The Art of PERA & Private Employer Planning

Here in Longmont, we have a few primary employers that many people work with: the county or city, the school district, and a variety of private employers in major industries such as healthcare, tech, and aerospace. While these common employers mean we’re also blessed with good schools and a generally well-educated population, it also means that there are several common planning dynamics that we encounter across the hundreds of client households that we’ve worked with. One of the most common that we see is a hybrid of the two primary employer groups: a private industry professional married to someone who works in one of our local governmental functions, whether that be in the St. Vrain Valley School District, the City of Longmont, or other cities within or the county of Boulder itself.

This week, we’re talking about some of the common financial planning dynamics that come up within this type of household, which might benefit you as one of those households or someone you almost certainly know here that looks exactly like this kind of household.

The PERA Side of the Equation

For those working in St. Vrain or among the municipalities here in Boulder County, the PERA pension is a dominating feature of the financial planning landscape. The basic design is rather straightforward: eligible participants must contribute a substantial amount of their wages, and their employer, in turn, will contribute an even larger amount. For example, St. Vrain has faculty and staff contribute 11% of their wages and then adds on an additional 21.4% match, meaning that effectively all of the eligible staff in the school district are saving 32.4% of their income towards retirement. Wow!

But this comes about with an interesting set of dynamics, both for retirement planning and general wealth accumulation. While 11% is a robust contribution rate, it’s not quite as generous as it first appears. The majority of participants in PERA do not pay into Social Security, whereas most private employees pay in 6.2% of their wages (up to the annual earnings cap). In turn, employers normally are contributing 6.2% into social security as well, but not in the case of PERA. In effect, of the 11% paid in, 6.2% would otherwise be paid into social security with a different employer, and the district’s 21.4% would actually be 15.2%. To be clear, 4.8% contributions with a 15.2% employer match is still incredible by all general standards of retirement savings, but it’s not quite as strong as it would first appear.

The other issue that then arises is that PERA uses a unit crediting formula based on the year you started employment with the eligible employer. You have to work for at least five years to be eligible for anything other than a lump sum return, and it’s noteworthy that the lump sum itself receives very little in the way of interest crediting. Effectively, while the pension is very well funded by contributions and matching, the rate of return is awful. That’s not to say anything ill of the income benefit, however, which is rather generous, provided you either work 20+ years and/or retire in a normal 55+ timeframe. Notably, not all years of tenure or ages of retirement are equal. While many “steps” on the assorted tables are about a 2.5% improvement in income year over year, some leaps are as great as around 10% year over year, whether that be crossing a specific age or tenure threshold.

Notably, though, there are some drawbacks to this structure. While PERA offers a surviving spousal benefit for married employees and retirees, for estate purposes, it offers a lump sum, and as noted earlier, the lump sum value is generally not very generous. It is also noteworthy that, while the pension income benefit itself is rather generous, it is, like most defined benefit plans, discriminatory in favor of older workers. That’s not discriminatory in the bigotry sense, but in the actuarial sense. You’re better off working 25 years under PERA from age 40-65 than you are from age 30-55, because while the years are equal, the income benefits will substantially favor the employee who started working under a PERA employer later in life.

In tandem with the age discrimination issue is the observation that while the contribution rate is generally incredible under most PERA-eligible employers, this contribution rate would be much more valuable for younger employees than older employees due to the compounding effects of the time value of money. This then drives the observation that while PERA also offers a 401(k) plan and a 457 plan, many participants in PERA are not adequately paid at the individual level to take full advantage of those features. But we’ll discuss how that can happen here shortly.

The Private Employer Side of the Equation

While the government has made many beneficial programs and exclusions for retirement plans in the public sector, the private sector is often left with a much more restrictive set of compensation options, albeit often these are so generous that it hardly matters! The two most common types of compensation above and beyond wages that we see here in the private sector in Boulder County are a traditional 401(k) plan and Restricted Stock Units and Restricted Stock Awards.

A 401(k) is the traditional defined contribution plan: contribute a percentage, typically 4%-8%, and get an employer match in the same neighborhood. Participants can typically contribute the annual limit ($24,500 in 2026 for those under 50 and $32,000 for those 50 and older), receive their match, and consider that about the sum of their retirement savings other than the 6.2% going into social security with their employer’s matching payroll tax.

The use of Restricted Stock is very typical in our advanced tech employers, which for those unaware, is essentially a cash bonus that vests over a couple of years in the form of company stock rather than cash. An example might be that an employee at Seagate is given a grant of 800 shares, vesting twice a year over 4 years, e.g. 100 shares vesting every six months. If the stock does well during that time then the bonus is getting bigger, and if the stock declines, well, that’s too bad.

Otherwise, we often see equity and stock options compensation in smaller start-up employers, employee stock purchase programs (ESPPs) in mid-size and large employers, and occasionally we see a deferred compensation plan.

What’s noteworthy in all of this is the lack of generalized tax advantages. While the 401(k) contribution might help employees reduce their taxable income by $20,000-$30,000, the other options available to them are all generally going to result in some sort of ordinary income tax or capital gains tax sooner or later, with some exceptions. Thus, tax drag becomes a material issue for those working for these private employers. And while the salaries in the private sector often exceed the public sector by a substantial margin, this still produces a problem, albeit a good type of problem to have.

Solving the PERA & Private Employer Problems Together

So, now we’ve set the stage. We have a public employee under PERA who has rather robust tax planning and retirement savings tools, but seldom the income to take full advantage of them, and a private employee who has great compensation but not as many tax shelters as they’d like. So what to do?

Well, the crux of the solution is how taxes work in the United States. For those who want a quick refresher, you can file taxes single, as head of household if you have dependents, or married filing jointly or separately if you’re married. Consequently, tax planning is an activity that occurs at the household level far more than the individual level, with some limited exceptions that tend to happen in fringe cases that we’re not discussing here. So, if we zoom out for a moment, we can see that the PERA and Private Employer household might actually be able to enjoy the best of both worlds in tax planning.

Let’s imagine a scenario where the PERA employee is earning $100,000 annually and the private employee is earning $200,000 annually. The PERA employee is going to be required to fund $11,000 into the PERA pension, and then has the option of funding more into the 401(k) and 457 plans. In turn, the private employee is not required to contribute to their retirement at all, but should probably make use of it for tax purposes and to obtain any available employer matching. If each participant in the household thinks of their retirement savings in isolation, they might be tempted to say that they should “save 10% of their income.” This might lead the PERA employee to save nothing into their available retirement plans, or maybe $10,000 if they’re feeling good about retirement savings ($21,000 in annual savings against $100,000 of income isn’t bad, after all!) In turn, the private employee might think that almost maxing out their 401(k) plan with $20,000 in contributions is a solid-enough saving strategy.

The net result of this plan? They’re saving 14% of their income, and their effective income taxes combined are $49,982. Not great, not terrible, but a generally good savings rate and a not-awful income tax rate. But what happens if we attempt to maximize the tax-saving options available to them? If the couple instead elects to maximize the tax savings available at the household level, they can contribute a combined $84,500 to pre-tax retirement accounts ($24,500 to the PERA 401(k) and 457 each, $24,500 to the private employer 401(k) plan, and still $11,000 going into the PERA pension). By doing this, the household’s taxes due decline to $38,194 for the year, but their savings rate has increased to 28.16% before employer matching. So not only has their annual tax liability declined by $11,788, but they’ve increased their wealth-building allocation by $43,500.

Secondary Effects of PERA & Private Employer Planning

There are some common secondary effects this type of tax and retirement planning can create. As mentioned earlier, many private employers in this area offer stock-based compensation in addition to base wages and retirement plans. Depending on the nature of the stock-based compensation, the income from such compensation can be recognized as a combination of ordinary income, short term, or long term capital gains; the latter of which enjoys preferential tax treatment during both working and retired years. Consequently, pushing more money into the pre-tax retirement basket can reduce income to attain preferable tax rates for the distribution or realization of profits from long-term capital gains accounts.

Another issue that has recently improved is the spousal benefit under Social Security. For married couples, a benefit less often known is that spouses can receive a benefit equal to half of their partner’s benefit rather than their personal benefit calculated from their own earnings. Ostensibly, this was planned to help with single-earner households at the inception of social security (from a time in which couples were typically a breadwinner and a homemaker rather than two working professionals). But, until the passage of the Social Security Fairness Act of 2025, there was a provision in which a working spouse was only eligible to take a severely discounted spousal benefit if they personally had been paying into a program like PERA rather than Social Security.

The Social Security Fairness Act of 2025 did away with this, making it a viable strategy that a married couple could deliberately split their careers into a combination of public and private, receive their full individual pension and social security benefits respectively, and then still enjoy a full spousal benefit in addition, where previously they’d only receive their individual benefits in any material sense. This change also extends to survivors’ benefits, improving the income of spouses in this dynamic, should one member of the household pass away.

Case Studies are Simple – Life is Complex

The case study in planning we’ve presented here is fairly straightforward. Couples combine their income, max their retirement savings, and enjoy less taxes and higher wealth building throughout their working years. Were life only so easy! While as financial planners we enjoy a simple solution for a complex problem, we recognize that this case study ignores differences of age, duration of working years, health, children, family dynamics, career preferences, and overall happiness. In recognition of this, we would succinctly say that there is no one-size-fits-all solution for life’s problems. But, if you’re one of the tens of thousands of couples that fits this particular mold, here’s one financial strategy that can pay huge dividends over a lifetime, and we hope it can help.