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

What This Bill Actually Does

Right now, if you are a member of the Public Employees' Retirement Association (PERA), you earn service credit for every year you work. When you hit a certain number of years, you get to retire and draw your pension. Under current law, if you had a previous job in the private sector, you are allowed to "buy" service credit for those years to help you reach your retirement finish line faster. But what if you took a year off to care for a sick parent, raise a child, or simply couldn't find a job? You were out of luck.

HB26-1026 changes that math. Sections 1 and 4 of the bill rewrite the rules on what the state calls noncovered time. If this bill passes, PERA members will be allowed to purchase service credit for periods of prior unemployment, as long as they were at least 21 years old at the time. You still have to pay the actuarial liability for that time—meaning you are paying the true mathematical cost of your future payout, so it doesn't drain the retirement fund—but it gives you the option to buy back those gap years and retire on your own terms.

The second major half of this bill, found in Sections 5 through 9, tackles the voluntary investment program. These are the extra retirement accounts (like a 401k or 457 plan) that public workers can contribute to on top of their standard pension. Currently, PERA-affiliated employers are required to offer a standard, tax-deferred 401(k), but they don't have to offer the 457 plan or any Roth (after-tax) options. This legislation legally mandates that all PERA employers—including school districts and local governments—must affiliate with the deferred compensation plan and offer their employees both pre-tax and Roth options for their voluntary contributions.

What It Means for You

If you are a teacher, state trooper, city worker, or any other professional paying into PERA, this bill is a direct upgrade to your financial toolkit. The ability to buy service credit for periods of unemployment is massive. Think about it: if you took two years off in your late twenties to raise a toddler, those two years previously pushed your retirement date back by two years. Under this new law, once you have at least one year of earned PERA service, you can pay to "fill in" that gap. Be aware, though—buying service credit is expensive. You are paying the projected future value of that benefit, but having the option to do it gives you tremendous control over your retirement timeline.

The addition of mandatory Roth voluntary contributions is equally important, especially if you are younger or believe tax rates will be higher when you retire. With a traditional tax-deferred plan, you get a tax break today but pay taxes on the money when you withdraw it in retirement. With a Roth option, you pay taxes on the money right now, but it grows completely tax-free, and you won't owe the IRS a single penny when you pull it out at age 65. Until now, whether you had access to a Roth plan depended entirely on whether your specific school district or local government bothered to set it up.

Here is what you should do to prepare for these changes:

• Audit your resume: Jot down the exact dates of any periods of unemployment you had after turning 21. Once the law takes effect, you can contact PERA to request a cost estimate for buying that time.
• Check your current pay stubs: See if your employer currently offers a Roth 401(k) or Roth 457. If they don't, you can start planning to adjust your tax strategy for January 1, 2027, when these options become mandatory.
• Consult a financial planner: Buying service credit vs. investing in a Roth account requires running some numbers. Sit down with a professional to figure out which option actually yields the highest return for your specific situation.

What It Means for Your Business

If you run a private, for-profit business—like a construction firm, tech startup, or restaurant—HB26-1026 doesn't regulate your workplace at all. You don't have to change your payroll or update your employee handbooks. However, you should view this bill as critical competitive intelligence. The public sector is fundamentally modernizing its benefits package. If your company's 401(k) plan doesn't currently offer a Roth option, you are falling behind what will soon be the legally mandated baseline for every public school and local government in Colorado. To attract and retain top talent, you need to make sure your private benefits keep pace.

On the other hand, if you are a PERA-affiliated employer—such as a charter school, a local water district, a library district, or a municipal government—this bill is going to require some immediate operational changes. Sections 8 and 9 legally require you to affiliate with PERA's deferred compensation (457) plan. You can no longer opt-out. Furthermore, you will need to overhaul your payroll systems to handle four distinct types of voluntary deductions: tax-deferred 401(k), Roth 401(k), tax-deferred 457, and Roth 457. The bill explicitly requires you to remit these employee contributions to the state within five days of payroll.

Here are the action items you need to put on your radar this week:

• For PERA-Affiliated Employers: Contact your payroll software provider or third-party HR administrator. Ask them if your current system is configured to handle split-tax treatments (pre-tax vs. Roth) and whether it can accurately route those specific file formats to PERA within the strict five-day window.
• For Private Business Owners: Call your 401(k) plan administrator and ask what it would take to add a Roth contribution option to your existing plan. It's usually a simple administrative toggle that costs you nothing as the employer, but it is a massive selling point for new hires.
• Mark your calendars: The compliance deadline for these new PERA mandates is January 1, 2027, giving you plenty of time to get your back-office systems sorted out.

Follow the Money

Here is the part that taxpayers will love: the official fiscal note projects exactly $0 in state expenditures and $0 in state revenue changes. Why? Because the State of Colorado already offers these Roth and 457 options to immediate state employees. Expanding the mandate to local PERA affiliates doesn't cost the state government a dime. Furthermore, the new provision allowing workers to buy service credit for unemployment is specifically designed to be cost-neutral to the PERA trust fund. The employee who wants the credit has to pay the full actuarial cost of the future benefit—meaning the math balances out without burdening the pension system.

The real financial and administrative burden falls entirely on local governments and statutory public entities (like school districts and local municipalities). While there is no direct cash appropriation required, these local employers will have to absorb the HR workload of setting up these new plans. If a rural school district or a small fire authority relies on legacy payroll software, upgrading their systems to handle new Roth and 457 deductions could require consulting fees or software upgrades. However, these are localized, administrative costs rather than a statewide taxpayer burden.

Where This Bill Stands

HB26-1026 is currently gliding through the Capitol with zero friction. It was introduced in the House on January 14, 2026, and faced its first major test in the House Committee on Finance on February 9, 2026. The committee liked it so much they referred it unamended directly to the Appropriations Committee.

Because the bill has a clean fiscal note showing zero cost to the state budget, its trip through the Appropriations Committee should be a mere formality. Expect this legislation to hit the House floor for a full vote very soon. Assuming it passes both chambers and gets the Governor's signature, the new rules and employer mandates will officially take effect on January 1, 2027.