Month: November 2018

How PERA Advocates for Responsible Business Practices

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As an institutional investor, PERA also holds a special position as a shareholder in many major corporations. Shareholders in publicly traded companies are entitled to vote their shares on items that are presented for a vote, whether by management or by other shareholders, at the corporation’s annual general meeting. And it is in its capacity as a shareholder that PERA has exercised its voice as an advocate for strong corporate governance and responsible business practices.

PERA has long been active in advocating for strong corporate governance policies that ensure transparency and ethical behavior. The PERA Board of Trustees’ Shareholder Responsibility Committee Charter outlines PERA’s objectives in furthering good corporate governance. With just over half of PERA’s $48 billion investment portfolio in stocks, PERA has a keen interest in being a strong voice in corporate governance issues.

How does PERA do this? First, PERA actively exercises its role as a shareholder by voting proxies. In 2017, PERA participated in over 5,600 annual and special meetings and reviewed over 63,800 shareholder proposals on proxy ballots. The ballots for these companies address a range of issues, such as the election of numerous directors, approval of compensation and acquisitions, shareholder initiatives submitted for shareholder approval and any number of additional matters.

Guiding these votes is the PERA Board’s Proxy Voting Policy which provides and works with proxy advisory firms to further inform how proxies should be voted. All proxy votes are publicly disclosed after PERA has voted. These proxy vote examples highlight PERA’s actions:

The Walt Disney Company

This year’ say-on-pay vote became the headline as investors took issue with the special mega grant to CEO Bob Iger, valued at $100 million as part of the extension of Iger’s employment agreement in anticipation of the merger with 21st Century Fox. PERA voted against the Executive Compensation package because of concerns with the amendments made to the CEO’s employment agreement during and after the year in review.

Equifax

The severity of the cybersecurity breach and the company’s slow response to the breach damaged the company’s reputation, destroyed shareholder value, and placed a cloud over the company for the foreseeable future. PERA voted against three incumbent Technology Committee members who had oversight responsibility for the relevant areas of risk. The Technology Committee, at a minimum, should have ensured known risks were addressed while being adequately prepared to respond appropriately to the breach; PERA felt this committee failed to do so.

Second, PERA also serves on the boards of national organizations whose mission it is to promote shareholders rights when it comes to investments made on behalf of the PERA membership.

PERA Executive Director Ron Baker joined the board of the Council of Institutional Investors (CII) earlier this year. With a membership of more than 125 public, union and corporate employee benefit plans, endowments and foundations, CII supports strong governance standards and shareholder rights at public companies.

Amy McGarrity, PERA Chief Investment Officer (CIO), serves on the U.S. Securities and Exchange Commission’s (SEC) Fixed Income Market Structure Advisory Committee. McGarrity joins other retail and institutional investors who, according to an SEC news release, advise on “the efficiency and resiliency of fixed income [bond] markets and identify opportunities for regulatory improvements.”

As PERA notes in its recently published Stewardship Report, its approach to ensuring good corporate governance practices centers on PERA’s influence as a large institutional investor in the global marketplace. PERA advocates for stakeholder value through ongoing meetings with corporate managers, investment partners and professional and regulatory boards. The proxy voting policy reinforces PERA’s commitment to strong corporate governance – whether the issue at hand is related to financial transparency, director compensation, corporate board appointments, director compensation, financial transparency, social impact or increased disclosure on climate change regulations. As a significant investor in the global market, PERA is continuously seeking opportunities to promote global stewardship while providing strong returns to its most important stakeholders: PERA members and retirees.

Read more on PERA’s investment stewardship and sustainability efforts and review the Board’s role in investment oversight.

How America Saves: Similarities and differences between retirement saving in the private sector and PERA

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Over time, private sector defined contribution (DC) plans seem to be increasingly mirroring some of the prominent features of public employee defined benefit (DB) plans. Several of the investment trends identified in a recently released report – shifting to professionally managed investment options, growth in automatic savings features, and high levels of savings – reflect provisions that are already in place through the PERA hybrid (DB) plan.

Recently, Vanguard, one of America’s largest private sector retirement plans, issued an updated version of its report, How America Saves 2018, based on their 2017 DC plan data. The report looks at trends in saving behavior of participants in Vanguard’s defined contribution (DC) retirement plans.

The report notes that DC plan participants continue the trend of shifting their savings to professionally managed investment options, signaling “a shift in responsibility for investment decision-making away from the participant and back to employer-selected investment and advice programs.”

In 2017, 58 percent of Vanguard participants had their entire account balance invested in a professionally managed option, including target date funds, target-risk or balanced funds, or a managed account advisory service.

Note that 100 percent of PERA DB plan participants enjoy professional management of their investments. As Vanguard pointed out, “Diversified, professionally managed investment portfolios dramatically improve portfolio diversification compared with participants making choices on their own.”

The Vanguard report also spotlights the growth of auto-enrollment features in retirement plans offered by private sector employers. At the end of 2017, 46 percent of Vanguard plans had automatic enrollment, and the adoption of auto-enrollment had grown by 300 percent since 2003.

Automatic enrollment is a key feature of PERA for Colorado’s public employees. Though some members have the option to choose either the hybrid DB plan or the PERA DC Plan (the defined contribution option), all employees working for PERA employers are automatically enrolled in a PERA retirement plan. Whether it’s the PERA DB or PERA DC, contributions are mandatory and cannot be used for purposes other than retirement while a member is employed by an employer that offers PERA.

Vanguard also called out the growth in retirement plan participation rates of employees, noting that plans with automatic enrollment have a 92 percent participation rate compared with a participation rate of just 57 percent for plans with voluntary enrollment for a total plan-weighted participation rate of 81 percent in 2017 (unchanged from 2016), again compared to PERA’s 100 percent participation.

PERA employees and employers also contribute to their retirement savings at a higher level than private sector participants in Vanguard’s plans.

While PERA members contributed 8 percent of income in 2017 (10 percent for State Troopers), the average employee-elective deferral rate for Vanguard was 6.8 percent in 2017, and the median deferral rate was 6 percent in 2017 – unchanged for as long as Vanguard has been tracking this statistic.

Senate Bill 18-200 will increase member contributions by 2 percent and employer contributions by 0.25 percent, except for Local Government employers, between 2019 and 2021. (Read more about Senate Bill 18-200.)

In 2017, the average account balance for Vanguard participants was $103,866; the median (half higher and half lower) balance was $26,331. At the end of 2017, PERA was paying benefits to more than 118,000 retired public employees and their beneficiaries who received an average benefit of $3,204 per month.

Retirement Roundup: If you’re planning to retire in 2019, here’s how to prepare

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

If you’re planning to retire in 2019, here’s how to prepare | CNBC
If you’re among the millions of older U.S. workers who will retire from full-time work in 2019, now’s a good time to make sure you’re truly prepared. Whether you’re viewing the next phase of life as retirement, semi-retirement or an unknown adventure, experts say the transition should get more than just a passing once-over. As you prepare to say farewell to your coworkers next year and embark on the next leg of life’s journey, experts recommend taking time to make sure you’ve covered all your financial bases.

The two most powerful ways to remain mentally sharp in retirement | Forbes
For many, the greatest fear in retirement — other than not having enough money — is losing your noodle. The good news, though, is that cognitive decline isn’t inevitable. There are ways, according to recent research, to offset mental incapacity. Getting regular exercise and volunteering are both good starting points for your long-term wellness plan.

How to plan for retirement as a “solo ager” | Investopedia
Baby Boomers who are single and childless, known as “solo agers,” face unique retirement planning challenges that need to be addressed. Americans’ approach to aging has rapidly changed in recent years. This is the result of the aging Baby Boomer population, who are entering their 80s and 90s within the next few decades, and longer life expectancies. Medical advances are leading to healthier and more active lifestyles in retirement. There are societal policy implications with these demographic trends, from long-term care to strains on public pensions. And increased divorce rates and lower birth rates are colliding to create financial challenges for a growing number of Americans.

Workers skeptical about Social Security, pension income | PlanSponsor
In today’s retirement age, Social Security and pensions are top sources of income for most retirees. However, as fears of dwindled pension funding and reduced Social Security intensify, those approaching retirement are sourcing alternative income options, says a new LIMRA Secure Retirement Institute (LIMRA SRI) report. According to the report, 49 percent of pre-retirees and 32 percent of younger workers say their post-work life income will emerge from employer-sponsored retirement plans, individual retirement accounts (IRAs), and other savings vehicles. Four in 10 pre-retirees and over half (53 percent) of workers ages 40 to 54 believe their primary source of revenue will originate from their 401(k), IRA and additional savings.

As the 401(k) turns 40, we must change how Americans save for retirement | Time
In its first four decades, the 401(k) has lived an unexpectedly glamorous life. At the time of its enactment, lawmakers anticipated that it would exist in obscurity, affecting only a small number of corporate executives. Forty years later, 401(k) has become possibly the most famous section of the Internal Revenue Code, with well over 90 million Americans personally participating in 401(k)s or similar defined contribution plans. But it’s also facing something of a midlife crisis.

Retirement Roundup: 6 tips for a terrific retirement

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

6 tips for a terrific retirement | Forbes
The transition from work to retirement can be a challenge. As much as we complain about work, a full-time job provides us with a routine, a community and a sense of purpose. If you want to enjoy a fulfilling retirement, you need to find a way to replace those benefits. But what’s the best way to do that? How do you decide where to devote your time and energy? A small group of retired United Way executives attending the annual United Way Retirees Association gathering in Connecticut recently offered some great advice about retirement, transitions and lessons learned from their experience.

Are we on the verge of the next big pension bill? | Bloomberg
While the eyes of the nation were focused on the Senate confirmation hearings for Brett Kavanaugh, the House of Representatives quietly passed the Family Savings Act of 2018 on September 27. The act, which is one of three tax bills clearing the House as part of the Republicans’ push for “Tax Reform 2.0,” contains a series of proposals designed to enhance Americans’ retirement security and increase other savings. Some of the proposals contained in the act are new, but many have been taken from previously introduced legislation—most substantially, from the Retirement Enhancement and Savings Act.

This 105-year-old martini lover has been retired almost 40 years | Time
Patricia Lyons Harrington recalls applying for a credit card in the 1950s, when she was a single, middle-aged school teacher in Boston. The company turned her down, since gender discrimination was as common in credit transactions as in other aspects of society. More than a decade later, the tide began to turn, and the same company sent her a solicitation. “I said ‘no thank you,’” recalls Harrington, 105. Well past the century mark, Harrington retains the feisty spirit that helped her forge her own career and manage her own money at a time when most of her peers married and stayed home to raise children. Today, the former music teacher lives with her nephew and his wife in a separate apartment in their home in Essex, Mass., where former students still come to visit her.

3 reasons it’s not always a good idea to retire early—even if you can | Motley Fool
Who doesn’t dream of retiring early? Rather than working until you can’t work anymore, you can spend your days traveling the world, learning new hobbies, or simply relaxing at home. Early retirement may sound great in theory, but in practice, it may not be the best idea. For one, most people aren’t even on track to retire at a normal retirement age, let alone early. Forty-two percent of Americans have less than $10,000 saved for retirement, according to a survey of millennials, Gen Xers, and Baby Boomers from GOBankingRates, and of those people, 14 percent have nothing at all saved. That’s not great news, especially considering the average person spends nearly $46,000 per year during retirement, according to the Bureau of Labor Statistics.

Guaranteed income preferred over lump sums | PlanSponsor
What would you do? Fifty-three percent of Americans ages 50 to 79 say they would prefer guaranteed lifetime income of $660 a month over a $120,000 lump sum payment, the LIMRA Secure Retirement Institute (LIMRA SRI) learned in a survey. When asked why they would take the guaranteed income, 57 percent said they expect to live a long life and 46 percent said it was because it would give them peace of mind.

US institutional investors changing views of ESG investing | PlanSponsor
Institutional investors in the U.S. continue to view the application of environmental, social and governance (ESG) principles in investing more cautiously than other countries, but the percentage that reject ESG outright shrank dramatically year over year, from 51 percent to 34 percent, according to RBC Global Asset Management’s third annual Responsible Investing Survey. Forty-three percent of institutional investors incorporate environmental, social and governance (ESG) factors into their investing, up from 22 percent in 2013, according to a report from Callan.

Colorado’s mid-term elections provide some answers, leave some questions

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Election day in Colorado changed the balance of power at the State Capitol, but voters rejected a majority of statewide ballot issues, leaving many of the state’s fiscal challenges without a clear resolution.

Democrats will hold all five statewide elected positions, as voters elected new faces for Governor, Lieutenant Governor, Secretary of State, Treasurer and Attorney General. Democrats also took over leadership in both chambers of the State Legislature by electing a new majority of Senators and maintaining a majority in the House.

Voters rejected several statewide ballot questions, including tax increases that would have gone to schools and transportation projects. But while some of those who were elected have spoken of support for additional funding for roads and improving teacher pay, there are no clear paths for where that funding might come from.

Nationally, health care and employee benefit experts are thinking about how a divided Congress – with Republicans keeping a Senate majority and Democrats taking the majority in the House – will impact health care policy and the workplace for both employees and employers. One possible result? Gridlock with split chambers may force the states to become more active on these issues.

The Colorado General Assembly will get to work on these and other issues on Friday, January 4, 2019, nearly a week before the legislative session typically starts. Why so soon? The Constitution requires that the governor is sworn in on the second Tuesday of January. The General Assembly can start its session no later than the second Wednesday of January. In 2019, the second Tuesday will be January 8 and the second Wednesday is January 9, when the session would typically start.

However, an additional constitutional requirement makes this schedule unworkable. According to the Office of Legislative Legal Sources, which recently posted an explanation on its Legisource blog, the Constitution further requires the General Assembly to declare the winners of the top statewide offices. The Legislature has to be in session to do that and therefore, will satisfy these requirements by convening on January 4.

As always, PERA staff will be monitoring developments at the Capitol for impacts that could affect PERA or its members and retirees. Make PERA on the Issues your go-to source for up-to-date information on all things legislative.

Colorado PERA Chief Investment Officer Amy McGarrity Honored

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Chief Investment Officer has named Colorado PERA Chief Investment Officer Amy McGarrity as a finalist for its 2018 Industry Innovation Awards. The nominees, who are recommended by their peers, are recognized as “the brightest and most forward-looking” investment leaders of public and corporate pensions, foundations, endowments, and other large institutional investors.

McGarrity has been PERA’s Chief Investment Officer (CIO) since March 2017. Previously, she was CIO of the Denver Public Schools Retirement System (DPSRS) and joined PERA in 2010 when the systems merged. She left PERA in 2016 to work for a private investment firm and returned in 2017 to oversee PERA’s $49 billion investment program.

“I’m delighted to learn of this nomination and honored to be named with investment colleagues around the country who I consider to be innovative leaders in the field,” McGarrity said.

Winners will be chosen and announced in December by the CIO editorial team in conjunction with an advisory board of former and current chief investment officers.

Public Defined Benefit Plan $15 Billion to $100 Billion Finalists

Amy McGarrity, Colorado Public Employees’ Retirement Association

Scott Davis, Indiana Public Retirement System

Johnathan Grabel, Los Angeles County Employees Retirement Association

Robert Maynard, Public Employees’ Retirement System of Idaho

John Skjervem, Oregon State Treasury

Tom Tull, Employees Retirement System of Texas

Congratulations and good luck, Amy!