Month: March 2018

Retirement age requirements: How Colorado PERA stacks up today and under proposed legislation

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As the Legislature debates the details of Senate Bill 18-200, intended to improve PERA’s funded status and lower its overall risk, it is helpful to keep in mind how PERA compares to similar public employee retirement plans across the country – both today and if legislation is approved.

The proposed legislation incorporates many of the recommendations that the PERA Board approved last September, including changes to the age and service requirements necessary for a full service retirement benefit. The Board had recommended increasing those requirements to age 65 for most divisions with a minimum of five years of service. (The recommendation for State Troopers was a lower, but still increased, age.). These increases reflected the data gathered from the experience study that showed the PERA retiree population was living longer than previously projected. Read more about the Board’s changes to actuarial assumptions here and here.

As currently written, the bill would increase age and service requirements for all members who begin employment on or after January 1, 2020, inline with the Board’s recommendations. The bill would also change retirement eligibility for all current members who are age 46 or younger as of that date by adding one year to retirement eligibility for every four years less than age 46, not exceeding 65 years of age.

The minimum age at which an employee can retire and receive a full retirement benefit (often shortened to “retirement age”) is an important component of any retirement plan. Even for Social Security (which is not really a retirement plan but rather a social safety net to reduce old-age poverty), the retirement age for a full, or normal, retirement benefit, is now 66. For many years, it was 65 but has been gradually increasing for people born in 1938 or later. It will continue increasing until it reaches 67 for people born after 1959.

Different pension plans determine retirement eligibility using a variety of factors that typically include some combination of age at retirement combined with years of service (or purchased service, in some cases).

Looking at various features of similar public pension plans across the United States – that is, large public plans with members who, for the most part, do not participate in Social Security – Colorado PERA currently falls in the middle of the pack for retirement age requirements.

The minimum age for a normal PERA retirement is 58 for the most recent hires in the School Division and 60 for the most recent hires in other divisions not including Troopers, giving Colorado one of the lower – but not the lowest – retirement ages in this comparative group. Under the proposed legislation, Colorado’s retirement age of 65 would be one of the higher – but not the highest – retirement ages. And the retirement age would still fall lower than that of Social Security.

Many of the plans with a lower retirement age are making trade-offs elsewhere. For example, Ohio Teachers has a retirement age of 60 but just reduced its cost of living adjustment or COLA to zero. In Kentucky, a number of changes are currently pending in the legislature that would reduce the COLA to 0.75%.

The chart below shows how Colorado’s retirement age requirements compare to this group, reflecting normal or full retirement eligibility requirements for the most recent hires or newest retirement tiers, where applicable.

(It should be noted that the data presented here are simplified for purposes of this discussion and caution must be used in interpreting the information. For example, in Colorado, State Troopers pay a higher employee contribution and have a lower minimum retirement age. While a few of those exceptions are noted, in most cases the most common or average for a given plan is used. Our sources include data compiled by PERA staff in February 2017 and comparison data from the Wisconsin Legislative Council from December 2016.)

Retirement Roundup: Interim CEO Baker tapped to join institutional investor group

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

Council of Institutional Investors taps Ash Williams as new chairman | Pensions & InvestmentsThe Council of Institutional Investors on Wednesday announced that Ron Baker, PERA’s Interim Executive Director, has joined their board and Ashbel Williams, executive director and chief investment officer of the $209.7 billion Florida State Board of Administration, Tallahassee, was named chairman. Other new board members for 2018-2019 include Jerry Albright, CIO of the $146 billion Texas Teacher Retirement System, Austin; Renaye Manley, deputy director, strategic initiatives department at the Service Employees International Union; Thomas McIntyre, international representative at the International Union of Bricklayers and Allied Craftworkers; Hope Mehlman, chief governance officer and assistant corporate secretary at Regions Financial Corp.; and Jennifer Peet, corporate governance director for the Oregon State Treasury and the $78.9 billion Oregon Public Employees Retirement Fund, Salem.

Court overturns Obama-era rule on retirement planners | The New York Times
A federal appeals court has ruled that the Department of Labor overstepped its authority when it wrote a rule that required financial professionals, including brokers and insurance agents, to put their customers’ financial interests ahead of their own. The United States Court of Appeals for the Fifth Circuit overturned a lower court’s ruling in a 2-to-1 decision siding with the plaintiffs, which include several groups representing the financial services industry. The strongly worded decision is not necessarily the end of the fiduciary rule, lawyers said, but its future is highly uncertain.

Kentucky’s pension reform bill is unlikely to pass |Louisville Courier-Journal
Key Senate Republican leaders acknowledged last Wednesday there is little hope for passage of the pension reform bill during the 2018 General Assembly and began warning of serious ramifications if the bill is not passed. “I don’t see a lot of hope for it. That’s just the reality,” Senate President Robert Stivers said Wednesday of the status of the pension measure, Senate Bill 1. The Senate president said, “I am looking at legislation to introduce later on. I do not want to come into a special session, but it may be necessary.”

Women fail to save enough for retirement. Here’s how to fix that |CNBCWhen it comes to saving for retirement, most women aren’t giving themselves a passing grade. Only 12 percent of working women are “very confident” that they will be able to retire comfortably, according to new research from the Transamerica Center for Retirement Studies. Another 46 percent of women are “not too confident” or “not at all confident” about their retirement, according to the survey. That insecurity highlights the unique challenges women face when it comes to saving for their later years.

What retirees can learn from this year’s Oscar winners | Time-MoneyThis year’s Oscars delivered a powerful and inspiring message for anyone who’s nearing or is at retirement age: Achievement doesn’t have an expiration date, and success and fulfillment are still possible even as you’re increasingly reeling in the years.

The irrational thing some people do when they retire | MarketWatchThe best time to save for retirement is decades before it starts, but some people get into the habit of squirreling away money only after calling it quits. Researchers from Columbia Business School and Copenhagen Business School found that after retirement, retirees were more inclined to reduce consumer debt and increase their liquid savings. The data doesn’t give a definitive explanation, but researchers call it the “retirement-consumption puzzle,” suspecting it is a mix of work-related expenses disappearing and more leisure time to spend cooking and looking for better deals.

Lack of retirement savings will cost Pennsylvania $14.3 billion by 2030

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New Pennsylvania study considers increased public assistance, decreased economic activity resulting from insufficient retirement savings.

Insufficient retirement savings will cost the Commonwealth of Pennsylvania $14.3 billion in state assistance by 2030, according to a new study from Pennsylvania State Treasurer Joe Torsella. The study quantified the fiscal and economic impacts of insufficient retirement savings, considering both increased state public assistance costs and loss of economic activity due to reduced tax revenue, household spending, and jobs.

The study notes that the ability of elderly households to maintain their living standards during retirement has significant implications not just on seniors’ quality of life but also for the state’s economic conditions and fiscal situation. The study determined that Pennsylvania spent about $702 million in public assistance due to insufficient retirement savings and lost about $70 million in tax revenue in 2015 alone.

As recent studies have shown, public sector retirement models including the Colorado PERA Hybrid Defined-Benefit Plan provide the most efficient retirement savings, where each dollar saved “provides nearly twice the amount of retirement income than money invested in an individual savings plan because of lower costs and sharing key risks.”

An editorial from the Philadelphia Inquirer cited Treasurer Torsella’s study, noting that the costs of state support for elderly poor Pennsylvanians are crowding out other beneficial spending: “money that could support schools, parks, and infrastructure. And if senior citizens had more secure retirements, they’d be putting more money into the economy.”

Torsella further explained when releasing the study, “insufficient retirement savings will have far-reaching consequences that go well beyond individual implications. We can find a commonsense solution for Pennsylvanians to save now, or we can pay a steep price in increased budget deficits and lost economic activity later.”

Retirement Roundup: What retirement looks like with no savings

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

This is what life without retirement savings looks like | The AtlanticRoberta Gordon never thought she’d still be alive at age 76. She definitely didn’t think she’d still be working. But every Saturday, she goes down to the local grocery store and hands out samples, earning $50 a day, because she needs the money. “I’m a working woman again,” she said in the common room of the senior apartment complex where she now lives, here in California’s Inland Empire. Gordon has worked dozens of odd jobs throughout her life—as a house cleaner, a home health aide, a telemarketer, a librarian, a fundraiser—but at many times in her life, she didn’t have a steady job that paid into Social Security. She didn’t receive a pension. And she definitely wasn’t making enough to put aside money for retirement.

A new idea: Mandatory retirement accounts to help workers delay claiming Social Security |MarketWatchA new proposal would create retirement saving accounts that would enable people to postpone the age at which they claim Social Security, thereby increasing monthly benefits.

The real reason the investor class hates pensions|The New York TimesNo issue in America today better illustrates the divergent interests of working Americans and the 1 percent than pension reform. Substantial empirical evidence shows that the 401(k), recently renounced by its own investors, is grossly inadequate and will leave tens of millions of Americans with insufficient retirement assets. And yet states and cities are busy converting traditional pensions into these failing 401(k)s or equivalents, to the great benefit of money managers and the finance class. 401(k) holders let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vote as shareholders and we never tell our investment managers how we think they ought to vote.

Kentucky pension bill illegal in at least 21 ways, Beshear tells lawmakers |Lexington Herald-Leader
In February, Kentucky Attorney General Andy Beshear told state lawmakers that a proposal to overhaul Kentucky’s ailing public pension systems contains “multiple legal violations.” In a six-page legal opinion, Beshear outlined 21 ways he believes proposed legislation violates the “inviolable contract” the state has made with teachers and employees of state and local governments. “It is clear that if you pass [the bill] into law, you should expect numerous lawsuits, which the commonwealth will lose,” Beshear warned lawmakers.

Retirement experts to new government employees: Think for yourself |GoverningWhen politicians talk about pensions, it’s usually about the enormous weight they place on government budgets. According to the Volcker Alliance, state and local governments are on the hook for $1 trillion in unfunded pension liabilities. Lawmakers on both sides of the aisle push for pension “reform,” a word often used in a positive sense, to rescue dollars that could instead be used for other services. But what about future retirees? Is pension reform positive for them? In many cases, not so much.

31 weird things about retiring you probably didn’t know | Nasdaq
It’s never too early to start thinking about how you want to spend your time — and your money — in retirement. No matter if you’re hoping to retire as early as possible or plan to work until you can’t, having a plan for how you want to spend your senior years helps make sure your dreams come true. Fortunately, there are some weird and interesting facts that could help you make the most out of retirement. Read and see how you can make retirement easy.

Legislation to reduce PERA’s risk profile introduced

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Senate Bill 18-200 ensures PERA is on the path to full funding in 30 years

On March 7, 2018, SB 18-200 was introduced in the Colorado State Senate. The intent of the legislation is to improve PERA’s funded status and lower its overall risk. Sponsors include Sen. Jack Tate (R-Centennial), Sen. Kevin Priola (R-Henderson), Sen. Cheri Jahn (U-Wheat Ridge), House Majority Leader KC Becker (D-Boulder), and Rep. Dan Pabon (D-Denver). SB 18-200 has been assigned to the Senate Finance Committee, and a hearing is expected to be scheduled soon.

The PERA Board held a special meeting on Wednesday, March 7, and directed staff to continue engagement on reform legislation. Bill sponsor Senator Tate had a letter read at the Board meeting thanking the PERA Board for their significant contributions to the development of this legislation. In September 2017, the PERA Board approved a package of recommendations to the General Assembly that would restore the fund’s resilience.

If passed by the Legislature and signed into law by Gov. Hickenlooper, the bill upholds the PERA Board’s goal of bringing all five of PERA’s Trust Funds to 100 percent funding within 30 years. The bill incorporates many of the PERA Board’s recommendations that would impact retirement benefits and contribution levels of all current and future PERA members and retirees. In addition, the legislation includes the Board’s recommended increase in contributions for PERA-affiliated employers. Certain provisions of the legislation would go into effect as soon as this year, while others would be phased-in over the next few years.

The bill includes a set of automatic adjustment provisions that would go into effect to ensure that PERA remains on the path to full funding in 30 years. These provisions would modify employee and employer contributions and the annual increase paid to retirees to offset any deviation from the 30-year timeframe. The bill would also require PERA to report to an interim legislative committee to ensure progress is being made toward full funding. This committee would also have the power to consider and recommend legislation regarding PERA to the full General Assembly.

The legislation would also allow new hires from all divisions the option to choose between the PERA Defined Contribution (DC) plan and PERA’s Hybrid Defined Benefit Plan. Currently, only employees in the State Division have this option.

Below are additional details on how the bill would affect retirees, current members, future members, and employers.

Retirees
The only provisions affecting retirees (who are not working after retirement) are related to the annual increase. For current retirees, there would be a two-year suspension of the annual increase in 2018 and 2019, followed by a reduction in the cap of the annual increase paid each year thereafter to 1.25 percent from the current 2.0 percent.

Current members
The immediate impact for current members would be a phased-in 3 percent contribution increase from the current 8 percent to 11 percent of pay, starting in July 2018.

Like retirees, current members would have a lower cap on the potential annual increase paid. In addition to a reduction in the annual increase, the waiting period would increase to three years from the current one year.

Current members would also see a change to the definition of PERA-includable salary that would include certain pre-tax benefit programs under Sections 125 and 132 of the Internal Revenue Code.

Finally, as currently written, the bill would change the retirement eligibility age for all members who are age 46 or younger as of January 1, 2020, by adding one year to full service retirement eligibility for every four years less than age 46, not to exceed 65 years of age. A similar requirement would apply for reduced service retirement, not to exceed 60 years of age.

In addition to the changes listed above, nonvested members (those with fewer than five years of service credit) would see a change in the length of time used to determine Highest Average Salary (HAS). Currently, HAS is determined by using the three highest years of salary while this proposed legislation would increase the number of years to seven.

New members on or after January 1, 2020
All of the above changes would apply to new members, except for the retirement age eligibility modifications for current members described above. For new hires, eligibility requirements (age and service) for full service retirement benefits would increase to age 65 for most members with a minimum of five years of service and age 55 with 25 years of service for a reduced service retirement (for certain employees, mainly State Troopers, full service retirement benefits will require recipients be age 55).

New hires would earn service credit based on the full-time equivalency of their position.

New hires in all divisions would also be able to choose between the PERA Hybrid Defined Benefit Plan and the PERA DC Plan.

PERA-affiliated employers
For all PERA employers, there would be a phased-in contribution increase of 2 percent of pay beginning July 1, 2018.

Additionally, employers would be required to calculate contributions on PERA-includable salary to include employee participation in certain benefit programs outlined above starting in January 2020.

Finally, for certain Local Government Division employers who choose to disaffiliate from PERA, the discount rate used to determine liabilities will be modified.

To learn more about how the introduced bill compares to the PERA Board’s recommended package from September 2017, please refer to this fact sheet. To stay up-to-date on all PERA-related legislation, please subscribe to the PERA on the Issues newsletter by signing up here.