 was definitely designed to address the issues of the time, but conditions have changed,” said Tara May, PERA’s chief communications officer. “We need to remind ourselves that PERA operates in the real world and we’ve got to be responsive to real world conditions.

“It’s starting to look anew at the dimension of our plan to see what changes need to be made to be responsive to the current environment.”

Everything is on the table in terms of potential changes, including once again looking at modifications to contribution levels from employers and employees, increasing the qualifying age of retirement, and how the plan calculates highest average salary payments, to name a few.

Colorado Treasurer Walker Stapleton, a Republican who is considering a run for governor, has long been calling for the board to take a new look at reforms. Some of the proposals on the table, including raising the retirement age, have been proposed by Stapleton over the past seven years.

Stapleton, an ex officio member of the board who has long been critical of PERA’s performance, has also advocated for a greater reduction in the projected rate of return and lowering cost-of-living raises.

“With the adoption of new accounting standards for public pension plans, PERA’s eroding solvency is laid bare for all to see,” Stapleton said. “The unrealistic return assumptions has resulted in a close to $51 Billion dollar debt and this should be a major concern for both PERA members and taxpayers. This is exactly why I’ve been saying that the time is now to fix this plan before it bankrupts our state.”

As PERA officials prepare to propose changes to the plan, they held a listening tour to solicit feedback from members, business groups and the general public.

Officials say Senate Bill 1 worked in the sense that back in 2009, PERA was predicted to run out of money in 20 years, which is no longer the case. But new challenges have popped up, including that people are living longer and that since 2010 the markets have not produced the same returns as they used to.

“We’re fully cognizant of the fact that PERA is at a point that’s going to require some significant changes,” May said.