Month: May 2018

Retirement Roundup: The picture of retirement readiness in America

Posted on by planeteria

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

Fed report offers picture of retirement readiness situation in America | PlanSponsor
Less than two-fifths of non-retired adults think their retirement savings is on track, whereas over two-fifths think it is not on track and about one-fifth are not sure, according to The Federal Reserve Board’s latest Report on the Economic Well-Being of U.S. Households. One-quarter of non-retired Americans indicate that they have no retirement savings or pension whatsoever.

4 retirement reform bills you need to know about | BenefitsPRO

The U.S. House of Representatives subcommittee on Health, Employment, Labor, and Pensions considered four pieces of legislation that would update the Employee Retirement Income Security Act, which subcommittee Chair Rep. Tim Walberg, R-MI, said was “beginning to show its age.” Proposals that would encourage wider adoption of annuities in 401(k) plans, increase the cash-out limit for former employees, promote Multiple Employer Plans for small employers, and allow participants to get plan documents via email met little opposition from lawmakers and the four panelists invited to testify.

Retirement shortfall: 31 percent of Americans have less than $5,000 saved | USA Today
As a group, Americans have shockingly little saved for retirement. Northwestern Mutual’s 2018 Planning & Progress Study, which surveyed 2,003 adults, found that 21 percent of Americans have nothing saved at all for their golden years, and a third of Americans have less than $5,000. To put that into perspective, it means that 31 percent of U.S. adults could last only a few months on their savings if they had to retire tomorrow.

Three health care costs your retirement plan should address | USA Today Network
Planning for retirement? Don’t forget health care. According to Fidelity Benefits Consulting, a 65-year-old couple retiring in the last year will spend $275,000 on health care, not including long-term care expenses. This can be a real surprise for some consumers. There is a misconception that once a consumer reaches Medicare eligibility, there are no more out-of-pocket health care costs, but that is not the case. Medicare does not cover everything, so planning ahead for health care expenses is a crucial part of a comprehensive retirement strategy.

Closing the gap for retirement haves and have-nots | Forbes
The Employee Retirement Income Security Act (ERISA) was established in 1974 to give employees retirement income security. Why, then, after 40-plus years, are Americans so underprepared for retirement? According to a 2015 study from the Government Accountability Office, “About half of households age 55 and older have no retirement savings (such as in a 401(k) plan or an IRA).” Even those who have saved have saved poorly.

5 retirement rules to live by | Motley Fool

Rules can be annoying sometimes, but many of them, such as “look both ways before crossing the street,” can keep us alive and well. There are some valuable rules related to retirement, too, and if you keep them in mind, your last decades can be much more comfortable than they otherwise would have been. Here are five important things to understand about retirement – and to factor into your planning.

S&P to revisit Colorado’s credit rating post-SB 200

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UPDATE: On June 7th, S&P Global Ratings “affirmed and revised the outlook to stable from negative on its ‘AA’ issuer credit rating (ICR) on the state of Colorado, its ‘AA-‘ long-term rating on its lease debt and certificates of participation (COPs) outstanding, and its ‘A+’ long-term rating on the state’s moral obligation debt outstanding. We have revised the outlook on all our ratings to stable following the state’s adoption of pension reform in its 2018 legislative session, which, in our view, should be sufficient to prevent further decline of the funded ratios in the current outlook period.”

As the Colorado General Assembly debated Senate Bill 18-200 during the recently concluded legislative session, one of the primary reasons cited for needing to pass the legislation this year was the possible negative effect Colorado PERA’s unfunded liability could have on the State’s credit rating.

The Standard & Poor’s (S&P’s) credit rating agency last fall issued a warning that a potential downgrade to Colorado’s credit rating could occur, due in part to the State’s long record of underpaying its share of the PERA fund costs. If a downgrade should occur, it would cost more for governmental entities to borrow money for capital projects. (For more information on the sources of PERA underfunding, see this PERA on the Issues post.)

But the passage of SB 200 on the final day of the legislative session may already be paying dividends. On May 21, S&P issued a release stating that the agency would review the new law after Governor Hickenlooper signs it, which is expected in early June. The note’s authors added that if the new law credibly appears to be improving PERA’s funding ratio it should forestall a downgrade of the State’s credit rating. The agency remains open to upgrading the credit rating if the bill “will sustainably improve funded ratios over the long term.”

Read the full text of Standard & Poor’s release.

Direct distribution of $225 million helps return PERA to full funding

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A key component of SB 200, the legislation passed at the end of the 2018 legislative session that will put PERA on a path to full funding within 30 years, is a direct infusion of funding from the state budget.

If this legislation is signed into law by Governor Hickenlooper, beginning on July 1, 2018, PERA will receive $225 million as a direct distribution from the state. By statute, payments will continue each year until PERA is fully funded, meaning that there are no unfunded actuarial accrued liabilities in any division of PERA that receives the distribution.

PERA will allocate the direct distribution as proportionate to the trust of each division (Denver Public Schools, Judicial, School, and State). The Local Government Division Trust Fund, which has a higher funded ratio, will not receive an allocation. Unlike the other divisions, SB 200 does not increase the employer contribution from the Local Government Division.

The $225 million allocation can be impacted by the auto adjustment provision in SB 200, but by no more than $20 million per year. Additionally, the disbursement is capped at $225 million.

All funds from the direct distribution will go toward paying off PERA’s unfunded liability.

For additional information on this provision of SB 200, please see this fact sheet.

2018 Board Election Underway

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Ballots for the 2018 PERA Board of Trustees election were mailed earlier this month. Not every seat on the Board is open every year, so members of the Judicial and Denver Public Schools (DPS) divisions will not receive ballots, and because neither of the retiree seats is open this year, ballots will not be mailed to retirees.

Additional candidate information is available online:

State Division Candidates

School Division Candidates

Local Government Division Candidates

All voting (mail, internet, phone) concludes at midnight on May 31, 2018. Results will be announced on June 22.

The Board of Trustees is a group of 16 professionals who are responsible for overseeing PERA’s investment program and the administration of PERA’s benefits. (However, the Colorado General Assembly, with the approval of the Governor, has responsibility for changing PERA benefits or contributions.) All Trustees serve as fiduciaries and as such must act in the best interest of all members and retirees.

State law describes the responsibilities of the Board and the process for Trustees to be selected.

Twelve Trustees are elected by PERA members and retirees, three Trustees are appointed by the Governor and confirmed by the State Senate, and the State Treasurer serves as an ex officio Trustee. The Board of Trustees meets at least five times per year and is responsible for adopting the rules and policies for the administration of PERA. Elected Board members serve without pay, but are reimbursed for necessary expenses.

For more information on the role of the Trustees, see this PERA on the Issues post.

Retirement Roundup: Good and bad news for those thinking about retirement

Posted on by planeteria

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

Good news and bad news for people thinking about retirement | CNBC
Nearly half of Americans anticipate an uncomfortable retirement. Don’t listen to them. People are pessimistic about their financial future, but when their later decades finally roll around, well, they’re not so bad, according to new findings from Gallup. After retirement, the share of people who report being comfortable swells to nearly 80 percent, the survey discovered.

What retirees need to know about rising Medicare costs | CNBC
This year, high-income retirees can expect to shell out even more money to cover their Medicare premiums. That’s because as of 2018, there is a shift in the income brackets that are used to determine how much older Americans will pay for their Medicare Part B (preventive services) and Part D coverage for prescription drugs, according to a recent analysis by HealthView Services, a provider of health-care cost projection software.

The best countries to retire in (America’s not on the list) | MarketWatch
You may want to pack your bags because the United States did not make the list of 50 countries where it’s cheapest to retire. India ranked first, as ex-patriots would pay 93 percent less in rent than they would for a New York City apartment and save 70 percent on groceries, according to personal finance site GoBankingRates. Also ranked high on the list were Saudi Arabia, Mexico, Czech Republic, Germany, Turkey, and Taiwan. What makes them so great? The low cost of living, the less expensive health care, and the purchasing power Americans would have, to name a few.

How rising rents are impacting retirees | MarketWatch
Boomers and Gen Xers are now the most “rent-burdened” Americans, according to a new Pew Charitable Trusts report, Americans Face a Growing Rent Burden. And things have only been getting worse for them. Pew defines rent-burdened as spending 30 percent or more of your income on rent; people who spend 50 percent or more on rent are, in Pew’s words, “severely rent burdened.”

This map shows how long $1 million in retirement savings will last in every state | Time-Money
Location, location, location. It’s the battle hymn for buying real estate and a huge factor for retirees looking to make their savings last. All things being equal, $1 million in savings will last nearly twice as long in “low-cost” states such as Arkansas or Kansas than it will in Hawaii, according to an analysis of state-by-state retirement cost-of-living data by HowMuch.net. What mattered most? Not surprisingly, housing costs and healthcare are the biggest variables to extending retirement savings.

No luck finding the right nursing home? Maybe Yelp can help | The New York Times
Can you really select a quality nursing home by reading Yelp reviews? Gerontologists at the University of Southern California have been looking into Yelp nursing home reviews and think they make a useful addition to the homework any prospective resident or family member needs to undertake. It’s not that reviews posted to online platforms like Yelp are such reliable guides to nursing home quality, said Anna Rahman, senior author of a recent article in The Gerontologist. It’s that the supposed gold standard, the five-star ratings on the federal government’s own Nursing Home Compare website, remains so faulty.

General Assembly approves Senate Bill 18-200 to return PERA to full funding

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Late Wednesday evening, May 9, the Colorado General Assembly voted to approve Senate Bill 18-200, sending legislation that will return PERA to full funding over 30 years to the Governor for his signature.

All stakeholders—PERA members, retirees and employers—will be impacted by the legislation. It will reset PERA’s path to financial resilience, making the retirement fund stronger and more stable.

Having already been approved by both the Senate and the House, the legislation passed out of conference committee Wednesday evening and, later on the 9th, was again approved by both chambers. Some of the key provisions of the bill in its final form include:

•  PERA receiving an annual direct distribution from the state budget of $225 million.
•  Increasing employer contributions by 0.25 percent beginning July 1, 2019 (except Local Government employers).
•  A phased-in increase of employee contributions for most members by an additional 2 percent, reaching a total of 10 percent of pay by 2021.
•  Suspending the Annual Increase (AI, or Cost of Living Adjustment) for 2018 and 2019.
•  Capping the Annual Increase at 1.5 percent and increasing the waiting period from one to three years.
•  Increasing the age and service requirements for new hires as of January 1, 2020 to:

°  Any age with 35 years of service
°  Age 64 with 30 years of service
°  Age 65 with five years of service
°  Age 55 with 25 years of service for state troopers
°  Age 65 with five years of service for state troopers

•  Increasing from three to five the number of years used to calculate Highest Average Salary (HAS) for non-vested members as of January 1, 2020.
•  Implementing an Automatic Adjustment Provision for contributions, Annual Increases and the state’s direct distribution that will keep PERA on a path to full funding in 30 years.
•  For new members hired on or after January 1, 2019, expanded access to the PERA Defined Contribution (DC) Plan for the Local Government Division, and for classified college and university employees.

PERA on the Issues will continue to publish additional information about the legislation and its impacts on current retirees, members and employers. More details about Senate Bill 200 in its final form are available here.

House approves Senate Bill 18-200

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With the 2018 legislative session soon drawing to a close, Senate Bill 18-200 (SB 200) cleared its latest legislative hurdle on Tuesday morning, when the Colorado House passed the legislation.

The vote came after a clarification about 21(c) rules, which enable legislators to recuse themselves from a vote if they have a conflict of interest in the matter at hand. The final tally was 38-23, with four lawmakers excused. On May 2, the Senate moved to create a conference committee to work out the differences between the two chambers.

On Monday evening, SB 200 passed the House on a voice vote during second reading, after about 90 minutes of spirited and amicable bipartisan debate. The deliberations didn’t begin until just after 8:00 p.m., reflecting state lawmakers’ packed agenda with only nine days left on the legislative calendar.

During approval discussions about the House Finance Committee report, representatives offered 16 amendments, including four related to restoring the defined contribution plan option that the House previously amended out of the Senate version of the bill. Those four motions all failed, but eight of the other amendments passed. These included:

  • Three technical amendments that corrected or clarified prior language in the bill
  • A deletion of the previous version with new members after December 31, 2019, retiring at any age and 40 years of service credit at 65 with 5 years of service credit and adding retirement eligibility for new hires at age 60 with 30 years of service credit
  • Expansion of the existing Police Officers’ and Firefighters Pension Reform Commission to include oversight of PERA and creating a Subcommittee exclusively focused on PERA and staffed with four legislators appointed from the Commission and ten appointed external experts in relevant industries.
  • A provision that allows the annual direct distribution from sources in addition to the General Fund via the budgeting process
  • A change to the direct distribution provisions that delineates the amount assigned to the state and to K-12 public education

Later on Monday evening, during the Committee of the Whole reading after the main proceedings, Rep. Polly Lawrence (R-Roxborough Park) offered two amendments. The first would change the Highest Average Salary calculation to seven years and was defeated, 37-28. Rep. Lawrence’s second amendment to raise the retirement age for new PERA hires to age 65 also went down, 36-29. Rep. Kevin Van Winkle (R-Highlands Ranch) reintroduced his amendment to reinstall the defined contribution option for new PERA hires into the bill, but it also lost, 36-29. And Rep. Justin Everett (R-Jefferson County) moved to indemnify the State Legislature and taxpayers against legal action as a result of the passage of SB 200. This amendment also was defeated, 37-28. The House voted to adopt the Committee of the Whole report, 43-22.

To see a comparison of the latest version of Senate Bill 200 with prior versions and the Board’s recommended package, please see this chart.

Asset class in-depth: private equity

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Colorado PERA’s asset management focuses on maximizing risk-adjusted investment performance from the broad universe of investable assets. All PERA investment decisions are governed by a Board-adopted investment philosophy and set of beliefs, including the Private Equity asset class. (See PERA’s Statement of Investment Policy for details.)

PERA differentiates its Investment Department by specific asset classes: Equities, Fixed Income, Private Equity, Opportunity Fund, and Real Estate (additional information on asset allocation can be found in a prior PERA on the Issues post, “Asset Liability Study Plots Course for Future”).

The private equity program’s objective is to generate investment returns in excess of the publicly traded markets as well as to deliver investment returns that rank highly against the private market opportunity set. Currently, the Board’s target allocation range to private equity is between 5 and 12 percent, with assets at the end of 2016 at 8.4 percent ($3.7 billion) of the total $44 billion portfolio.

PERA was an early institutional investor in privately held (non-publicly traded) companies. The first private equity investment (formerly called Alternative Investments) PERA made was in 1982. Over the last 30 years, PERA has been able to develop relationships with the key investors and top-performing funds in the private equity space. Since inception, the private equity asset class has had an annualized net internal rate of return (IRR) of 10.4 percent as of December 31, 2016.

For a quick look at PERA’s private equity performance by the numbers, click here.

Unlike public equities (stocks) and fixed income (bonds) where the price of the investment is publicly known, private equities are not traded on a public exchange. In addition, much of the information on the underlying investments is generally not publicly disseminated. In fact Colorado state law limits the amount of information on PERA’s private equity investments that can be disclosed. In order to promote transparency in PERA’s private equity investments within the limits of the law, PERA posts a summary of private equity investments after these investments are audited each year.

The challenge for investors like PERA is balancing public access to private information with the need to be good stewards on behalf of the PERA membership, all the while upholding contractual obligations that allow PERA to maintain constructive relationships with investment partners. PERA uses a two-tiered approach, providing a summary of the investments in the portfolio on an annual basis which is available to the public (see above), in addition to providing more detailed information to the PERA Board to assist in their oversight of the program. The PERA Board receives information on each private equity investment made. This information, while not publicly available, allows Trustees to have detailed information on private equity investments. Disclosures made to the Board by staff include a fund overview, investment strategy, a summary of key investment personnel, historical investment performance, and fees. In addition, Trustees may request additional information, as available.

As the private equity investment asset class has evolved, so has PERA’s approach. PERA investment staff recognized that the asset class broadly was growing and that more investors (and their assets) were being attracted to the asset class due to its higher expected returns. With the growth of the private equity asset class, it became increasingly clear that standardized, detailed data on partnership terms would be helpful to review on an ongoing basis. To that end, PERA was an early supporter of the Institutional Limited Partner Association (ILPA), an organization created “to enhance and improve investor reporting and transparency.”

Working with other institutional investors, members of the private equity community, and through active participation in the ILPA, PERA has promoted increased disclosures and transparency of private equity investments. Careful consideration of the value to access private equity investment opportunities, as well as being prudent stewards of retirement assets, is balanced by PERA’s two-tiered approach to disclosing private equity investment information to the Board and public.

For more information on the PERA investment program see these PERA on the Issues posts:

What is a Policy Benchmark?

Asset Class In-Depth: Fixed Income

Asset Class In-Depth: Equities

A Brief Look at PERA’s Opportunity Fund

Retirement Roundup: Retirement confidence on the rise?

Posted on by planeteria

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

Retirement confidence is up, but there’s a catch |Next AvenueBuoyed by a sharp rise in stock prices that left many retirement savers feeling flush, the number of U.S. workers who say they’re confident about their ability to retire comfortably edged up last year, according to a sweeping new survey. Sixty four percent of workers surveyed said they’re very or somewhat confident about their financial prospects in retirement, up from 60 percent in 2016. Confidence was even higher among those closest to quitting time: 71 percent of workers aged 55 and older professed confidence they’ll have enough money to live comfortably in retirement. The big catch to this seemingly good news story: For many Americans, the faith in their ability to live well after they stop working full-time seems to be misplaced. That’s the big takeaway from the 28th annual Retirement Confidence Survey, the country’s longest running look at the retirement prospects for workers and retirees. Conducted by the nonprofit Employee Benefit Research Institute (EBRI) with the research firm Greenwald & Associates, the survey reflects the expectations and experiences of more than 2,000 Americans aged 25 and older, roughly split between workers and retirees, who were polled online in January.

The big myth about America’s pension crisis | CNN
America’s pension crisis is growing — and a lot of people are pointing fingers. Public pension funds don’t have nearly enough money to pay for the benefits promised to government workers. The shortfall across the United States grew by $295 billion between 2015 and 2016, according to a recent report from the Pew Charitable Trusts. And a handful of cities and states, including California, Illinois and Kentucky, must cover enormous costs if they are going to make good on the promises made to public employees as they retire.

2018 best places to retire | Forbes
This year’s roundup spotlights 25 cities in 18 different states across the country. They were selected based on an assortment of retirement-friendly features — from walkability to affordability — as well as data from the Milken Institute, National Association of Realtors, Bureau of Labor Statistics and more.

What happens if you try retirement and decide it’s not for you? |Motley Fool
In this segment from an episode of Motley Fool Answers, Robert Brokamp and Alison Southwick consider a slightly heretical idea for a company with a mission to get people financially ready for retirement: Maybe you don’t really want to retire at all. Jumping off from a New York Times article that interviewed a number of people who had quit working, then gone back, they talk about the way society and we, as individuals, have changed since the traditional idea of retirement really took hold. They then weigh the value of just postponing retirement, and dig into the results of a recent study that shows how remarkably even a short delay will improve your financial situation when you finally do settle down to your post-employment life.

Your Social Security check could be less than you expect. Here’s how to prevent that |CNBC
You may be disappointed with the size of your Social Security check in retirement. To that point, 27 percent of retirees said their payments are less than they expected, according to the latest Social Security survey conducted by Nationwide Retirement Institute. At the same time, aspiring retirees said they expect to receive $1,628 per month on average. But current retirees are receiving an average of $1,257 per month. That 30 percent difference can be a really big deal for retirees who do not anticipate that shortfall, according to Tina Ambrozy, president of sales and distribution at Nationwide. “There’s a huge disconnect between what those folks who are approaching retirement believe their retirement will cover and what it will cover,” Ambrozy said. “The gap is pretty significant.”

Our retirement system is unfair to women. Here’s why |MarketWatchA lot has been written about the “sandwich generation,” working adults under pressure to raise kids and care for aging parents — and probably forgoing their own financial needs to pull it off. To which women of just about any generation might say: Welcome to my world! Kara Stiles at Forbes wrote an excellent piece that details the problems women face in saving for retirement. These include the wage gap, losing earning years to caregiving for children, working part time (so no benefits), and just plain living longer than men. That’s why women are 80 percent more likely than men to be poor at retirement age, according to the National Institute on Retirement Security.