Month: October 2015

Ten Things to Know Before You Retire

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The Denver Post, Forbes magazine, U.S. Department of Labor, and the Center for Retirement Research at Boston College all provide lists of things to think about to best prepare for retirement.

So what should the “average person” know and do to prepare for retirement? A quick search of the Internet alerts readers to countless prescriptions for retirement planning. These articles have distilled the retirement preparation process into a number of “easy” steps. Like with a medical prescription, when it comes to retirement preparation, following the label instructions through the full course of treatment – until and into retirement – is most likely to ensure a satisfactory outcome.

Here’s the PERA on the Issues list of steps to take to prepare for retirement:

Step 1. Define your retirement dreams. From simple to exotic, retirement dreams come in all shapes and sizes. For some, spending retirement at home with children and grandchildren or volunteering in the community may be just what the doctor ordered. For others, retirement may mean starting a new career, perhaps at a different pace. Or maybe sailing off and settling in a South Pacific paradise? The importance of defining life after work is the first step.

Step 2. Look at the price tag. Here’s where the balance sheet begins. How much will it cost? Not much is going to be free, but some items may be discounted. Most people want to take advantage of discounts wherever possible. That may make more dreams possible to be fulfilled. At a fundamental level, is retirement even possible? The Employee Benefit Research Institute’s 2015 Retirement Confidence Index reports workers’ increasing confidence in their ability to pay for retirement, including an 8 percent jump in those who are very confident in their ability to pay for basic expenses (up from 29 percent in 2014), a 6 percent increase in those very confident in their ability to pay for medical expenses (up from 12 percent in 2011), and a 5 percent increase in those very confident they will be able to pay for long-term care expenses (up from 9 percent in 2011).

Step 3. Find the discounts. Prices are one thing, but being creative can reduce the cost of retirement. What tax breaks, exemptions, and exclusions are available? In Colorado, retirees benefit from pension income exclusions up to certain levels and age restrictions. In addition, Colorado has provisions for a Homestead Exemption and certain senior tax work-off programs that may reduce property taxes. How about auto and home insurance discounts? Ever think about forming an informal purchasing cooperative with friends or neighbors to divide up a large quantity of commonly used items? Are there more advantageous times during the year to make certain purchases or to book a vacation or cruise?

Step 4. Add it up. Sum up resources and debts. Social Security, retirement plans, tax-deferred accounts (401(k), 403(b), 457, IRAs), Roth accounts, personal investments, and savings need to be assessed. What kind of debt such as a mortgage, a car, or child college expenses are on the other side of the balance sheet?

Step 5. Build a realistic plan. Designing a plan is both the easiest and the hardest task all at the same time. Be realistic and stay on track. The plan should put lifestyle and resources in context. This may involve making decisions and choices and building priorities. Developing a budget is a fundamental step in fitting all of the “to-do” list items into the available resources. Some expenses in retirement will completely go away or be reduced (such as a work wardrobe) and other expenses (like health care) will increase.

Step 6. Do a financial and lifestyle dry run. Lots of financial planning advice has included taking the plan and implementing some of its components before retirement actually takes place. Is it affordable? Are these activities enjoyable? Perhaps now is the time to have a reality check.

Step 7. Think about what can get in the way. Temporary or permanent changes can and likely will happen at some point in retirement. Medical, family, and financial issues can occur at almost any point. Preparation is the key. Having a contingency plan is mandatory. Medical history may be a good indicator of good and bad things to come. Aging parents and their need for care may interrupt best laid plans. Financial resource protection must be monitored and modified based upon economic cycles.

Step 8. Get some advice. While many like to “go it alone,” some well-placed counsel can answer a lot of very practical questions about every aspect of retirement from financial advice to “happening” things to do in the community. Certainly, the advice from a qualified and trusted financial advisor can identify all sorts of tax-saving strategies and investment products designed for retiree wealth protection. But remember, buyer beware.

Step 9. Get ready to do it. Retirement preparation includes wrapping up current business affairs and staging the next chapter. Just like the hand-off in a football game, in an employment situation, the critical component to success is preparing to give the ball to someone else. Executing this well can be the capstone of a rewarding career and build the foundation for the future success of the organization you leave.

Step 10. Periodically review and possibly revise the plan. Robert Burns said it so well in his 1786 poem, To a Mouse:

In proving foresight may be vain:
The best laid schemes o’ mice an’ men
Gang aft a-gley, [often go awry].

Retirement preparation includes the foreknowledge that any plan must be flexible to adjust to new realities. Health, investment return, unforeseen bills, or loss of a spouse or partner might change the current picture.

After all, living life is the process of continuously adjusting. Thinking now about retirement and how to make it happen means it will be more likely to see a retirement dream as day-to-day life after retirement.

The Importance of Understanding Investment Fees

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One of the formative lessons of investing is that fees, no matter the amount, can meaningfully reduce returns. Using both internal and external asset management, Colorado PERA’s Board of Trustees and management have built an investment portfolio and strategy that seeks to maximize returns and minimize risk while keeping fees low.

Individuals investing for retirement most often encounter fees in IRAs and 401(k)-type defined contribution plans through mutual funds. Fees for mutual funds are levied in several different ways, all of which should be reviewed and understood by a potential investor. External investment management fees include those associated with individual transactions, such as an initial investment, and ongoing operating expenses of an investment manager. The former are referred to as “shareholder fees” and the latter are called “annual fund operating expenses” and can be found (per the U.S. Securities and Exchange Commission’s requirement) in the table located at the beginning of a fund’s prospectus. More information on fees is available on the SEC’s Web site.

The Employee Benefits Security Administration within the U.S. Department of Labor provides an example of the impact of fees on a retirement investment portfolio as follows. Assume that an employee with 35 years until retirement and a current 401(k) account balance of $25,000 could average investment returns of 7 percent. Fees and expenses would then reduce those average returns by 0.5 percent, leaving the employee with an account balance equal to $227,000 even with no further contributions to the account. However, if the fees and expenses were 1.5 percent, the account balance would only grow to $163,000 by retirement. The 1 percent difference in fees and expenses in these two examples would reduce the employee’s account balance at retirement by 28 percent.

Of PERA’s more than $40 billion in investable assets, approximately $30 billion is allocated to publicly traded stocks and bonds. PERA manages a significant portion of these assets in-house with savings upwards of 75 percent of costs that would have been incurred if outsourced. To illustrate the point, assume PERA could invest $400 million in either an externally managed fund that pools the assets of multiple investors (like a mutual fund) or a fund internally managed by PERA’s investment team. Assuming the $400 million was allocated to 70 percent stocks and 30 percent bonds, the average external management fee would be 0.53 percent or $2.1 million. Using PERA’s internal investment management, costs would be 0.14 percent of assets, or $548,000. Expanding this methodology to the entire PERA portfolio, internal management saves PERA more than $25 million every year compared to the cost of external management.

Owing to the cost savings and the competitive performance of PERA’s investment staff, more than 55 percent, or greater than $23 billion of the total investment portfolio, is managed internally. However, PERA’s Board of Trustees also recognize that there are circumstances where an external manager is warranted due to unique elements of the investment. External managers are hired for numerous reasons; they may have deeper resources in smaller, niche markets such as international emerging markets, or they may have particular strategies that complement PERA’s internal portfolios. PERA measures external manager results after taking into account management fees. External and internal managers are held to similar performance standards. The goal is to deliver optimal returns while accounting for risks and manager fees.

PERA’s total cost to manage the $40 billion in member assets has averaged 0.40 percent of assets over time. The advantage PERA has as a large institutional investor benefits PERA members, their employers, as well as taxpayers, while providing secure retirements for the public employees who enhance Colorado’s quality of life.

A Voice in the National Health Care Conversation

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The Public Sector HealthCare Roundtable 

Today, health care has become a critical topic and more than ever, it is important for purchasers of health care to have a strong voice in that national conversation. The Colorado Public Employees’ Retirement Association (PERA) began providing access to health care for pre-Medicare and Medicare-eligible retirees and benefit recipients in 1986. The program, now known as PERACare, currently provides coverage to over 86,000 individuals through a number of medical, dental and vision insurers and also offers health care coverage to active employees of participating PERA-affiliated employers.

As a large, public-sector health care purchaser in Colorado, it is essential for PERA and similar organizations to have a voice in the national health care discussion. The Public Sector HealthCare Roundtable, was formed in 2005 as a coalition of public-sector health care purchasers and provides these purchasers an avenue through which to inform and influence national health care policy.

The Roundtable is governed by a Board of Directors elected by its membership. In addition to PERA, members of the Roundtable include some of the largest public pension funds around the nation, such as the California Public Employees’ Retirement System (CalPERS), the Ohio Public Employees Retirement System (Ohio PERS), and the Employees Retirement System of Texas (Texas ERS). Other member organizations that represent the interests of public-sector employees and retirees include Aetna, Aon, CVS/Caremark, Express Scripts, and Humana. The Roundtable holds an annual conference in Washington, D.C., providing a forum for its members and other health care industry leaders to discuss current issues in health care affecting public-sector employers and employees.

Goals of the Roundtable’s are to accomplish the following:

  • Educate policymakers about the unique characteristics of public health care purchasers
  • Influence national debate for improved health care quality and cost reduction
  • Reduce unsustainable health care cost trends
  • Reduce costs for individual participants
  • Share knowledge and expertise to make health care more efficient and cost-effective
  • Speak effectively as a collective voice for public sector health care purchasers

The Roundtable’s Call to Action asks state and local governmental entities responsible for public employee and retiree health programs “to become active participants in the national debate over reform of the long-term structure of the nation’s system of healthcare by (1) quantifying the nature and extent of their healthcare services; (2) developing specific current and projected cost estimates associated with them; (3) describing successful strategies that have been developed and implemented with regard to best practices and cost containment in the public sector; (4) identifying issues unique to purchasers/administrators of public employee and retiree healthcare; and (5) ensuring that all elected officials at every level of government are provided with this information and an explanation of its implications for increased access to healthcare, improved quality of care, managed and equitably distributed costs, and simplified administration and delivery of services.”

Thomas Lussier, administrator of the Roundtable states, “Today, it’s more important than ever for public sector purchasers to work together to advance public policies that improve quality and preserve the sustainability of public employee health benefits.”

Organizations such as the Roundtable are of vital importance to PERA and provide a way to participate in the national and state health care discussions and develop strategies to deliver the best care possible to members and retirees.

As an example, an important strategic initiative for PERA is helping the membership to better understand the costs in health care. The current payment model in health care can result in significant discrepancies in the actual cost of a procedure. According to a recent study by the Blue Cross Blue Shield Foundation, the cost for a total knee replacement surgery varies between $11,000 and $69,000 across the country. PERA has seen a similar scenario in Colorado, with the cost of hip or knee replacement procedures varying by up to $40,000.

In an effort to control costs and offer savings to the PERA membership, PERA recently launched the PERACare Select program, which provides access to high quality knee or hip replacement procedures with fixed prices to members in an Anthem pre-Medicare plan through PERACare. The PERACare Select program sets fixed prices for surgery and medical services related to hip and knee replacement procedures – from intake to discharge – and greatly reduces, eliminating in some instances, any cost-share for participants.

As a member of the Public Sector HealthCare Roundtable, PERA can share lessons learned in developing the PERACare Select program and support other public-sector health care purchasers, which may be implementing similar innovative programs.

As part of PERA’s mission to serve the membership in the best way possible, PERA continues to develop innovative strategies, be an active participant in legislative issues, and work with other industry leaders to provide quality and value to members and retirees through funding, investment, health care, and other areas.

Diamonds, the United Nations, and Retirement Planning

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What do a diamond, the UN, and preparing for retirement have in common? They are all examples of when rational thought has been hijacked by a process known as anchoring. The field of Behavioral Finance has chronicled the power of anchoring since the 1970s. Anchoring leads otherwise reasonable people to make irrational decisions that can result in their financial detriment. The danger is best explained by the situations described below.

Diamonds

The conventional wisdom has people spending two months’ pay for an engagement ring. If a potential newlywed makes $50,000 a year, by the two months’ pay rule, the ring should cost $8,300! For anyone living paycheck to paycheck (most of us), this is an unreasonable if not irrational amount to spend on an engagement ring. This mental shortcut anchors the decision-making of potential newlyweds into spending much more than they might be able to afford, especially when research shows most Americans have less than $1,000 in savings.

Two months’ pay for a ring has no basis in responsible financial behavior; in fact, it was part of an ad campaign by the De Beers mining company to increase diamond sales.

The United Nations

Behavioral economists Daniel Kahneman and Amos Tversky were the first to illustrate the power of anchoring in decision-making. In 1974, experiment subjects were asked to estimate the percentage of African countries represented in the United Nations in relation to a number spun on a wheel. When participants spun a 10, the median estimate was 25 percent; when they spun a 65, the estimate went to 45 percent. This example demonstrates that people determine a value based on a preconceived baseline and then adjust away from it by anchoring on the original amount.

Retirement Plans

Anchoring can also undermine your retirement savings when it comes to choosing how much to save. Many employer defined contribution plans have set up auto enrollment, but anchored the default rate too low at 3 percent. Regardless of the default savings rate, plan participants anchor to it in overwhelming numbers. With or without auto enrollment, other anchors include saving the minimum, the maximum, as much as the match, or what coworkers do.

None of these shortcuts in decision-making inform how much someone would need to save to reach a financial goal in retirement. The decision errors are understandable. Estimating retirement savings is a complex task, and easily pushes beyond the limits of nearly all savers’ expertise.

Anchoring occurs when, one way or another, we have a preconceived starting point when trying to calculate how to move forward. This could be that a diamond ring ought to be worth two months’ salary. Or it could be that 3 percent of every paycheck is a good place to begin saving for retirement. And, unfortunately, even if we have been warned about anchoring, it still happens.

The best guard against anchoring is an awareness of when we step outside the limits of rational decision-making. Outside those limits we are most vulnerable to anchors that are sinking our retirement accounts.

For defined benefit plan participants decisions are streamlined, and stay within reasonable boundaries of knowledge. The shift to defined contribution plans over the years has added complexity without a corresponding increase in expertise from plan participants, leaving everyone vulnerable to insufficient savings in retirement.

PERA’s Defined Contribution Plan and voluntary 401(k) and 457 plans include advice tools (at no additional cost) which help inform how much to save to reach a certain goal and what funds to consider given a participant’s risk tolerance and investment time horizon. Advice tools go a long way toward restructuring decision-making from irrational and reflexive back to rational and deliberate – and can help eliminate the problems associated with anchoring.

Retirement Roundup: Retirement Investors, Riding Out the Panic

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A digest of timely information and insight about finance, investing, and retirement.

Retirement investors, riding out the panic | The New York Times

Back in August, as the stock market plummeted, a steady-as-she-goes attitude of many retirement fund investors contrasted sharply with the behavior of investors who, on cue, pulled billions out of stock funds to retreat to cash. Investors panicked, but retirement investors appeared to be a big exception.

The history of downturns holds some timeless lessons. The boring, passive approach of buy and hold has provided rewards in the stock market, but only for those people able to take the long view and hold on during stormy times.

The biggest reason workers don’t save for retirement | The Wall Street Journal

Only about half of American workers are saving for retirement through their workplace. And according to the Government Accountability Office, it’s largely because their employers do not offer savings plans like a 401(k). Those who either don’t have a retirement plan at work or don’t participate are more likely to be lower-income, less educated and to work for smaller firms. A report released by the GAO suggests that more people would take part in retirement plans if more were offered. That could help more people be better prepared for retirement and avoid relying on government programs.

Financial distraction confuses benefits decisions | Plan Sponsor

Four in 10 Americans admit knowing little or nothing about their employee benefits, according to the 2015 MassMutual Employee Benefits Security Study, part of an initiative to help educate workers about their employer-provided benefits. Millennials, Gen Xers, parents and low-income Americans find it difficult to manage finances, and 40 percent say issues with personal finance distract them while they’re at work.

Preparing for retirement with a disabled child | U.S. News & World Report

Planning for retirement is complicated, no matter what your situation. But if you have a severely disabled child for whom adulthood won’t necessarily mean financial independence, it’s even more complex. While the best bet is to consult with an experienced financial planner who can give specific advice, general tips may still apply. [Learn more about Colorado legislation supported by PERA to help PERA retirees with disabled children.]

Research reveals Social Security knowledge gap | Plan Sponsor

Close to 100 percent of Americans could lack critical information about how to get the most from their Social Security benefits, according to a survey consumers and Certified Financial Planners conducted jointly by the AARP and Financial Planning Association.

Retirement savers must plan for health care sticker shock | Benefits Pro

Couples expecting to retire this year can expect to spend nearly a quarter of a million dollars in out-of-pocket health care costs throughout their retirement.

Correcting the Math on the Windfall Elimination Provision

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On October 1, the Social Security Advisory Board (SSA Board) released a position paper describing a proposal to modernize the formula used to calculate Social Security benefits, “The Windfall Elimination Provision: It’s Time to Correct the Math.”

In the paper, the SSA Board recommends that beginning in 2017, Congress change the current Windfall Elimination Provision (WEP) formula to one that uses actual earnings data. The report states that data-based approach would be more fair for all workers and could be communicated to affected employees in a way that is more straightforward and easier to understand.

The position paper criticizes the current WEP formula, arguing that “it does not work as it should for people who work part of their careers in jobs not covered by Social Security.”

In 2017, Congress will have access to 35 years of data on earnings from covered and non-covered employment since WEP was implemented in 1983. A new formula could be applied to benefits of all retired worker and disabled worker beneficiaries newly eligible for benefits after December 2016.

Under this approach, a replacement rate would be calculated using both covered and non-covered earnings. Two workers with the same earnings, one from work that is all covered by Social Security and one from work that is only partially covered by Social Security, would have identical replacement rates of covered earnings, which is a fair outcome.

Representatives Kevin Brady (R-TX) and Richard Neal (D-MA) co-sponsored Congressional legislation introduced earlier this year that uses a proportional “Public Servant Fairness Formula” for beneficiaries with non-covered employment.

The Social Security Advisory Board recommends implementation of the new proportional formula. “Congress should change the WEP so that replacement rates are based on total earnings, regardless of whether they are from covered or non-covered employment,” the position paper states. “The process will appear to be and, in fact, will be more fair.”

The Social Security Advisory Board was created in 1994 when Congress passed legislation establishing the Social Security Administration as an independent agency. The seven-member bipartisan board advises the President, the Congress, and the Commissioner of Social Security on matters related to the Social Security and Supplemental Security Income (SSI) programs.

The SSA Board plans to release a future paper discussing the Government Pension Offset.

PERA encourages members and retirees to let their elected officials at the federal level know how the WEP and GPO have or will impact them.

Read more about the proposed WEP legislation on PERA on the Issues.

Key PERA Features Make Colorado’s Largest Retirement Plan Efficient and Effective

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Even short-term public employees benefit from PERA’s unique plan design.

As the state’s largest retirement plan, Colorado PERA sees its fair share of news headlines. But to make sense of the issues affecting PERA, it’s often important to go beyond the headlines and understand how PERA works for its members, retirees, public employers, and Colorado taxpayers.

In July, the Colorado Office of the State Auditor released an independent evaluation of PERA comparing the costs and effectiveness of PERA’s defined benefit plan to alternative plans in the public and private sector.

Nationally recognized actuarial firm Gabriel, Roeder, Smith & Company (GRS) looked specifically at PERA’s Hybrid Defined Benefit (DB) Plan and compared it to alternative plans in the public and private sectors. Their evaluation came to the overall conclusion that “Colorado’s largest public employee pension system is the most efficient and effective a state could have,” as GRS officials told members of the Legislative Audit Committee in July of 2015.

The GRS report includes information on PERA’s membership as well as the costs to members and employers. It also outlines the benefits that members receive including a monthly retirement benefit as well as ancillary benefits like disability and access to health care for retirees.

Colorado PERA offers the retirement plan of choice for the state’s public workers. At its core, PERA acts on behalf of its 500-plus employers who have opted to offer their public employees a hybrid defined benefit retirement plan rather than Social Security. A smaller number of PERA members also have an option to choose the PERA Defined Contribution (DC) plan instead of the Hybrid Defined Benefit Plan. Like Social Security, the PERA hybrid plan design includes disability and survivor benefits. All members contribute at least 8 percent of every paycheck to their own unique accounts which currently earn 3 percent interest. Members who leave PERA-covered employment before retirement receive employer matching contributions under applicable vesting schedules, which is very similar to many defined contribution plan designs.

The PERA Hybrid Defined Benefit Plan had over 529,140 total members as of December 31, 2014 The chart below breaks down PERA membership by active members, retirees and beneficiaries, inactive vested members (with five years of service or more) and non-vested inactive members (with less than five years of service).

PERA offers a monthly benefit, for life, at retirement. Participants in the PERA Hybrid Defined Benefit plan are eligible for a monthly retirement benefit once they reach age 65, regardless of how long they worked for a PERA employer. Participants are not required to have at least five years of service before earning eligibility for a monthly retirement benefit, a common misconception. For example, a 25-year old teacher who works for a year can leave his or her account at PERA until turning 65, and then receive a guaranteed monthly lifetime benefit. This is in contrast with a 401(k) plan participant who could withdraw from an account until there is no balance remaining. With a defined benefit plan, a monthly benefit will be paid for life.

Benefits for retirement-eligible members are calculated in one of two ways. The Service Retirement Formula is based on a member’s years of service and highest average salary, while a Money Purchase Annuity is based on a member’s account balance including an employer match and interest. Like with an annuity, the average life expectancy is also part of the calculation.

Retiring members who have reached retirement eligibility age receive whichever calculation is greatest. For members at age 65 with less than five years of service, the Money Purchase annuity calculation is used.

PERA benefits go beyond a traditional pension payment. PERA is much more than a hybrid DB plan. A summary chart of PERA Hybrid Defined Benefit Plan provisions and benefits for all employees hired on or after January 1, 2011, is below. (Benefits for PERA members hired before 2011 are similar but vary based on an employee’s first date of hire.)

PERA retirees can access PERACare, PERA’s health benefits program. Even as the Colorado and U.S. health care markets evolve, this benefit allows access to group insurance rates for a variety of health care plans offered by recognized providers. The cost of premiums in PERACare is offset based on the number of years a member worked for a PERA employer. Disability and survivor benefits are also available for many members.

Those critical of public defined benefit plans in general, and of PERA in particular, should recognize the independent findings of GRS as presented to the Colorado General Assembly’s Legislative Audit Committee.

Stay tuned for more on PERA’s portability provisions from the GRS study.

Independent Studies Offer Expertise and Insight

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In the last year, PERA has benefitted from the release of three studies conducted by neutral, outside experts examining aspects of the benefit and funding structure for Colorado’s retirement plan for public employees. These studies are the result of legislation supported by the PERA Board of Trustees and enacted by the Colorado General Assembly in 2014 (Senate Bill 14-214).

Together, the Sensitivity Analysis from Pension Trustee Advisors, the Plan Design study from Gabriel, Roeder, Smith & Company, and the Retirement Benefits study by Milliman, provide a useful roadmap for the PERA Board of Trustees along with PERA members, Colorado policy makers, and taxpayers to work together for a sustainable public retirement system in the years and decades ahead.

Pension Trustee Advisors Sensitivity Analysis

Released on October 19 by the Colorado Office of the State Auditor and reviewed by the General Assembly’s Legislative Audit Committee, this analysis looks at the various components used in determining PERA’s financial health. The report’s findings demonstrate that the PERA Hybrid Defined Benefit Plan is on track to be fully funded, with all five of PERA’s trust funds projected to achieve fully funded status over time. The study also shows that actuarial assumptions PERA uses as it makes projections and manages the plan are reasonable.

A second, critical objective of the study was to develop an understandable format for communicating PERA’s progress toward becoming fully funded, meaning that the plan is moving toward accumulating assets equal to its accumulated obligations.

To fulfill this objective, the PTA analysis includes a signal light methodology designed to expand how PERA reports on its funded status as well as the likelihood of achieving its full funding objectives.

This methodology indicates that the four largest of PERA’s five division trust funds are sustainable and on a path to full funding, receiving a “green light.” The 600-member Judicial Division received a “yellow light.”

The report notes the significant impact of the shared sacrifice required of PERA retirees, members, and taxpayers as a result of bipartisan legislation enacted in 2010 (Senate Bill 10-001). If the signal light reporting method had been in place in 2009 during the Great Recession, it would have shown all Divisions in orange or red, meaning that PERA would be unable to pay benefits in fewer than 30 years.

Under the signal light methodology, changes from the reforms implemented as a result of that legislation moved the fund from red status to green.

Moving forward, PERA plans to incorporate the new and unique signal light methodology to enhance its reporting on funding progress.

Read the PTA report.

Gabriel, Roeder, Smith & Company Plan Design Study

In July, the Colorado Office of the State Auditor released an independent evaluation of PERA comparing the costs and effectiveness of PERA’s defined benefit plan to alternative plans in the public and private sector.

Nationally recognized actuarial firm Gabriel, Roeder, Smith & Company (GRS) looked specifically at PERA’s Hybrid Defined Benefit Plan and compared it to alternative plans in the public and private sectors. Their evaluation came to the overall conclusion that “Colorado’s largest public employee pension system is the most efficient and effective a state could have,” as GRS officials told members of the Legislative Audit Committee.

In short, the PERA plan design costs less and provides more for nearly all types of public workers, regardless of the age when they start or leave public employment.

As the report to the audit committee notes, PERA’s hybrid plan is “more efficient and uses dollars more effectively than the other types of plans in use today.”

See the PERA on the Issues story.

Read the GRS report.

Milliman Retirement Benefits Study

In January of this year, the Colorado Department of Personnel and Administration released the results of the 2015-2016 survey of state employee total compensation conducted actuarial firm Milliman.

The Colorado General Assembly had asked for this year’s salary survey to include the value of the PERA retirement benefit. Specifically, Senate Bill 14-214 required a comparison between the retirement package provided to state employees through PERA to retirement packages offered by both private companies and other states.

When compared to 19 other states and four private sector entities including the University of Denver and SCL Health System, the value of the PERA benefit is 1 percent above the median plan value of 14.7 percent.

As the Milliman report concludes, “The State’s offerings are generally consistent with market trends of survey participants.”

Read the Milliman report.

Looking to the Future

As a result of these studies, important conversations will be informed by the analysis of neutral experts familiar with the complex variables impacting a retirement plan with over 500,000 members and retirees.

These public employees include Colorado’s teachers, state troopers, and highway workers. Their work contributes to the quality of life in Colorado’s communities.

Independent, critical evaluations of PERA such as these studies provide will help ensure PERA is sustainable for the long term, providing an economic engine for Colorado and protecting a secure retirement for all public employees.

Independent Studies Offer Expertise and Insight

Retirement Roundup: The 401(k) crisis is getting worse

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A digest of timely information and insight about finance, investing, and retirement.

The 401(k) crisis is getting worse | Bloomberg

Nearly half of U.S. workers lacked access to company-sponsored retirement plans in 2013, compared with 39 percent in 1999, according to an analysis of Census Bureau data. And few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS. The lack of plans is fueling a retirement-savings crisis.

Baby boomers hugely underestimate what they need for retirement | The Wall Street Journal

A new survey from BlackRock on attitudes about money and financial goals found Americans are holding nearly twice as much cash as they think they ought to in order to reach their retirement goals. Baby boomers, who are retiring in droves, face a staggering shortfall. And the problem is especially acute for younger workers, who will likely spend decades in retirement – much longer than their parents or grandparents. The BlackRock survey also suggests that the emotional scars of the financial crisis may be holding back some potential U.S. investors. [Read an article from The Dime on investing, rather than saving, for retirement.]

Why is it so hard to save? U.K. shows it doesn’t have to be | NPR

Many people in the U.S. feel they can’t afford to save. But if employees are automatically enrolled in a retirement program, odds are overwhelming that they’ll keep saving, even if they think they can’t afford it. That’s what’s happening in England, thanks to a law that is being phased in right now. [Read more about the impact of inertia on retirement savings in PERA on the Issues.]

Health care costs impact retirement savings | Plan Sponsor

Fifty-nine percent of workers say that their health insurance costs impact what they are able to set aside for retirement, according to a LIMRA study on financial stress.

The best states for an early retirement | CBS Money Watch

Colorado ranks 11th as a good state for early retirement, according rankings from SmartAsset. To find the best states for an early retirement, SmartAsset looked at six separate metrics including state and local taxes, sales tax, property tax rates and living costs such as health insurance and housing.

10 best places to retire on $100 a day | U.S. News & World Report

One way to quickly lower retirement costs is to move to a place with a low cost of living. U.S. News analyzed Census Bureau data to determine where retirees could cover basic expenses with less than $100 a day, or $36,500 per year, in retirement income. Aurora, Colorado is one of them.

Colorado ranks well for its financial well being | Denver Business Journal

People in Colorado are generally doing pretty well when it comes to happiness related to money management. Colorado ranks number 11 out of the 50 states in financial well-being, according to a report that looks at money management skills, capacity to reduce financial stress, control over economic lives and ability to increase security.