Your PERA Benefits Are Getting a Major Upgrade: Roth Options and Unemployment Credit

The Bottom Line

If you or your employees are part of Colorado's PERA retirement system, the way you save for the future is getting a notable upgrade. This legislation requires all PERA-affiliated employers to offer expanded 401(k) and 457 plans with both pre-tax and Roth options, and uniquely allows workers to buy retirement service credit for past periods when they were unemployed. It's designed to give public workers more flexibility to catch up on their retirement goals after a career gap.

What This Bill Actually Does

To understand this bill, you first need to understand how the Public Employees' Retirement Association (PERA) calculates benefits. Your eventual pension is based largely on your age, your highest average salary, and your years of service credit. Under current law, members are allowed to purchase additional service credit for time they spent working for private employers or out-of-state governments. By paying out of pocket for those years, workers can increase their final pension payout or hit their retirement eligibility date earlier. However, that perk only applied to periods of actual employment.

Sections 1, 3, and 4 of this bill change that standard by introducing the concept of noncovered time. Under the new rules, PERA members can purchase service credit for periods when they were entirely unemployed, as long as they were at least 21 years old during that gap. This is a major shift designed to help workers who had to step away from the workforce—perhaps to raise children, care for an ailing family member, or deal with a long-term layoff—ensure their retirement timeline isn't permanently derailed. To qualify, members generally need to have at least one year of earned service credit with PERA (or five years if the gap counts as "nonqualified service" and they joined the system after January 1, 1999).

The second major half of the bill (Sections 5 through 9) revamps PERA's voluntary investment program. Alongside the traditional pension, PERA offers voluntary 401(k) and 457 savings plans. Right now, PERA-affiliated employers are only mandated to offer the basic, pre-tax 401(k) to their staff. Offering the 457 plan or the after-tax Roth contribution option has been completely optional for local employers. This legislation strips away that opt-out. It formally mandates that every single PERA-affiliated employer must affiliate with the deferred compensation plan and offer both the pre-tax and Roth options across the board, guaranteeing equal access to these tax-advantaged tools for all public workers in the state.

What It Means for You

If you are a Colorado public employee—whether you teach in a local school district, work for the state, or plow snow for a municipality—this bill gives you a much better toolbox for long-term financial planning. The biggest life-changer here is the ability to buy service credit for periods of unemployment. If you took three years off in your thirties to raise your kids, that gap previously meant you'd have to work three years longer to hit your retirement target. Starting January 1, 2027, you can literally buy that time back. You will have to pay the full actuarial liability of that time—meaning it won't be cheap, as you have to cover what the pension system will eventually pay out—but it gives you a guaranteed avenue to retire on your original schedule.

The other massive upgrade is the universal rollout of the Roth voluntary contribution option. If you work for a local government or school district whose HR department previously decided not to offer a Roth 401(k) or 457 plan, you are finally getting access to one. With a traditional pre-tax account, you get a tax break today but pay ordinary income tax on every dollar you withdraw in retirement. With a Roth account, you pay taxes on your contributions now, but the money grows tax-free, and you won't owe a dime to the IRS when you pull it out in retirement. Having both options lets you hedge your bets on where tax rates will be twenty years from now.

Keep in mind that while your employer is required to offer these 401(k) and 457 plans, your participation is entirely voluntary. You don't have to contribute a single cent if you don't want to. But if you are trying to maximize your retirement, you should sit down with a financial advisor or use PERA's online calculators as the 2027 effective date approaches. You'll want to run the math on whether purchasing service credit for your past career gaps makes more financial sense than simply routing that same cash into the newly available Roth 401(k).

What It Means for Your Business

If you own a private sector business—a restaurant, a construction firm, a tech startup—you can breathe easy. This bill strictly regulates the public pension system and does not impact private sector employers or mandate any new retirement offerings for private businesses. However, if you manage a statutory public entity, a charter school, a special district, or any organization that operates as a PERA-affiliated employer, you have some structural payroll updates to prepare for.

Under current law, your organization was only required to offer PERA's tax-deferred 401(k) plan to your employees. Section 8 of this bill removes your ability to opt out of the broader program. By January 1, 2027, you must officially affiliate with PERA's deferred compensation plan. You will be legally required to offer your employees access to both the 401(k) and the 457 plans, and your payroll systems must be configured to process both traditional pre-tax deductions and Roth voluntary contributions.

You have plenty of runway to prepare, but you should start conversations with your payroll software providers and HR teams early to ensure your systems can handle these distinct deduction classifications. The silver lining here is that PERA and its designated service providers handle all the heavy lifting regarding the actual investment management, compliance, and fund administration. Your responsibility is strictly on the payroll routing side. Additionally, the bill specifically notes that offering these PERA plans is "in addition to any other retirement or tax-deferred compensation system" you might already have established, meaning you don't have to dismantle any supplemental 403(b) or private plans you currently use to attract and retain your workforce.

Follow the Money

According to the nonpartisan fiscal note, this bill will cost the state $0 in new expenditures and require no new appropriations. Because state agencies already offer the full suite of voluntary retirement options, their payroll systems don't require an overhaul. Furthermore, the provision allowing workers to buy service credit for periods of unemployment is designed to be completely actuarially neutral; the worker pays a dynamically calculated rate out of pocket that covers the exact projected cost of their future benefit payout, protecting the PERA trust fund from taking a hit.

The only real fiscal friction falls on local governments, school districts, and Denver Public Schools. While there is no direct cash cost imposed by the state, these local PERA-affiliated employers will face an increased administrative workload. Their HR and finance departments will have to spend time setting up the new Roth and 457 plan options, educating employees, and adjusting their payroll systems to ensure the new tax-advantaged deductions are routed to PERA accurately every pay period.

Where This Bill Stands

HB26-1026 is currently Signed Into Law. The latest official action came on 06/01/2026: Governor Signed.

That means the legislative process is complete and the bill is now law. The remaining questions are about implementation timing and how agencies, businesses, or local governments respond.