November 2016 | Colorado PERA

Retirement Roundup: Your retirement under President Trump

Posted on November 15, 2016May 20, 2024 by planeteria

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

Your retirement under President Trump | Bloomberg

As a candidate, Donald Trump barely mentioned America’s retirement crisis. As president, he will have enormous power over the issue, bolstered by Republican control of the U.S. Senate and House of Representatives. From Social Security to rules impacting financial advisors to new proposals to reform 401(k)s, there are many ways Trump’s presidency could influence your retirement.

I knew it was responsible to plan for my old age. So why did I keep crying? | STAT

A woman of a certain age, fearful of growing old and dying alone, had taken every ounce of courage to acknowledge that she wouldn’t be able to live on her own forever. But it was the responsible thing to do.

We have a retirement savings problem. Politicians can help. | The New York Times

It should be easier to save for retirement. But about half of all Americans who work in the private sector do not have access to an employer-based retirement plan like a 401(k). Federal legislation to increase those numbers has not amounted to much. A requirement that employers siphon money out of every employee’s paycheck and put it into a retirement savings plan (unless the worker opts out) would both promote self-reliance and create a foundation for a safety net.

You risk a ragged retirement if you’re counting on these numbers | Bloomberg

If you’re relying blindly on hallowed personal finance averages – planning for 40 years of work, saving 15 percent of salary – you could be in for a rocky retirement. Retirement advice is made to be tailored to our needs and the times. People often sit down to figure out how much they will need and assume they’ll spend 40 years in the workforce, from age 25 to age 65, more or less. That’s an outdated assumption, and women in particular need to look out.

Why your 401(k) fees aren’t lower | The Wall Street Journal

With investing, avoiding mistakes often wins the day. If you cut fees to the bone, avoid complicated products and stick to a basic asset allocation through thick and thin, you’ll do better than most. Happily, it’s getting easier to take that simple approach. But low fees aren’t commonly associated with the go-to investment vehicle for millions of Americans – the 401(k) retirement plan. Indeed, 401(k)s and their menus of funds are so complex that employees investing in them incur administrative, record-keeping and adviser fees. [Read about PERA’s low-cost supplemental savings 401(k) and 457 plans.]

Wyoming retirement education on point | Squared Away Blog

Wyoming government has brought some 535 employees of the state’s executive, legislative and judicial branches into its retirement savings plan since July 2015 under a new policy of automatically enrolling each new hire. They are free to withdraw from the plan at any time, but only 15 of the 535 have done so. This technique, borrowed from behavioral economics, addresses the inertia that prevents many people from ever signing up to save in their employer’s plan. So why wait for them to join? Instead, Wyoming uses inertia to benefit state workers: when people are automatically enrolled, research shows, they tend to stay put and save. [Read more about behavioral finance and how inertia can help – or hurt – your retirement savings.]

PERA Portability = Good Deal for All Employees

Posted on November 1, 2016May 23, 2024 by planeteria

Recruiting, retaining, and providing for great workers: How PERA portability makes it a good deal for employees at any point in their careers

Retirement plans have modernized over time to attract and retain valuable human capital assets.

Employee turnover is a statistic that is used to gauge the desirability of a work environment. Employers like to retain good employees because it’s expensive to recruit and train new employees. Benefits, such as paid time off, health care packages, and even retirement plans play an important role in attracting and retaining great employees, which reduces employee turnover. Improving the efficiency and effectiveness of the workforce by having loyal and productive employees ultimately improves the employer’s bottom line, or in the case of public employers, the delivery of public services.

Because retirement savings are accrued over the course of a career but are actually used after a career is over, employers have to consider both the current value of the retirement benefit to today’s employees as well as the value it will provide in the future, when employees have long since stopped working and come to depend on retirement savings for income. This is true regardless of whether an employee plans to quickly gain experience and then advance to a new position or hopes to stay with the same employer for decades.

PERA’s hybrid defined benefit plan is a particularly strong recruitment and retention tool because of the value it offers to employees regardless of the length of their career. While some critics claim that retirement plans like PERA shortchange employees who do not work a full career, if they look closely at PERA’s plan design, they will see how PERA has evolved to serve both long-service employees as well as those who only work for a short time in public employment. That’s not according to PERA, but what an independent, third-party firm reporting to the Colorado General Assembly’s Legislative Audit Committee found.

A recent analysis of the PERA Hybrid DB Plan design was conducted by an independent actuarial firm at the direction of the General Assembly’s Legislative Audit Committee. This review, performed by the firm Gabriel, Roeder, Smith & Company (GRS) and the Office of the State Auditor, found a high degree of portability and value in the PERA Hybrid DB Plan, noting, “This study could find no plan that provides a more effective level of benefits than the PERA Hybrid Plan.”

The Colorado PERA Defined Benefit (DB) Plan has changed over time to meet the needs of Colorado’s public employers. In the 1990s, PERA employers were competing for employees who often went to work for employers who offered defined contribution (DC) plans where employees immediately vested in both their and their employer’s contributions to a DC retirement account. One of the key features of DC retirement accounts was their portability – that is, employees could take the savings from their retirement accounts with them when they changed employers and presumably continue to grow their retirement savings in a new job.

Because it was difficult to retain a talented public workforce when competing with private sector employers during this time, the Colorado General Assembly modified the PERA DB Plan design to allow for similar rights to employer contributions that were in DC plans. Today, because of these and other changes made by the Colorado Legislature over the years in response to Colorado’s changing public workforce, the PERA DB Plan is the lowest cost way of providing retirement savings for public employees – no matter the length of their career.

The GRS report illustrates these findings.

According to the National Institute for Retirement Security (NIRS) in its report, “Preserving Retirement Income Security for Public Sector Employees,” when it comes to financing retirement, Americans have two key concerns, “a steady and adequate retirement income that won’t run out, and the ability to move retirement plans from job to job.”

NIRS goes on to document how nearly all state retirement systems allow for the preservation of retirement income benefits even for employees who change jobs. But the GRS study shows that in Colorado, a member who earns PERA retirement benefits for even just three years will accrue more savings than another type of retirement savings plan would provide.

Retirement savings plans are just one component of an employee’s total package of salary, leave, health care, and other benefits. But it’s a critical piece in attracting great employees to public service and keeping them on board for successful careers.

PERA on the Issues posts are written and compiled by the staff of Colorado PERA under the direction of Executive Director Greg Smith and the PERA Board of Trustees.
We encourage you to comment with your thoughts and feedback.

Retirement Roundup: Here are the best places to retire

Posted on November 1, 2016May 21, 2024 by planeteria

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

Here are the best places to retire | Time-Money

A dozen cities make up the list of best places to retire for 2016, with special attention paid to tax climates that will let retirees hang on to more of their money, along with top-notch services and plenty to do. See which cities won for the Mountain region.

Even math teachers are at a loss to explain annuities | The New York Times

Schoolteachers and other government and nonprofit workers who participate in 403(b) retirement savings plans offered are often at the mercy of confusing contracts tied to arcane investments, sold by representatives who may not understand them.

The proliferation of annuities in 403(b) plans is largely a matter of history. When Congress introduced them in 1958, they were viewed as supplemental pensions for teachers, and the only permissible investments were annuities. Certain types of annuities can serve as a useful retirement tool for some savers seeking a stream of guaranteed income. But many teachers already receive pensions providing a steady income base.

Teacher pensions under fire: 5 tips to prepare for retirement | Marketwatch

If you’re a teacher, the promise of a good retirement pension may have been a selling point when you took the job. But concerns over the funding of these pensions have some wondering whether their benefits will be there for them in full after their last day of work. [Read how a series of studies from 2015 showed that PERA is the most cost-effective, efficient retirement plan available.]

Here’s what happens when someone is forced to retire because they’re ‘old’ | Marketwatch

Mandatory retirement is still in the workforce, and it’s causing problems as people live – and work – longer. Being compelled to leave a job because you’ve hit a certain age could impose significantly negative consequences on older employees, and experts say such a requirement shouldn’t exist at all.

Social Security Benefit Formula Robs Older Workers | Forbes

The Social Security formula steals from people with long work histories and hands the dough to people with short work histories. It does this by counting only the 35 best years of earnings. This is an old problem, but now it’s easy to see exactly how it affects you and what a change in your earnings history would do to your benefit.

The biggest money mistakes we make – decade by decade | The Wall Street Journal

Our relationship to money changes as we get older. So do the mistakes that we make with it. Every new stage of life brings new financial strategies we need to follow. And at every stage we find new ways not to follow those strategies, costing ourselves money and jeopardizing our security. A closer look at some of the biggest mistakes we make – decade by decade – includes a few strategies to avoid them.

Determining PERA’s Funded Status – Part Art, Part Science

Posted on November 16, 2016May 21, 2024 by planeteria

Every year, the actuarial consulting firm retained by the Colorado PERA Board of Trustees performs an actuarial valuation. An actuarial valuation is an estimate of the cost of providing retirement benefits to current and future retirees in the system. This analysis requires the use of a variety of assumptions that represent the best estimates of the future, using both demographic and economic assumptions. Because the assumptions are predictions of the future using mathematical modeling, they are a blend of both art and science.

PERA’s Board of Trustees has a fiduciary duty to select assumptions that will fall within a range of probable outcomes over time. There are two types of assumptions – demographic and economic – that are both long-term in nature but vary from over time. While the most powerful assumption in PERA’s actuarial valuation is the investment return, other assumptions factor into the final funded status result provided by the valuation. The funded status provides a ratio of the plan’s current and future assets to its current and future liabilities. It is a measure of the fund’s current assets compared to the net present value of expected future liabilities driven by the benefit payment estimates.

Demographic assumptions used by PERA’s actuaries attempt to estimate the answers to the following questions:

How many members will leave PERA-covered employment?
How many members will retire with a disability?
How many members will retire?
What will active member salary increases be?
How many members with more than five years of service credit will refund their accounts?
At what age will members with more than five years of service credit retire?
How many members will die before retiring?
How long will members/retirees live?

Every few years, these demographic variables are reviewed so adjustments can be made to reflect what actually happened and adjust estimates for the future. These adjustments are what actuaries call gains and losses.

Once all the various demographic factors are assessed and aggregated, they are used to calculate what the retirement system owes to members in the plan now and into the future. This amount, also known as PERA’s total liabilities, reflects the value of all current and future benefits payable to members. Keep in mind that not all benefits are due and payable at once.

Economic assumptions are used to calculate the current and future value of all PERA assets which will be measured against the liabilities to determine a funded percentage (status). Economic assumptions used by PERA include:

Price inflation;
Wage inflation; and
Investment return.

These variables are compared to recent experience and rely on both long-term historical information and expected future investment performance.

The long-term rate of return assumption, as mentioned previously, is the most powerful of all the assumptions used and therefore it receives a lot of attention. According to the National Association of State Retirement Administrators (NASRA), “many public pension plans have reduced their return assumption in recent years. Among the 127 plans measured, more than one-half have reduced their investment return assumption since fiscal year 2008. The average return assumption is 7.62 percent.”

Details on the long-term rate of return assumption and the rates other public pension systems in the country use may be found in the 2016 NASRA Issue Brief on public pension plan investment return assumptions.

Once the economic assumptions are set, they are applied to the expected liabilities in the PERA trusts to determine their present value. This amount is compared to the value of assets currently in the trusts in order to determine a funded ratio. Then the actuaries calculate the number of years it will take for assets to match liabilities based upon future asset performance and contributions. The result of this calculation is the amortization period. PERA’s funded status at the end of 2015 was 62 percent based on the actuarial value of assets. At the end of 2015, the time required to reach full funding for PERA’s large division trust funds, or the amortization period, was approximately 44 years.

The PERA Board is slated to review and possibly adjust the economic and demographic assumptions at the November 18 meeting.

Read more about what actuaries do and about PERA’s best actuarial practices.

Retirement Roundup: 6 ways to make you feel richer in retirement

Posted on November 29, 2016May 21, 2024 by planeteria

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

6 ways to make you feel richer in retirement | Marketwatch

Retirement can be a polarizing thought for millions of Americans. On one hand, it represents the freedom to sleep late, travel, enjoy time with family, and basically choose how to spend your time. On the other, it poses the ever-so-important question, “How will I pay for it?” According to a 2015 analysis by the Government Accountability Office, 29 percent of households age 55 and older had no retirement savings or Defined Benefit (DB) plan. Given that for most of us, every retirement dollar counts, a few cost-cutting measures can help as you plan.

Easy retirement for Americans? It’s only for a privileged few | The Denver Post

The American dream of a blissful retirement, free of financial worries, is dying. Most U.S. households are heading for a worse lifestyle in retirement than they had while they were working, because they simply aren’t saving enough, experts say. Thirty-five percent of households in their prime earning years or later have nothing saved in a retirement account and no access to a traditional pension, according to an AP analysis of savings data from the Federal Reserve.

Is it simpler than Obamacare? California’s retirement mandate | Bloomberg

When millions of Americans were signed up for a new government-mandated benefit program, the rollout of the Affordable Care Act, or Obamacare, didn’t go so well. Broken websites, angry employers, and lots of confused consumers were the results. Now California, Oregon, Illinois, Maryland, and Connecticut – states where one in five Americans live – are trying to give nearly every worker the chance to save for retirement at work. With 36 percent of U.S. private sector workers lacking access to a pension or 401(k)-style plan on the job, and 55 percent not saving for retirement through work, states are beginning to require employers to offer a plan for workers or connect them to a portable, state-run option.

What couples nearing retirement need to do now | Time-Money

If you and your spouse are in your fifties or beyond, you are getting close to the point at which you can claim the rewards of a lifetime of saving and investing. But there are still crucial decisions to make that can affect your happiness in the next few years and your financial security later in life.

College towns can be attractive later in life | The New York Times

University communities have a lot of advantages for older Americans who are seeking intellectual stimulation, cultural amenities, and sports offerings without high urban price tags, not to mention a generally healthy economic base. Some who migrate to college towns later in life return to the town of their alma mater. Others research to find a place they see in their mind’s eye. Four hundred lifelong learning institutes for older adults affiliated with colleges such as the Christopher Wren Association can offer additional resources, such as courses on retirement planning or access to borrowing privileges at campus libraries.

For businesses that still have pensions, they’re a golden lure | The Boston Globe

To lure and keep top talent, companies roll out attractive new benefits every year, from subsidies for cellphones to repayment of employee student loans. But a small group of Massachusetts firms is sticking with an old and now extremely rare worker incentive: the pension.

Learning about long-term care now can avoid costly missteps later

Posted on November 30, 2016May 21, 2024 by planeteria

It’s estimated that 70 percent of Americans turning age 65 can expect to use some sort of long-term care during their lives.

Long-term care generally means assistance with the activities of daily living (sometimes referred to as “ADL”) that does not require skilled nursing. This care could include everything from simple help with household or yard chores to performing errands, driving to appointments, or help with personal care such as bathing and meal preparation.

Long-term, or ADL, care is generally not the same as skilled care, such as skilled nursing services (help with medications or care for wounds) or physical, occupational, or respiratory therapy. These types of care usually require services from a licensed professional.

However, the costs of long-term care can be significant, particularly if care is needed over a long time period or in a care facility. According to longtermcare.gov, a resource from the U.S. Department of Health and Human Services, in 2010, average costs for long-term care ranged from $21 per hour for a home health aide to $3,293 per month for a room in an assisted-living facility and $6,235 per month for a semi-private room in a nursing home.

Taking steps before care is needed can help make costs more manageable and provide more options, such as remaining in your own home longer.

Medicare and private health insurance plans do not pay for most long-term care services and therefore, the PERACare health plans also do not provide coverage. Medicare only pays for medically necessary care, focusing on acute care such as doctor visits, drugs, and hospital stays. Medicare coverage focuses on short-term services for conditions that are expected to improve, such as physical therapy that can help regain function after a fall or stroke.

There are ways to plan in advance for long-term care needs that include financial, legal, and practical strategies. For example, advance care planning can provide peace of mind that personal wishes – both medical and financial – will be kept even when it’s difficult or impossible to make those decisions for oneself.

Identifying in-home support services and making home modifications, even simple ones, can make it possible to live at home longer and avoid some of the high costs of care in a facility.

A pathfinder at longtermcare.gov provides helpful information customized to different situations, including age and whether or not care is needed now or in the future.

PERA on the Issues posts are written and compiled by the staff of Colorado PERA under the direction of Executive Director Greg Smith and the PERA Board of Trustees. We encourage you to comment with your thoughts and feedback.

New research: 10 years after the Pension Protection Act

Posted on November 30, 2016April 11, 2024 by planeteria

The National Institute on Retirement Security (NIRS) has issued a brief evaluating the federal Pension Protection Act of 2006. While the federal legislation’s goal was to ensure better retirement outcomes for working Americans through the strengthening of private sector defined benefit and defined contribution plan provisions, new research has found just the opposite.

Notable findings include:

Employers are now less likely to offer defined benefit plans because of increased costs due to a switch in how plans determine funded health. This has resulted in less predictability in funding and the closing of private sector defined benefit plans.
Overall retirement security has been eroded because private sector employers replaced frozen defined benefit plans with less effective defined contribution plans.

What does this research mean for PERA members and retirees? It further confirms that the defined benefit plan design is the best at achieving real retirement income security.

Read the NIRS brief.

For more detail on the PERA hybrid defined benefit plan design and the cost effectiveness of the plan, see the GRS report.