September 2018 | Colorado PERA

New research shows retirement insecurity persists despite economic recovery

Posted on September 21, 2018May 23, 2024 by planeteria

Recent research by the National Institute on Retirement Security (NIRS) found that the typical working-age American has no retirement savings, with 59 percent of Americans ages 21 through 64 (more than 100 million individuals) not having any retirement account assets. This includes employer-sponsored 401(k)-type plans and IRAs, as well as defined-benefit (DB) pensions like PERA. The report, “Retirement in America: Out of Reach for Working Americans,” underscores the importance of access to stable and secure pensions.

NIRS found that saving for retirement is closely correlated with income and wealth, with retirement account holders earning more than three times the income of those who do not have retirement accounts. Even for older workers approaching retirement (ages 55-64) who do have retirement accounts, their median (half higher/half lower) account balance is $88,000. Using a traditional withdrawal rate of 4 percent a year, an account with $88,000 would generate only $300 in monthly income for a retiree.

Retirement savings adequacy is becoming even more critical as changes to the Social Security retirement age are beginning to impact retiring Baby Boomers. As the age for reaching full Social Security eligibility is gradually increasing to 67, the monthly benefit for those who begin receiving Social Security early at age 62 is diminishing even further. NIRS notes that these early retirees would need to have 14 times the amount of their annual salary saved by age 62 in order to reach an income-replacement rate of 10 times income at age 67, as recommended by financial experts like Fidelity.

Read more about how Coloradans and most Americans are worried about retirement.

These retirement inadequacy findings by NIRS echo those of a GAO study performed in 2017 that found a “shift to DC plans [defined-contribution plans like 401(k)s] has increased the risks and responsibilities for individuals in planning and managing their retirement.”

NIRS identifies several public policy solutions to address the lack of retirement savings. These include strengthening Social Security and expanding access to retirement savings accounts for working Americans. NIRS also recommends enhancing the Saver’s Credit, a federal tax deduction for lower-income workers’ contributions to retirement savings accounts.

The NIRS and GAO research underscore the value of a defined benefit retirement plan design in ensuring retirement income adequacy. As the NIRS report concludes, “A report card on the U.S. retirement system would at best say ‘Needs Improvement.’ ”

Read more about how defined-benefit (DB) plans earn higher returns than defined-contribution (DC) plans in a previous Retirement Roundup and how DB plans are more efficient and cost less.

PERA earns an ‘A’ on 2017 customer-service report card

Posted on September 21, 2018May 23, 2024 by planeteria

Service score remains high, costs low – even when compared to high-achieving retirement systems

At PERA, the goal is excellent customer service measured by the standard of every interaction with the membership as both efficient and effective. Further, PERA strives to achieve these standards in a way that is also cost-effective. In order to measure performance against these important goals, PERA contracts with an independent, international firm that evaluates customer-service delivery and the cost to achieve that level of service.

Every year, the public-pension service-evaluation firm CEM Benchmarking performs a review of PERA’s delivery of service and costs, which is then compared to a group of peers, 13 different public retirement systems across the country. PERA’s peers include the Ohio Public Employees Retirement System, the Arizona State Retirement System, and the Washington State Department of Retirement Systems, among others.

This last year, PERA’s total service score was 90, which was above the peer median of 83, and one of the highest of all 70 plans that choose to be evaluated by CEM (not just PERA’s peers who are also high performers). In the last three years, PERA’s score has increased three points due to enhanced website capabilities, more member counseling, and reduced turn-around times for purchasing service credit.

Not only did PERA receive high marks from CEM for our level of service, but also achieved this outcome with a lower cost per member than many peers. PERA’s cost to administer the retirement benefits of the plan was $52 per member in 2017. That’s $9, or 14 percent, lower than the median per-member/retiree cost of $61.

PERA’s ability to maintain these lower costs is due to operational efficiencies – namely, achieving the same results with fewer employees – and an economy of scale advantage.

Even when compared to other plans that are high performers (PERA was third highest among our peers), PERA earned an A rating from CEM.

Retirement Roundup: Five things you must do before you retire

Posted on September 21, 2018April 11, 2024 by planeteria

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

Five things you must do before you retire | CNN Money
If you’re looking forward to retirement, you’re not alone. Countless workers dream of leaving their jobs behind and enjoying the freedom of unstructured days. But before you pull the trigger on retirement, be sure to tackle five critical steps so you don’t come to regret your decision later on.

A decade after the financial crisis, this retirement dilemma still hasn’t been solved | CNBC
When it comes to how individual investors have fared since the financial crisis, it’s still largely a tale of the haves and have-nots. To see evidence of this, look no further than where individuals are when it comes to the biggest financial goal of all: retirement. As news of 401(k) plan millionaires hits the headlines, other individuals are still left picking up the pieces after the last decade’s precipitous market drop decimated their nest egg or a job loss led to them to raid their retirement funds.

Many savers missing out on the HSA’s benefits for retirement | CBS MoneyWatch
One of the best places to accumulate assets for retirement is a health savings account, or HSA. But many Americans aren’t getting the message. HSA account holders have accumulated over $51 billion in these special saving plans – a 20.4 percent increase since last year. And the number of HSAs has grown over 11 percent, totaling 23.4 million accounts, according to the 2018 Midyear Devenir HSA Market Survey. But most people use their HSA as a pass-through and are getting only the advantage of a tax-free way to pay for out-of-pocket medical costs. So they are missing out on these accounts’ most valuable feature: tax-free growth of invested HSA assets over long periods of time.

Even people with pensions work into their retirement years | MarketWatch
Having guaranteed income for retirement in the form of a pension is a dream for many workers, but workers may still change jobs or prolong their working years before they retire. Transitioning into retirement — the actual act of moving away from the workforce — isn’t all that different among public and private sector workers. Even though many public workers get guaranteed income in the form of a pension during retirement, they still tend to take another job or reduce their hours to part-time before fully embracing retirement. Private workers, on the other hand, similarly work into their retirement years, though they may not have the option if they haven’t saved enough for their retirement.

The 25 best cities for retirement | BenefitNews
There might be one fairly simple and smart way to ensure employees have enough money in retirement: Relocating to a city that has a lower cost of living and can stretch post-career savings. WalletHub, an online personal finance site, researched the Best & Worst Places to Retire by comparing 46metrics across more than 180 cities, including cost of health care, affordability, things to do and quality of life. (Spoiler: Denver is #4!)

Study: Social Security doesn’t stretch far in Colorado | Denver Post
Social Security recipients collect $1,295 a month on average, but that payment won’t cover basic living costs in any state, including Colorado, according to a survey from HowMuch.net and GoBankingRates. That monthly payment covers only 36.3 percent of basic living costs in Colorado, ranking the state 11th worst for coming up short. Hawaii, California, Massachusetts, Alaska and New York are the toughest states for those trying to get buy on just Social Security, while Arkansas, West Virginia, Oklahoma, Alabama and Mississippi are where payments go the furthest.

PERA Board names Ron Baker sole finalist for Executive Director

Posted on September 5, 2018May 22, 2024 by planeteria

In late August, the PERA Board of Trustees named Ron Baker as the finalist for PERA’s Executive Director. Currently serving as the Interim Executive Director, Mr. Baker will officially be named to the position pending contract negotiations and final Board approval.

The process for selecting PERA’s new leader began in January when Board Chairman Timothy M. O’Brien created a special ad hoc committee. Trustee David Hall chaired the committee, with Trustees Amy Grant, Roger Johnson, Suzanne Kubec, Bill Parker, and Walker Stapleton serving as members. These trustees represented a cross-section of the PERA Board, bringing together trustees elected by members of the School, Denver Public Schools, and State Divisions, along with a governor-appointed trustee and the State Treasurer.

The Ad Hoc Committee worked with PERA Human Resources to create a list of priorities for the outside search firm that would assist in filling the position. From a group of three finalists, EFL Associates was tapped to manage the search process.

The Committee, PERA HR, and EFL spent the next month finalizing the job description before posting the announcement in national and pension industry publications. In addition to receiving outside applications, EFL used its extensive recruiting database to create a pool of candidates. After a series of interviews, the Board invited four candidates for further discussions.

After these four interviews were conducted before the full Board, the Trustees announced that Ron Baker had been named the finalist.

“The Ad Hoc Committee was committed to reaching out nationally to find the very best candidates for the PERA Executive Director position,” said David Hall, Ad Hoc Committee Chairman. “It was important that we found candidates who reflected the values of PERA members and who were committed to working with PERA’s hard-working employees to ensure PERA continued to be a leader in the pension field.”

Mr. Baker has served as the Interim Executive Director since December. After joining PERA in 1994, he held several management positions overseeing information technology and was appointed Chief Administrative Officer in 2013.

“The Board embarked on a thorough and competitive process to ensure that the most qualified candidate would be installed to lead PERA,” said PERA Board of Trustees Chairman Timothy M. O’Brien. “Ron’s qualifications and commitment to PERA are unparalleled. In addition to his decades of tenure at PERA, he led the organization through a challenging time during the first part of this year that included a legislative session in which major changes were made to the retirement plan. He was the clear and unanimous choice for the Board.”

Mr. Baker is a graduate of the University of Northern Colorado with a degree in mathematics with a dual emphasis in computer science and mathematics. He is a graduate of the Executive Leadership Program at the Daniels College of Business at the University of Denver.

“I appreciate the confidence of the Board in me to continue to serve the PERA membership,” said Baker. “I look forward to helping guide PERA into this next chapter.”

In his new role, Mr. Baker becomes the seventh executive director of the $49 billion retirement system, which was established in 1931 by the Colorado General Assembly.

After these four interviews were conducted before the full Board, the Trustees announced that Ron Baker had been named the finalist.

“I appreciate the confidence of the Board in me to continue to serve the PERA membership,” said Baker. “I look forward to helping guide PERA into this next chapter.”

In his new role, Mr. Baker becomes the seventh executive director of the $49 billion retirement system, which was established in 1931 by the Colorado General Assembly.

Retirement Roundup: How economic incentives have created our dysfunctional medical market

Posted on September 5, 2018May 22, 2024 by planeteria

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

How economic incentives have created our dysfunctional medical market| Medium
There are 10 economic rules that seem to govern the U.S. medical market, and there are real-life examples that show how they come into play. Economic forces and incentives that motivate our health system often lead to medical practices that are not especially good for our health — or our wallets.

American workers’ big disconnect about retirement | MoneyWatch
“Wishful thinking” could be one way to describe many Americans’ expectations about retirement. When the modest financial resources that most workers have accumulated and the longer lives we’re all living are considered, the math just doesn’t add up to workers’ expectations about when they can retire and what their standard of living in retirement will be.

Where to retire in Mexico on $20,000 | US News
Durango, Mexico, is an amenity-rich city with great infrastructure, a welcoming population and a very affordable real estate market. The low cost of living is complimented by the dollar’s strength versus the Mexican peso. The weather is ideal for many retirees. Skies are clear blue and nights are cool, making for great sleeping. This is a clean city whose well-kept streets are lined by buildings and structures more reminiscent of old Europe than Latin America.

Vanguard warns of worsening odds for the economy and markets | New York Times
The chances of a recession by the end of 2020 are mounting and the prospects for the American stock market in the next decade have worsened appreciably. Those are prognoses, not facts. But they’re not just offhand projections, either. They are the sober assessments of Vanguard, the $5 trillion asset management firm. And they suggest that the current good times may amount to a reprieve: an opportunity to make sure that you are prepared for a storm.

Here’s why you shouldn’t retire early—even if you can | MarketWatch
The FIRE movement, short for “financial independence, retire early,” is burning up on the internet. Hundreds of anonymous bloggers (they tend not to reveal their identities because they’re still employed and are afraid of losing their jobs) share their goals of leaving their 9-to-5 jobs and write about how they plan to do so. Some choose to give up their careers entirely, while others decide to freelance in the industry they work in or try an entirely new part-time job. But there are financial and emotional consequences of early retirement, from giving up potentially high earnings to living on a shoestring budget and forgoing what can make life enjoyable.

3 steps toward fixing America’s retirement system | CBS News
The U.S. retirement system clearly has shortcomings that are leading to widespread insecurity among older workers. In recognition of this anxiety, recent meetings in Washington, D.C., focused on much-needed modernization as the Bipartisan Policy Center (BPC) launched its Funding Our Future initiative. The initiative focuses on three significant changes that could significantly improve retirement for many U.S. workers: putting Social Security on a sustainable financial path; closing the retirement plan coverage gap; and encouraging employer-sponsored retirement plans to offer lifetime retirement income options.

Good news for millennials with access to retirement plans

Posted on September 5, 2018May 22, 2024 by planeteria

Recent research by the National Institute on Retirement Security (NIRS) found that 90 percent of those in the Millennial Generation (born between 1981 and 1996) participate in an employer-sponsored retirement plan when one is offered. This is good news for Colorado’s public employers who offer PERA when it comes to recruiting the next generation of public employees.

Millennials, numbering 83.2 million, are the largest, best educated, and most diverse generation in U.S. history according to the Pew Research Center. And while many millennials entered the workforce during an economically stressful time, NIRS research shows that they are just as motivated to save as older generations, if not more.

As the report explains, workers who are both offered and eligible for an employer-sponsored retirement plan choose to participate about 95 percent of the time across all generations, and millennials are right in line with that average, with a 94.2 percent participation rate.

Despite their high rate of participation in retirement plans when eligible, many millennials worry about their retirement security, and for good reason. NIRS notes that nearly half of millennials are concerned that they will not be able to retire when they want to, while two-thirds are concerned about outliving their retirement savings.

But because many millennials are not eligible to participate in employer-sponsored retirement plans, even when they are offered to certain employees, only about one-third (34.3 percent) of millennials actually participate in an employer’s plan.

According to NIRS, “nearly half of millennials that do not participate in an employer-sponsored retirement plan cited part-time work or lack of tenure with their employer as a reason for not participating in a plan, rather than economic reasons such as student debt.”

However, millennials who work for an employer that offers PERA or similar public employee defined benefit plans, are automatically starting to save toward retirement – and have the option to save even more by contributing to the PERAPlus 401(k) or 457 Plans. These plans require no minimum contribution amount and vesting is 100 percent from day one.

For those millennials who do not have access to an employer-sponsored retirement savings plan, the news isn’t so good. NIRS says that two-thirds of the millennial generation have nothing saved for retirement.

NIRS: Millennials and Retirement: Already Falling Short

Millennials have longer tenure in their first jobs than did previous generations.

The NIRS report also debunks the common myth that millennials are loathe to stay in a job for very long. When different generations are compared on the aspect of job tenure, millennials actually spend more time in jobs early in their careers than Generation Xers or Baby Boomers. A study conducted by the U.S. Bureau of Labor Statistics tracking Boomers throughout their work-lives found that Boomers held short tenures with their employers during their younger years. Specifically, it found that, of the jobs that Boomers began when they were 18 to 34, 69 percent ended in less than a year and 85 percent ended in fewer than five years. The NIRS research concludes that “millennials are job-hopping at similar or even lower rates to their Gen X and Boomer predecessors.”

PERA’s hybrid defined benefit plan is a particularly strong recruitment and retention tool because of the value it offers to employees regardless of the length of their career. PERA’s plan design has evolved to serve both long-service employees as well as those who only work for a short time in public employment. This benefits Colorado’s public employees, their employers and the valuable services delivered to Colorado taxpayers.