Month: June 2014

Strong investment returns position PERA for sustainability, economic impact

Posted on by planeteria

Each year, Colorado PERA releases its Comprehensive Annual Financial Report (CAFR) to provide audited financial information about the state’s retirement plan for public employees. It provides complete, reliable information that the PERA Board of Trustees, PERA staff, elected officials, and the public can use to evaluate PERA’s financial condition. It also demonstrates PERA’s careful stewardship of members’ and employers’ contributions as well as transparency and compliance with legal provisions affecting the plan.

The CAFR is a dense financial document. It is full of fiscal analysis of PERA’s past investment performance, current financial status, and future funding projections. But it contains critical information that demonstrates the strength of the plan’s financial standing as well as potential future challenges that must be managed and limited.

Included within the CAFR released on June 24, 2013, are the investment returns of the PERA funds for 2013. Over the last calendar year, PERA investments earned 15.6 percent. This exceeds the PERA Board’s expected rate of return of 7.5 percent by a substantial margin. Over the last three, five and 10 years, the fund earned 9.9 percent, 12.2 percent and 7.6 percent, respectively. (The last 10 years include the substantially negative-earnings year in 2008.)

In November of 2013, the Board adopted a more conservative outlook on long-term investments and lowered its assumed long-term investment return rate to 7.5 percent from 8.0 percent. As the CAFR shows, PERA investment returns have exceeded this rate over each of these key long-term investment horizons.

The strong 2013 investment returns resulted in $6 billion of investment income. At the same time that PERA has seen these strong investment returns, distributions to PERA retirees have contributed to Colorado’s economy. At the end of 2013, PERA held $43.7 billion in assets, an all-time high for the plan and $4 billion more than at the end of 2012. At the same time, PERA paid out more than $3 billion in distributions to retired public employees living in Colorado.

These retirement distributions in turn drive $4.78 billion in economic output in local communities across the state where PERA members live, work, and retire. Retirement distributions in Colorado sustain nearly 26,000 jobs and generate $282 million in state and local tax revenue. More detail on Colorado PERA’s economic impact may be found here.

There are 547 different employers that are affiliated with PERA including every public school district in the state, agencies of state government, judges, and 146 local governments.

PERA counts members in each of Colorado’s 64 counties and in 2013 paid benefits to more than 100,000 retirees who used to be Colorado’s teachers, prison guards, snow plow drivers, State Patrol officers, and other public employees. Of those retirement distributions, nearly 90 percent went to individuals still living here in Colorado. The average monthly PERA benefit is $3,068 and the median benefit is $2,818.

Importantly, the CAFR includes a full actuarial valuation from PERA’s actuary, Cavanaugh Macdonald. The valuation measures how well the current contributions to PERA from both members and employers position the fund to be able to pay all of its benefit obligations in the future.

In the 2013 CAFR, the actuary notes that “contributions and projected reductions in liability due to benefit structure changes for newer hires are expected to be sufficient to finance the promised benefits.” In short, PERA will be able to meet its benefit obligations in the future so long as contribution increases and benefit changes for new PERA members, which are already outlined in current law, remain in place.

In 2010, the Colorado General Assembly passed landmark legislation, known as Senate Bill 1, to strengthen PERA’s financial position after the Great Recession. As the actuary notes, changes to contribution rates and benefit structures, made primarily as a result of that legislation, will be sufficient for PERA to pay all the benefits its members are owed.

The CAFR also includes a summary of legislation proposed and enacted over the last ten years, such as Senate Bill 1, that addressed PERA’s financial sustainability and levels of funding. In 2014, the Board supported legislation (Senate Bill 14-214) that creates three separate studies that change the state’s total compensation survey process to incorporate retirement benefits; perform a comprehensive study of the current PERA plan design compared to alternative retirement plans; and perform a sensitivity analysis of actuarial assumptions.

For those who would like to dig a little deeper into the CAFR, we’ve prepared this index. For those who would like a shortened version of the CAFR, PERA also creates a Summary Annual Financial Report that is mailed to all members and retirees. Whatever your level of desire for information about PERA’s financial health, it’s always readily available.

More About Social Security Benefit Reductions

Posted on by planeteria

Colorado PERA members who are counting on future Social Security benefits to supplement their PERA benefits are often surprised to learn that their expected Social Security benefits may be reduced because of their PERA membership.

PERA benefits are never reduced when the PERA retiree is also receiving a Social Security benefit.

Social Security has two reductions that apply to PERA members—the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

What is WEP?

The WEP applies to PERA retirees who also receive a Social Security earned benefit, which is paid to a worker who earned enough credits under Social Security-covered employment to qualify for a benefit. The WEP reduction to the Social Security benefit varies based on a variety of factors, so be sure to review the Social Security Administration WEP fact sheet.

According to the Social Security Administration, prior to 1983, PERA members who were not covered by Social Security had their Social Security benefits calculated as if they were earned as long-term, low-wage workers. They had an advantage of receiving a Social Security benefit that represented a higher percentage of their Social Security earnings, plus a PERA benefit from a job where they did not pay Social Security taxes. The Windfall Elimination Provision was passed by Congress to remove that advantage.

The WEP reduces the earned Social Security benefit using a formula that’s based on earnings and payroll tax contributions to the Social Security system.

The WEP does not apply to PERA retirees who:

  • Qualified for PERA retirement before 1986.
  • Have 30 or more years of “substantial” Social Security earnings (see the WEP fact sheet for the annual amounts that Social Security considers substantial).
  • Pay Social Security tax on PERA-covered employment (applies to some local government retirees covered by both PERA and Social Security).

What is GPO?

The GPO applies to PERA retirees who also receive a Social Security spousal or widow(er) benefit. The GPO reduces the spousal Social Security benefit by two-thirds of the PERA benefit and may completely eliminate the Social Security benefit.

As the Social Security Administration explains, a person’s Social Security benefit as a spouse, widow or widower has always been offset dollar for dollar by the amount of his or her own retirement benefit. In enacting the Government Pension Offset provision, Congress intended to ensure that when determining the amount of spousal benefit, government employees who do not pay Social Security taxes would be treated in a similar manner to those who work in the private sector and pay Social Security taxes.

The GPO does not apply to PERA retirees who:

  • Are not receiving or will not receive a Social Security spousal or widow(er) benefit.
  • Qualified for a PERA retirement benefit before June 30, 1983.
  • Received a PERA benefit based on work that was also covered by Social Security on the last day of employment and the last day was before July 1, 2004 (may apply to some local government retirees who are covered by both PERA and Social Security).
  • Will receive a PERA benefit based on work that is also covered by Social Security during the last five years of employment and the last day of employment was July 1, 2004, or later.

WEP and GPO Calculators

Social Security’s website has a WEP calculator and a GPO calculator that can be used to get a general idea about how benefits under Social Security may be impacted by these reductions.