Month: December 2016

The Impact of Assumption Changes

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In late November, the PERA Board of Trustees voted to lower PERA’s expected investment rate of return to 7.25 percent from 7.5 percent and adopt new mortality tables.  These changes will increase the amount of time for PERA to become fully funded (read more about determining PERA’s funded status here and the news release here).

The Board took action after a rigorous review process that started in September and included an experience study of what had actually happened in each Division’s fund, along with input from economic, investment, and actuarial experts. The adoption of new mortality tables and the lowered rate of return will result in extending PERA’s amortization period.

In October 2015, the Colorado Office of the State Auditor released a report authored by Pension Trustee Advisors (PTA) to the General Assembly’s Legislative Audit Committee. This analysis looked at the various components used in determining PERA’s financial health. The PTA analysis included 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.

In 2016, PERA implemented the signal light methodology as part of its 2015 financial reporting. The methodology showed that all of PERA’s five division trust funds are sustainable and on a path to full funding. However, the Judicial Division is in the “orange” signal light category, indicating steps should be taken to reduce the amortization period of this small Division.

It is important to note, factoring in the changes made to actuarial and economic assumptions by the Board in November 2016, the trusts are not projected to run out of money as was the case before the 2010 reform legislation was enacted.

What are the next steps?

In November, the PERA Board charged PERA staff with convening broad-based conversations throughout the State of Colorado regarding PERA’s financial condition and serving as the trusted resource for stakeholders and policy makers statewide.

PERA will know more about the extension of the amortization period for each Division’s trust and the impact of the Board’s assumption changes in January after PERA’s actuaries finish their work. While the full extent of the impacts from these assumption changes is still being determined, it is clear that PERA is fully sustainable and will continue to pay benefits throughout the period it takes to reach 100 percent funded. The Board continues to be committed to making difficult and complex decisions in the best interest of PERA members, and will take a measured approach to ensure PERA is on the path to becoming fully funded in a reasonable period of time and remains one of Colorado’s best investments.

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.

The POTI Year in Review

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As we look back at the articles that most captured your attention this year on PERA on the Issues (POTI), we noticed a few trends: you like keeping informed about proposed legislation – especially as it relates to Social Security’s Windfall Elimination Provision (WEP) – and you also enjoy a broad perspective on the Retirement Landscape in our regular Retirement Roundup (a digest of timely information and insight about finance, investing, and retirement). Here are some highlights from 2016:

Top Topics

The most-visited category in 2016 was Legislation, where readers were kept updated on what was going on with proposed legislation, both in Colorado and nationally.

The most clicked newsletter story of the year was a legislative update on the WEP: UPDATE: Congressional Hearing Announced on Equal Treatment of Social Security.

And since we started tracking search results this year, 2016 Colorado Ballot Issues was the number one term that landed visitors on the PERA on the Issues web page. (Editor’s choice for favorite search query: is wep repeal ever gonna pass its been long time.)

Most Engaging

We encourage you to share your thoughts on our articles, especially on our all-time (119 and counting) most-commented on article: Proposed Federal Legislation Could Eliminate Windfall Elimination Provision, which also ranks as the most visited page both for the year and since PERA on the Issues launched.

The article from this year that caught your attention with the most comments had to do with a summary of proposed legislation affecting Colorado PERA in 2016 Proposed Legislation Status. We will be sure to provide you with similar updates in 2017.

Looking Forward

We conducted a Reader Survey in 2016, and you told us you wanted more coverage of legislation and politics, health care, and retirement security. In response to the survey, we launched a Health Care category to keep you apprised of trends in health care (including PERACare). We also provided readers with in-depth information on how PERA  works, including features on PERA’s funded status, portability, and many other innovations unique to PERA.

Is there an issue you would like for us to explore in 2017? If so, please leave your suggestion in the comments below. Thank you for using PERA on the Issues as a resource and we look forward to continuing to bring you information and insight on topics related to providing retirement security for over 500,000 of Colorado’s public employees.

Financial Security for Future Retirees

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Colorado Scores 6 out of 10 in National Survey

How do Coloradans feel about their retirement security? And how do we compare nationally?

Diane Oakley, Executive Director of the National Institute on Retirement Security (NIRS), was recently in Denver to deliver the findings of a survey on public opinion about retirement security nationally and in Colorado. The response to the question about feelings toward retirement security is a resounding sense that Coloradans are facing a retirement crisis. According to Oakley, the top financial worry for Americans is that they will outlive their savings in retirement.

The factors making it difficult for Coloradans to prepare for retirement include flat wages, long-term care, living longer, and fewer pensions (read how PERA’s hybrid defined benefit plan works for Colorado’s public employees). Respondents are also frustrated that policymakers do not understand the difficulties that workers face in preparing for retirement. To cope, Coloradans plan to cut spending and stay in their current jobs longer.

Not surprisingly, retirement accounts are concentrated among higher-income households, and young households are half as likely to have a defined benefit plan as near-retirees. While financial industry experts recommend that workers in their 40s have two to three times their annual salary saved in a retirement account, the average retirement account balance of $28,301 is well below half of the average earnings of Colorado workers.

The Colorado Financial Security Scorecard summarizes the economic outlook for retirement security in the state and gauges the state’s relative performance in three key areas: anticipated retirement income, major retirement costs like housing and health care, and labor market conditions for older workers.

Colorado’s above average score – 6 out of 10 – means that the state’s future retirees have a somewhat lower potential for financial insecurity compared to their peers in other states. However, with fewer than half of all Colorado workers even participating in a workplace retirement plan, many Coloradans face a high risk of living in poverty in their old age.

NIRS advocates for increasing retirement savings for all Americans, which will ultimately lead to a decrease in the need for elderly social services. According to NIRS, proposed models to increase retirement savings should expand coverage to all workers, use auto-enrollment features, and maximize tax benefits to increase retirement saving. See the NIRS data here.

Greg Smith, Colorado PERA’s CEO/Executive Director, currently serves as the Board Chair of NIRS.

Colorado PERA Chief Investment Officer Honored

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Colorado PERA Chief Investment Officer Jennifer Paquette was named a finalist in the Chief Investment Officer 2016 Industry Innovation Awards. She was among several Chief Investment Officers honored at a recent event in New York City. Finalists and winners were chosen by the CIO editorial team in conjunction with an advisory board of former and current CIOs.

Public Defined Benefit Plan $15 Billion to $100 Billion Finalists

Colorado Public Employees’ Retirement Association (Jennifer Paquette)

Employees Retirement System of Texas (Tom Tull)

Healthcare of Ontario Pension Plan (Jim Keohane)

Iowa Public Employees’ Retirement System (Karl Koch)

Ontario Municipal Employees’ Retirement System (Michael Latimer)

Public Employees’ Retirement System of Nevada (Stephen Edmundson)

“Being named as a finalist serves as welcome recognition of the great investment team and program at Colorado PERA which I have been honored to lead over the years,” said Jennifer Paquette. “Being chosen as a finalist is a memorable moment in my career at PERA.”

Paquette has announced her retirement from PERA in early 2017. A nationwide search is underway for her replacement.

Retirement Roundup: Colorado must “act now” for aging population

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

Colorado must “act now” to address aging population, rising costs, study says | The Denver Post

Colorado’s aging population will have a profound impact on “virtually every Coloradan” over the next 14 years, according to a new report commissioned by state lawmakers. If steps aren’t taken to prepare, it could have a dramatic impact on the state budget, which would see its revenue growth slow just as the costs of health care and other senior services are expected to explode.

Women’s health care tab in retirement: $79,000 more than men’s | Time-Money

A healthy 55-year-old woman on average will pay $79,000 more for health care over her retirement than a 55-year-old man, according to a new report from HealthView Services. Women face higher costs because they live an average of two years longer than men, not because they consumer more health care in a typical year.

Public sector employees confident in retirement income prospects | PlanSponsor

Most public-sector employees do not know how much they need to save for a comfortable retirement, nor have they planned and saved specifically for medical expenses, according to TIAA’s 2016 Retirement Confidence Survey of the State and Local Government Workforce.

About 20 percent are very confident that they are saving and investing appropriate for retirement, with approximately 55 percent somewhat confident in their savings and investing. The vast majority are covered by a primary defined benefit pension plan.

Combine long-term care with life insurance? Do the numbers first | The New York Times

Just this month, one long-term care insurance provider announced that would not seek any more policies; another is headed toward insolvency, with billions of dollars in liabilities needing to be assumed by someone else. Yet in the face of this bad news, consumers are being sold new long-term care products that are less expensive than the older products that guaranteed monthly payments.

These new policies are mainly hybrids that offer both long-term care and life insurance. There are also life insurance policies that allow people to use their benefit to pay for care. Both are less expensive than traditional long-term care policies. But like most insurance, they are only as good as the consumer’s understanding of them. [Read more about long-term care.]

Seniors who use tech tools feel less lonely, more physically fit, Stanford study finds | Los Angeles Daily News

Use of computers and cellphones is linked to higher levels of mental and physical well-being among those over age 80, according to new Stanford research. These elders are motivated for the same reasons as digital-savvy millennials: to stay connected. Those who used technology saw higher life satisfaction, lower loneliness and general attainment of meaningful goals. They were also in better physical health, the study found.

Senate sends medical research bill to Obama for signature

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Editor’s Note: This article is a summary of the 21st Century Cures Act. Colorado PERA does not have a position on this federal legislation, rather we wanted to let PERA on the Issues readers know about this bill which has received recent media coverage. Share your thoughts about this legislation with us and other readers in the Comments section at the end of the article.

On December 7, the U.S. Senate voted to approve legislation previously passed by the House of Representatives that will overhaul the development of medical treatment and speed up the review and approval for certain medical drugs and devices.

The 21st Century Cures Act, as it is known, will speed new medicines to market and authorizes an additional $4.8 billion in spending for medical research.

President Obama has committed to signing the bill, saying it “could help us find a cure for Alzheimer’s…end cancer as we know it and help those seeking treatment for opioid addiction.”

Along with Rep. Diana DeGette, D-CO, the bill had bipartisan support and was co-sponsored by Rep. Fred Upton, R-MI. The House co-sponsors described “a new day for medical research” on the horizon.

This “vote is for patients and their loved ones. We all have more reason for hope,” they said.

There is plenty to like in the legislation, from new funding for Alzheimer’s research and precision medicine to Vice President Joe Biden’s cancer moonshot as well as prevention and treatment of opioid addiction that has devastated both urban and rural communities.

The bill is not without its critics, however.

“We were already seeing weakening of FDA standards under the Obama administration,” attorney Sarah Sorscher of the Public Citizen Health Research Group told The Wall Street Journal. She cited the recent example of the FDA approving a muscular dystrophy drug that didn’t prove any benefit in outcomes of patients.

“Industry will be emboldened by this legislation, and under a deregulation-minded commissioner, will seek further changes in the FDA regulatory scheme,” said Michael Carome, director of the Public Citizen health group.

Sens. Elizabeth Warren, D-MA., and Bernie Sanders, I-VT both spoke out about the bill.

“If you want to lower the outrageous cost of prescription drugs, vote against this bill,” Sanders said on the Senate floor Tuesday. “It is time to stand up against the pharmaceutical industry and stand up with the American people who are tired of being ripped of by this extremely greedy industry.”

Read The Denver Post guest editorial by Rep. Diana DeGette.

Read the Kaiser Health News 21st Century Cures Act summary.