The retirement system for Colorado state employees lost $1.8 billion on investments last year, meaning its working participants will soon begin paying in more and retirees will receive less.

Colorado’s Public Employee Retirement Association serves some 585,000 current and retired public employees, including teachers, prison system employees, state troopers and some municipal workers.

According to Colorado PERA’s annual report, the value of the agency’s investment portfolio declined 3.5% in 2018 from the previous year.

It was PERA’s first overall loss on investments in a decade, largely a result of sagging markets late in 2018. Stocks made a turnaround early this year.

PERA said its rate of return on investments over the last three years was 6.9%, and over the last 10 years was 8.8%.

The bleak investment news comes after the state legislature last year passed Senate Bill 200, a 30-year plan to fill a $32 billion shortfall in the pension, which pays out more money than it takes in.

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SB 200 called for taxpayers to pump $225 million annually into the fund to help shrink its unfunded liability, while reducing some benefits and eligibility requirements.

It also established “guardrails” triggering changes in worker contribution and retiree payout levels to help cushion the blow of poor investment performance.

With the investment losses, PERA-covered employees will be asked to contribute more to the fund — an extra 2.5%. And what was to have been a 1.5% cost-of-living increase for retirees starting in 2020 will be scaled back to 1.25%.

Ron Baker, PERA’s executive director, told Colorado Politics that it was unfortunate the market downturn landed at the end of the year because of the way PERA makes its calculations.

“The last quarter of 2018 was particularly tough, so it drew down the whole fund’s rate of return,” he said.

“We’re a long-term investor,” he added, noting that the adjustment hit particularly hard because PERA pegs its measurements to the calendar year. “We’ll know each year as we measure the investment markets and the demographics.”

Baker was named PERA’s executive director last August following the death of Greg Smith.

“As bad as this is, having to reduce benefits and increase contributions, this was part of the guardrails of the bill [passed by the legislature last year], so if we have a year like this, we can make adjustments and stay on track,” Baker said.

If PERA’s investments perform spectacularly in coming years, he added, “we’ll have the ability to return back — it works in both directions.”

Colorado State Treasurer Dave Young, a PERA board member, said it hadn’t come as a surprise that the retirement fund’s investments took a hit at the end of the year.

“The last quarter in the market in 2018 was brutal for everybody that was in the market,” he said. “PERA’s not alone in seeing some decline. If you study any pension or any organization that has money invested, they will all articulate that they saw a decline.”

He noted that the state treasury’s pool of state funds doesn’t invest in equities, so was more stable, “but in the big picture there’s going to be times when the market goes up and there’ll be time when the market goes down. I think you have to kind of take a step back, because what we’re really trying to do is make sure we have a sustainable fund that is improving toward full funding.”

Like Baker, he stressed that there will be years when there could be an opposite adjustment – an increase to benefits and decreased contributions.

“We want to make sure there’s a sustainable retirement there for people when it comes time for them to retire,” Young said.

“It’s like driving down the road making sure you’re staying in the lane – you get to your destination in the long run.”

Ernest Luning, Mark Harden and Erin Prater of Colorado Politics contributed.