Month: September 2017

What Is a Policy Benchmark?

Posted on by planeteria

In general, benchmarks are used in many areas and according to definition, benchmarks are “something that serves as a standard by which others may be measured or judged.” With regard to investing, individuals are probably familiar with benchmarks like the Russell 1000 or the S&P 500. However these common benchmarks are insufficient for most institutional investors, like PERA, that have complex investment portfolios containing assets not available to individual investors in the retail market. Because portfolios like PERA’s have non-publicly traded assets like real estate and private equity, a custom benchmark is required to measure overall investment performance. This is what’s known as a policy benchmark. The policy benchmark provides a point of comparison when assessing the investment performance of the total fund. PERA’s Board of Trustees compares the policy benchmark return to the fund total return to determine how the PERA investment team performed on a comparative basis over a given time period.

Since 2004, the Board, upon the recommendation of their investment consultant, has adopted a policy benchmark to represent their asset allocation decisions. In addition to offering a reference point, the policy benchmark allows the Board to express its investment goals in concrete terms, providing guidance for staff as well as other stakeholders of the fund. The policy benchmark also establishes the Board’s long-term view regarding investments, which puts into perspective any reaction, or over-reaction, to short-term market conditions.

The Board determines the asset allocation for PERA, which means that the Board broadly defines how the $44 billion in the fund will be invested by asset class. The Board’s Statement of Investment Policy guides this effort. This strategic asset allocation is believed to be the most important factor influencing long-term investment performance and asset volatility. As of December 31, 2016, the PERA policy benchmark is a combination of the benchmarks for 53.5 percent Global Equity; 23.5 percent Fixed Income; 8.5 percent Private Equity; 8.5 percent Real Estate; 5.0 percent Opportunity Fund; and 1.0 percent Cash. (For more information, see the Schedule of Investment Results on page 125 and the Fund Performance Evaluation on pages 127–128 of the Colorado PERA Comprehensive Annual Financial Report.)

Since the adoption of the policy benchmark in 2004, the fund has outperformed this measure, adding millions of dollars to the assets invested on behalf of the PERA membership.

Many public pension funds recently released investment results, having ended their fiscal years on June 30. Colorado PERA’s reporting year ends on December 31, so PERA’s returns cannot be compared to the return of funds that have June fiscal reporting periods. (See this PERA on the Issues post from August 16, “Comparing Apples to Apples: How Rates of Return Can Seemingly Vary from One State to Another” for details.)

Retirement Roundup: How Long Will $1 Million Last You?

Posted on by planeteria

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

Here’s how long $1 million in retirement savings will last in your state | Yahoo

Would $1 million really last you through your entire retirement? That all depends on where you choose to live out your golden years according to a new study. Find out how Colorado stacks up against the other states.

Health care costs could eat up your retirement savings | Bloomberg

According to experts at Fidelity, health care costs are going to eat up a substantial amount of your retirement savings. And if you think waiting until age 65 when you reach Medicare eligibility is going to save you—think again.

OMB approves delay of fiduciary rule to mid-2019 | Pensions & Investments

Federal officials seeking to delay the implementation of a rule designed to compel financial advisors to act in the best interest of their clients were successful in delaying its implementation. Although the decision by the White House’s Office of Management and Budget won’t prevent the rule from being implemented eventually, this is a major defeat for proponents. [Read more about the federal rule as it was first introduced in April 2016.]

Why saving for retirement is getting harder, and what you can do about it | Consumer Reports

It’s no secret that the trend to 401(k) plans from traditional pensions has put more pressure on individuals to save enough for retirement. Combine that with recent moves by the federal government to roll back rules that might have made saving easier, and the retirement landscape has never been more treacherous. Fortunately, there are still some common-sense steps you can take to make your financial future more secure.

401(k) saving harder at lower incomes | Squared Away Blog

Saving for retirement is no picnic even for upper-middle-income earners who have access to workplace retirement savings plans. A new study sheds light on just how difficult it is for those in the lower- and middle-income brackets to save through 401(k) plans. The study from researchers at the Stevens Institute of Technology and the New School for Social Research sheds some light on how things like temporary unemployment, poor health, and divorce—all circumstances that hit lower-income earners the hardest—affect retirement plans.

Wall Street is failing to protect seniors from fraud, say regulators | Time-Money

An international group of investment regulators say the industry isn’t doing enough to keep elderly investors from falling victim to scams. According to a new survey from the North American Securities Administrators Association, 75 percent of those who responded said financial firms could be doing more to protect older clients. And a near-unanimous sentiment among those surveyed was that when fraud does take place, it goes on for far too long. Colorado is one of only 13 states that have enacted laws designed to encourage financial advisors to report fraud when they see it happening.

Second Phase of PERAtour Announced

Posted on by planeteria

Colorado PERA will hold a second statewide series of conversations to provide stakeholders with more information after the Board of Trustees meet in late September to develop legislative recommendations to improve the funded status of the plan and preserve its sustainability.

This follows the first phase of PERAtour, which included a dedicated website, a telephone town hall, and a series of community meetings. Thousands of members, retirees, employers and the general public have participated in this process. More than 900 people attended one of the 12 meetings, where they had the opportunity to ask questions and provide input on the principles and priorities for the Board to consider as it developed its recommendations.

The second phase of the PERAtour will include the following activities:

Telephone Town Hall

Executive Director Greg Smith will hold an interactive telephone town hall on October 3. The meeting for retirees takes place at 2:00 p.m. and the one for active members happens at 7:00 p.m. For those who have previously registered their phone number, they will automatically be called and invited to participate. More information is available . A recording of both calls will be available online afterward.

Online Resources

The special website established to communicate about PERA’s funded status and educational efforts, www.peratour.org, will be continually updated with information and reporting from telephone and community meetings.

Community Outreach Tour

Throughout October and early November, PERA will be hosting meetings in 12 communities across the state. No reservation is required and everyone is invited to attend.

Live Webcast
October 27 | 12:00 p.m.
Full details available on PERAtour.org

Grand Junction
October 16 | 6:00 p.m.
DoubleTree Hotel, 743 Horizon Drive

Durango
October 17 | 6:00 p.m.
Fort Lewis College Student Union Ballroom (SUN 212), 1000 Rim Drive

Alamosa
October 18 | 12:00 p.m.
Alamosa Family Rec Center, 2222 Old Sanford Road

Pueblo
October 18 | 6:00 p.m.
Pueblo Convention Center, 320 Central Main Street

Aurora
October 19 | 6:00 p.m.
Radisson Hotel Denver Southeast, 3155 South Vaughn Way

Boulder
October 23 | 6:00 p.m.
Boulder Jewish Community Center, 6007 Oreg Avenue

Greeley
October 24 | 6:00 p.m.
Island Grove Event Center, 421 North 15th Avenue

Sterling
October 26 | 6:00 p.m.
Sterling Elks Lodge, 321 Ash Street

Colorado Springs
October 30 | 6:00 p.m.
Colorado Springs Marriott, 5580 Tech Center Drive

Fort Collins
November 1 | 6:00 p.m.
Hilton Fort Collins, 425 West Prospect Road

Denver
November 2 | 6:00 p.m.
PPA Event Center, 2105 Decatur Street

One-Stop Shop: Website Offers Information On Potential Future Changes to PERA

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Earlier this year, Colorado PERA held telephone town halls and a series of meetings in communities across the state. The purpose of the meetings was to inform and listen to members, retirees, employers, and taxpayers about reducing PERA’s risk profile while maintaining a sustainable retirement for Colorado’s public employees and strengthening the Colorado economy.

This outreach effort, called PERAtour, came after a review process indicated that changing demographics and market conditions had increased the risk profile of each of the PERA divisions, extending the period until PERA reaches full-funded status well beyond 30 years.

At the same time, PERA launched a dedicated website, peratour.org, dedicated to providing factual information about changes to external conditions, gathering feedback from members, retirees, taxpayers, and interested citizens, and reporting the opinions that participants shared in person, by phone, and online.

There is a wealth of information available on the website, and several highlights from PERAtour are listed below.

PERAtour: A statewide conversation

Narrated Board presentation

  • A video presentation made available to the PERA Board of Trustees in June, including a recap of what was learned from the PERAtour community meetings.

“What we’ve heard”

Support for core principles, by the numbers

  • An infographic showing the level of support for core principles to guide any potential future changes to PERA.

What our members have to say

  • Linda, Anne, Steve, and John, all PERA retirees, share their thoughts about what they heard during PERAtour community meetings.

PERAtour: Denver

  • A full-length video recording of a PERAtour meeting in Denver, including Executive Director Greg Smith’s responses to questions asked by attendees.

Colorado PERA Board Endorses Package of Reforms

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The Colorado PERA Board of Trustees has endorsed a comprehensive reform package to reduce the overall risk profile of the plan and improve PERA’s funded status. This endorsement follows extensive analysis by the PERA Board and a statewide outreach effort with a range of stakeholders conducted earlier this year. Learn more about the next phase of outreach at PERAtour.org.

After taking into account assumption changes made in 2016, each of PERA’s five divisions are in the “orange” category, where reporting standards applicable to PERA called for the Board to develop a plan to reduce the amount of time it will take PERA to be fully funded.

The Board’s package, which must be approved by the General Assembly, includes recommendations that will significantly change the benefit provisions and contribution structure of the plan. If passed by the Legislature, the Board’s proposal would fortify the fund by making major changes:

Modify the benefits of current retirees, members, and future members.

  • Increase the number of years used to calculate Highest Average Salary from three years to five for most divisions. The exception is the Judicial Division, which currently uses a one-year HAS and will now use a three-year calculation. For new hires starting in 2020 and for members with less than five years of service credit as of January 1, 2020, more years of salary will be considered to calculate an average salary used to determine the total retirement benefit.
  • Change the age of eligibility for full service retirement benefits to 65 for new hires starting in 2020. For State Troopers, the minimum age for full service retirement eligibility will be raised to age 55. This change aligns PERA with national trends, including Social Security and peer defined benefit plans across the country.
  • Reduce the Annual Increase (commonly called the Cost of Living Adjustment or COLA) provided to current and future retirees. Most current retirees receive a 2 percent Annual Increase and that will be lowered to 1.5 percent. Those who became members after 2006 currently do or will receive an Annual Increase based on the CPI with a limit up to 2 percent. This Annual Increase would also be capped at 1.5 percent. This change will go into effect on the date legislation is passed.
  • Suspend the Annual Increase for two years for current benefit recipients. Under existing law, current benefit recipients have experienced a one-year waiting period upon retirement to receive an increase. Future retirees would have a three-year waiting period before their Annual Increase begins. This change will go into effect on the date legislation is passed.

Increase contributions into the fund.

  • Increase employee contributions for current members hired before 1/1/2020 by an additional 3 percent above current contribution rates. This increase would impact all active PERA members and retirees working after retirement.
  • Increase employee contributions for future members hired on or after 1/1/2020 by an additional 2 percent.
  • Increase employer contributions by an additional 2 percent.

Ensure the equitable alignment of “input” or contributions and service credit, with “output” of benefits paid out.

  • Change the definition of PERA-includable salary to require PERA to collect contributions on salary that includes Internal Revenue Code Section 125 and 132 deductions. In other words, PERA contributions would be made on gross pay rather than net pay. These changes would impact current and future members.
  • Change the definition of full-time service accrual. Under the Board’s proposal, PERA future members will earn service credit for part-time work based on the percentage of full-time employment they are actually working.

The Board also came forward with an innovative solution that will respond to future economic and demographic changes by instituting an automatic mechanism by which employer and employee contributions as well as Annual Increase amounts will adjust based on the financial condition of the fund. More details on the Board’s proposal may be found on the PERA website.

By State law, the Colorado General Assembly sets contribution rates and benefit levels and the PERA Board of Trustees has oversight of investments and benefit administration. More information on the Board of Trustees may be found on the PERA website.

House Bill 17-1176: Critical Shortages in Rural School Districts

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On July 1, 2017, House Bill 17-1176, went into effect in Colorado to address the issue of critical staff shortages in rural school districts. The new law allows rural school districts that declare a critical shortage of teachers, bus drivers, and food service workers to hire retirees to fill these positions.

The PERA Board of Trustees opposed this legislation due to the additional costs associated with allowing retirees to work for an unlimited amount of time in certain situations. The legislation was estimated to add approximately $85 million to PERA’s unfunded liability according to actuarial analysis.

“The PERA Board appreciates the legislative intent of assisting rural districts in Colorado in finding qualified teachers and other support staff. However, the Board must act as fiduciaries and oppose the bill due to the increase in unfunded liabilities presented by the legislation,” said PERA Board Chairman Timothy M. O’Brien in a statement issued after the Board took a position on the bill.

Even though the PERA Board opposed the legislation due to the increased financial obligation, PERA continued to serve as a resource to the General Assembly. PERA staff worked with legislative drafters to ensure that PERA would be able to appropriately implement any potential legislation. During debate on this bill in the House Finance Committee, Representative Gray (D-Boulder/Broomfield Counties) noted, “this [bill] isn’t a free lunch. We’re providing an economic incentive for these folks to teach in rural areas, and it doesn’t come for free….We shouldn’t pretend nobody’s paying for it – PERA’s paying for it.”

Listen to Rep. Gray’s testimony on HB 17-1176:

 


Path of HB 17-1176 to passage and enactment:
• HB 17-1176 passed the House Finance Committee on an 11-1 vote.
• The House Appropriations Committee voted 12-1 in favor.
• The full House voted 60-3 in favor.
• The Senate Education Committee voted 4-3 in favor of the bill.
• The full Senate passed HB 17-1176 on a 29-6 vote.
• The Governor signed HB 17-1176 into law on June 6, 2017.

Prior to this law, Colorado PERA benefits were reduced for all working retirees who exceeded the maximum limit of days worked per calendar year (110 days or 720 hours, or in some cases, 140 days or 916 hours). These rules still exist for typical PERA working retirees, however, with the passage of House Bill 17-1176, rural school districts that declare a critical shortage of teachers, bus drivers, and food service workers have the option to hire retirees to fill these positions. Those retirees can then work as many days or hours as needed without regard to the working after retirement limits.

In Colorado currently, 147 out of 179 school districts are considered rural as defined by the Colorado Department of Education (see the Rural Designations list on this page). In order to qualify for the exemption to working retiree limits, a school district must first declare a critical shortage and then it will be able to hire retirees in those positions under the “critical shortage retiree” definition outlined by the new law.

A provision of HB 17-1176 requires PERA to report to the Legislature in three years the impact of allowing rural school districts to implement this critical shortage designation. The law sunsets on July 1, 2023, six years after being signed into law. The new law requires PERA to conduct an impact study at the conclusion of this six-year period.

Read more from PERA about working after retirement.

Rural School District Critical Shortage Fact Sheet