October 2017 | Colorado PERA

Telephone Town Hall Frequently Asked Questions

Posted on October 18, 2017May 23, 2024 by planeteria

On Tuesday, June 26, Colorado PERA conducted telephone town halls for members and retirees. If you missed the calls, recordings and transcripts of each call have been posted here.

A summary of the most asked questions and responses is below. Questions about individual retirement benefits may be answered by contacting PERA Customer Service at 1-800-759-7372.

Q: How does the automatic adjustment feature in Senate Bill 200 work?

A: The provision requires automatic changes to four components of PERA funding: member contributions, employer contributions, the State’s direct distribution, and the annual increase (AI) paid to retirees. Prior to SB 200, the only way that contribution rates or annual increase percentages could change was by passing legislation.

With the automatic adjustment feature of SB 200, if PERA’s projected period to reach full funding falls behind the funding goal, contributions and the direct distribution would increase (the direct distribution will not exceed $225 million) while the AI would decrease (but not lower than 0.5 percent). If the funding period moves ahead of the goal, contributions and the direct distribution would decrease, and the AI would increase. There are limitations on increases or decreases in a single year.

See the Automatic Adjustment fact sheet for details.

Q: Why are the different divisions within PERA treated differently? For example, employers in the Local Government Division won’t be contributing more and won’t receive any of the direct distribution from the State.

A: The reason behind a different contribution level for Local Government employers is the division has a better funded status and the additional contributions were not needed to bring the division to full funding within 30 years. Keep in mind that employers in the Local Government Division do not receive funding from the State currently and therefore are not included in the divisions receiving a portion of the direct distribution.

Q: What was the impact of SB 200 on PERA’s funded status?

A: Each division is a separate trust (School, State, Denver Public Schools, Judicial, Local Government). The projected amortization period (or the time it will take to be fully funded) for each division, recognizing the changes in SB 200 and incorporating the 2017 investment return, is below.

Amortization Period for Each Division

Division	Projected Period of Time to Reach Full Funding
State	27 years
School	30 years
Local Government	15 years
Judicial	15 years
Denver Public Schools (DPS)	17 years

Q: How does the direct distribution work?

A: In short, the direct distribution of $225 million will come directly to PERA from the state budget each year. This amount may decrease, if the automatic adjustment provision kicks in, but will never exceed $225 million. For more information, please see this PERA on the Issues post and fact sheet.

Q: I recently read an article about PERA’s investment expenses. Can you explain what PERA spends on investment fees?

A: The article was focused on private equity and real estate investment fees. The goal of these asset classes is outperformance and diversification versus the public markets over the long term, which they have provided. For the 10-year period ending December 2017, PERA’s investments have outperformed a hypothetical 60 percent global equity, 40 percent fixed income portfolio by approximately $3.1 billion dollars. In other words, PERA’s investment program that includes private equity has generated $3.1 billion more than if PERA didn’t invest in the asset class. .

Up, Up, and Away: Health Care Premiums Keep Going Up

Posted on October 4, 2017May 22, 2024 by planeteria

How the right choice of health plan can help minimize out-of-pocket costs

The news is full of information about the increase in health care premiums for 2018 and while these increases are surely unwelcome, they are also, unfortunately, part of a national trend.

According to an article from Kimberly Amadeo, The Rising Cost of Health Care by Year and Its Causes in The Balance, U.S. health care costs grew to $3.2 trillion in 2015, equaling 17.8 percent of gross domestic product. For comparison, in 1960, health care costs were $27.2 billion, or only 5 percent of GDP. That comes to $9,990 per person in 2015 compared to just $146 per person in 1960.

The annual Kaiser Employer Health Benefits Survey found that for 2017, annual premiums for employer-sponsored family health coverage reached $18,764, up 3 percent from last year. And for those buying insurance on an exchange or private market plan in 2017, the average annual increase before subsidies was 25 percent, according to the National Conference of State Legislatures.

Over the past five years, premiums for an employer-provided family insurance plan have climbed 19 percent, while worker pay increased only 12 percent, a Bloomberg analysis of data from Kaiser and the federal government shows. Meanwhile, the U.S. Department of Labor’s Consumer Price Index climbed only 6 percent in that time.

Amadeo, in her look at the rising cost of health care, cites government policy and lifestyle changes as two causes driving the increase. The United States relies on a combination of company-sponsored private health insurance and government programs like Medicaid and Medicare to help those without employer-sponsored insurance. This has led to demand for health care services, giving providers the ability to raise prices.

Chronic illnesses such as diabetes and heart disease have also increased. According to the Centers for Disease Control and Prevention (CDC), 86 percent of the nation’s annual health care expenditures are for people with chronic and mental health conditions.

With health care costs rising across the board, it can be challenging to decide which insurance plan is the best option. While cost is definitely a big factor, there may be other priorities, such as choice of provider, prescription coverage, and even personal risk tolerance.

For anyone looking to purchase healthcare this year, including pre-Medicare PERACare enrollees, the following questions may be particularly useful to ask when choosing a health plan:

Is keeping your current doctor or primary care provider important?

If it is important to you to keep your current doctor or providers, call their office and ask if they participate in the plan options you are considering. If they do not participate, but you continue to see them, you’ll either pay more or possibly the entire cost. You could also consider changing doctors.

What is your risk tolerance?

You will usually pay lower monthly premiums if you agree to a higher deductible. A good rule of thumb: if you didn’t come anywhere close to hitting your deductible this year or last, you can probably choose an even higher deductible for the upcoming plan year and save a lot on premiums. But consider whether you have the savings you need to pay the full deductible if this becomes necessary.

What kind of care do you anticipate needing in the next year?

If you’re relatively healthy and have enough savings to cover a health care emergency, choosing a higher deductible plan often makes sense because of the savings in premium. But if you tend to have high health care costs, or you’re short on savings, take a careful look at what your health care needs could be in the next year – both what you expect, and what you might need in a worst-case scenario. It may be worth paying more upfront for a lower cost when you need care.

Remember that preventive care is covered in full, including annual physicals, vaccinations, and preventive tests – as long as you use an in-network physician.

The importance of estimating your cost.

Once you’ve considered the care you may need in the next year, estimate your health care costs. Remember that health insurance is not designed to pay for everything, but for the insurance to share cost with you. Your share comes into play via deductibles, coinsurance, copays, and premiums.

Resources:

PERACare Pre-Medicare Enrollment Guide

PERACare Pre-Medicare 2018 Health Benefits Program

How Does PERA Measure Up?

Posted on October 4, 2017May 22, 2024 by planeteria

“Celebrate that you are member service superstars – a low-cost, high-service system. Colorado PERA ranks 5^th in the world when it comes to member satisfaction and service delivery.” – Tom Scheibelhut of CEM Benchmarking

Just like the investment side of PERA is benchmarked and evaluated, so is the administrative side of the plan. CEM Benchmarking, an international firm that analyzes pension fund service delivery, compared PERA to its peer group of 13 U.S. pension plans and to a larger universe of 71 plans around the world.

The range of U.S. pension plans varies from CalSTRS and CalPERS in California to the systems in Iowa, Kansas, and Utah. Global pension plans studied include ABP and PFZW in The Netherlands to the Ontario Pension Board and the British Columbia Pension Corporation in Canada, and numerous other plans in several countries.

For 2016, PERA’s administrative costs were well below the average of both the 13 funds in its peer group and the 71 pension funds evaluated across the globe. PERA’s annual pension administration costs were $51 per active member per year (or annually), inactive member, and retiree, or $10 below the peer average of $61 per year.

The reasons for PERA’s lower than average costs included higher employee productivity and lower costs for information technology and economies of scale. PERA had 3.4 full-time employees (FTE) per 10,000 members, below the peer average of 4.4.

PERA’s overall service score, measuring the customer service PERA provides its members and retirees, was 90 out of 100. Only four funds out of the 71 measured had higher service scores than PERA.

“CEM’s independent, third-party analysis of PERA’s operations confirms what members and retirees tell me about PERA’s customer service delivery. Being part of this global benchmarking effort allows PERA to learn from others in our industry and to implement good ideas that benefit our membership. And it affirms PERA’s commitment to the wise use of our members’ retirement assets,” said Greg Smith, PERA’s executive director.

The results of the CEM Benchmarking study further demonstrate the strong commitment of PERA to deliver exceptional service for PERA members and retirees. PERA provides this level of service at a low cost, protecting the retirement savings of its members and continuing to be one of Colorado’s best investments for members, retirees, and taxpayers across the state.

Pensions Play Critical Role in Recruiting and Retaining Teachers, Research Shows

Posted on October 18, 2017May 22, 2024 by planeteria

Traditional pension-type retirement plans play a critical role in recruiting and retaining good teachers and save districts money, according to new research from the National Institute on Retirement Security (NIRS).

In Revisiting the Three Rs of Teacher Retirement Systems: Recruitment, Retention and Retirement, NIRS finds that:

Defined benefit (DB) pension plans like Colorado PERA’s hybrid plan help retain teachers, increasing their effectiveness as they become more experienced.
The retention effects of DB pension plans save school districts money – between $131 and $284 million nationally in 2009 – through reduced teacher turnover costs.
When compared to defined contribution (DC) accounts, DB plans help to recruit high quality teachers and retain highly productive teachers longer.

Multiple examples of research findings across industries and sectors, including but not limited to public school teachers, show that employees highly value pension-type retirement benefits, making them both a strong recruitment and retention tool.

The research brief explains that teacher effectiveness increases with experience, meaning that great teacher retention creates higher overall teacher productivity. Teachers become more effective as they gain experience, with effectiveness increasing sharply within the first three to five years of teaching. The youngest, least experienced teachers have the highest turnover.

The research found that in 2009, DB plans helped to retain 30,000 teachers nationwide. Because the cost of teacher turnover, which includes recruitment, hiring, and orientation, is substantial, the retention effects saved school districts between $130.7 million and $284.4 million nationally in teacher turnover costs.

As the research brief notes, “because DB pensions play an important role in the retention of highly productive teachers, pensions have the dual benefit of both increasing the overall quality of our public education system while also reducing the costs to taxpayers.”

Review a NIRS presentation about the research here.

Retirement Roundup: Older Workers, New Problems

Posted on October 4, 2017June 26, 2024 by planeteria

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

“I’m going to work until I die:” The new reality of old age in America | Washington Post
People are living longer, more expensive lives, often without much of a safety net. As a result, record numbers of Americans older than 65 are working — now nearly 1 in 5. That proportion has risen steadily over the past decade, and at a far faster rate than any other age group. Today, 9 million senior citizens work, compared with 4 million in 2000.

Having Children Can Ruin Your Retirement | Bloomberg
Parenthood has plenty of non-monetary perks, but the financial effects can last the rest of your life. It may seem obvious that kids make it harder to save. In practice, however, parents can compensate for the extra costs of parenting by spending less on themselves. Parents are often forced to budget carefully—a skill that will pay off long after their children are grown. Some people may even decide to take their careers more seriously after having kids, and studies show that some fathers end up earning more than if they’d remained childless.

Colorado spends the most on out-of-pocket health care but that could be a good sign | Denver Post
Colorado spends the most on out-of-pocket health care costs, according to a JPMorgan Chase Institute healthcare spending study. But that’s not necessarily a bad sign. The study, examining anonymous data from 2.3 million Chase customers across 23 states from 2013-16, found that families increased their health care spending when they came into more income or assets.

Why The Tax Reform Crew May Target Your Retirement | Forbes
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.

Who’s Left Out of 401(k) Nation | Bloomberg
Only 45 percent of U.S. workers participate in an employer-sponsored retirement plan, according to the Pew Charitable Trusts. Many don’t even have the option—one-third of U.S. workers aren’t offered a pension or 401(k)-style plan by their employers.

Proposed 401(k)s cost more than Kentucky’s existing defined benefit pension plans | Northern Kentucky Tribune
Kentucky needs ideas that work to reduce its unfunded pension liabilities. Moving employees into 401(k)-type defined contribution plans is actually more expensive, increases the cost of paying off existing liabilities, and harms retirees, while making it much more difficult to attract and retain a skilled workforce.

Retirement Roundup: Social Security Gets a Bump

Posted on October 18, 2017April 11, 2024 by planeteria

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

Social Security going up 2 percent in 2018, average recipient to get extra $25 a month | Denver PostMillions of Social Security recipients and other retirees will get a 2 percent increase in benefits next year. It’s the largest increase since 2012 but comes to only $25 a month for the average beneficiary. Over the past eight years, the annual COLA has averaged just above 1 percent. In the previous decade, it averaged 3 percent. The average monthly Social Security payment is $1,258, or about $15,000 a year.

Bad news: Your 401(k) won’t give you a decent retirement | Los Angeles TimesFor nearly 40 years now, we’ve been hearing that 401(k) plans are the key to a comfortable retirement. By giving a tax break to workers contributing part of their paychecks to their retirement nest eggs, the plans were designed to supplement Social Security benefits and employer pensions. A new survey from Boston College’s Center for Retirement Research demonstrates, however, that 401(k) plans are destined to fail millions of Americans. They’re not offered by enough employers, they’re not taken up by enough workers, and for most people, their balances aren’t large enough to provide for a decent retirement.

Thank Richard Thaler for Your Retirement Savings | Bloomberg
Over the last few decades, as more and more American employers killed off their pensions, workers were offered 401(k)s or similar retirement plans, with defined contributions instead of defined benefits. These voluntary accounts should have worked, in theory. Standard economic theory assumes people act rationally: Workers, left to their own devices, should save and invest properly to meet their long-term goals. But Thaler and other adherents of behavioral economics pointed out that workers saving for retirement can be their own worst enemies. Without help, Thaler argued, they’ll never retire.

Pre-tax Retirement Contributions at Risk in Trump Tax Reform | MarketWatchTax reform proposals of past years from both political parties have targeted the break people get for 401(k)s because it is a gigantic source of untaxed money – perhaps more than $580 billion over five years, according to a 2016 Joint Committee on Taxation estimate. If Congress gets rid of this system, saving for retirement would be more like saving in a Roth IRA or Roth 401(k). With a Roth, you do not get any tax benefit when you contribute, but the money grows tax-free in the accounts. These accounts are also not subject to required minimum distributions, which retirees must take from 401(k)s beginning at age 70 1/2.

How Much Does Out-of-Pocket Medical Spending Eat Away at Retirement Income? | Center for Retirement Research at Boston CollegeThe adequacy of retirement income – from Social Security benefits and other sources – is substantially reduced by Medicare’s high out-of-pocket (OOP) costs, according to a new report.

DB Plans Far From Being Eliminated | Plansponsor
While headlines have stated the disappearance of defined benefit (DB) retirement plans, a report from Aon shows only 6 percent of U.S. corporate DB plan obligations have actually been settled since 2012. “While the number of closed and frozen defined benefit plans continues to increase, plan sponsors still have an obligation to fund these plans, which means they are far from being eliminated altogether,” says Rick Jones, retirement and investment senior partner at Aon.