The Senate Finance Committee approved the plan after sponsors said without changes, it could run out of money in 20 years.
It had support from school executives, unions and many retirees who told lawmakers they realize the dire consequences of not reaching a compromise.
The deal was brokered by Senate President Brandon Shaffer, D-Longmont, and Senate Minority Leader Josh Penry, a Republican from Fruita, who said they have a responsibility to make sure state employees who pay into the Public Employees Retirement Association will be able to collect their retirement when they retire.
They noted many participants in the plan do not get Social Security.
The measure (Senate Bill 1) would increase contributions from employers by 1.5 percent, contributions from employees by 2.5 percent and reduce cost of living increases from 3.5 percent to 2 percent. There would be a one-year cost of living time-out tied to inflation to give the fund time to recover.
The average retirement age would be raised to 58 with 30 years of service.
A report to the Legislative Audit Committee last July said PERA's assets fell from $41.4 billion in December 2007 to $29.5 billion in July because of the economic crisis caused by the stock markets. The report warned that PERA faces $27.5 billion in unfunded liabilities.
Once the fund becomes solvent, PERA would reduce required contributions and increase benefits.
About 450,000 teachers, police officers, park rangers and other state employees are covered by the plan.
Meredith Williams, PERA's executive director, said the board supports the compromise because it shares responsibility for fixing the problem, provides long-term stability, preserves a defined benefit plan and affects each retirement group equally.
"There is shared pain here," he told lawmakers.
Gary Justus, a retired math teacher, said the proposed solution does not add up. He said 90 percent of the solution will come from retirees who are being asked to give up benefits and cost of living increases that could add up to hundreds of thousands of dollars each over their lifetimes.
"This is a huge hit on retirees," he said.
Connie Anderson, an 81-year-old retired teacher in a wheelchair suffering breathing problems, said she supports the rescue plan. She said she depends on her retirement checks to survive.
"Please find an answer to the problem," she said.
(Copyright 2010 by The Associated Press. All Rights Reserved.)