Month: June 2019

PERA Board releases 2018 financials

Posted on by planeteria

On June 21, the Colorado PERA Board of Trustees released the 2018 Comprehensive Annual Financial Report (CAFR). The report includes 2018 information on PERA’s financials, including the funded status of the plan and the 2018 investment performance. The report, as well as an abbreviated interactive overview, is available on the PERA website.

For the year ending December 31, 2018, one of the major factors influencing the fund was passage of SB 18-200. This landmark legislation included major changes to the plan including provisions to help PERA stay on the path to reach full funding by 2047, even when there are departures from PERA’s core assumptions, including the investment return. When needed, these provisions will automatically trigger changes in contributions and annual increases.

For most investors, 2018 was a difficult year. For the year ending December 31, 2018, PERA’s investment portfolio returned a negative 3.5 percent, net of fees. Beyond economic conditions, changes in demographics also contributed to overall actuarial losses to the fund. The fund closed the year 2018 with a fiduciary net position of $45.2 billion, representing a $3.8 billion decrease compared with the year ending 2017. Over 30 years, the fund has increased the fiduciary net position by $37.2 billion.

The automatic adjustment is already working as intended: Last year’s investment losses coupled with demographic shifts mean that the automatic adjustment will be used in July 2020, adjusting member contributions, employer contributions, and the AI paid to retirees. Recall that SB 200 contained scheduled increases for members of 0.75 percent in July 2019 and 0.75 percent in July 2020. (Except for members in the Local Government Division.) In addition, the AI paid to retirees was suspended for the second year. Due to the automatic adjustment, member contributions will increase by an additional 0.5 percent in July 2020 and the AI paid to retirees will be set at a maximum of 1.25 percent. As such, starting in 2020, most members will contribute a total of 10 percent to PERA from each paycheck. The amount all employers contribute to PERA will also increase by one half of one percent in July 2020. Total employer contributions will range from 14.2 percent to 23.6 percent, depending on the Division, in addition to the $225 million direct distribution from the State of Colorado.

For more details, please see:

Colorado PERA 2018 Financial Snapshot

Colorado PERA 2018 ComprehensiveAnnual Financial Report Infographic

Colorado PERA 2018 SummaryAnnual Financial Report

Colorado PERA 2018 Comprehensive Annual Financial Report

New Trustees Join the PERA Board

Posted on by planeteria

Chairman Timothy M. O’Brien to serve third term

Joining the 16-member Board is Judge Rebecca R. Freyre from the Judicial Division and Cheryl Pattelli, who was appointed by the Board to fill the vacant Local Government Division seat. Current PERA Trustee Timothy M. O’Brien, who is also the current Board Chairman, will serve a third four-year term on the Board of Trustees beginning July 1. Both Mr. O’Brien and Judge Freyre were the only candidates certified for election.

Mr. O’Brien has been the Denver City Auditor since 2015 and was the Colorado State Auditor from 1984 to 1995. He is elected by retirees from the State, Local Government, and Judicial Divisions, and has served on the Board since 2011.

Judge Freyre, of the Colorado Court of Appeals, will begin a four-year term on July 1. She fills the seat formerly held by Judge Will Bain, who did not seek re-election.

Ms. Pattelli is the Chief Financial Officer at the City of Boulder. She joins the Board due to the retirement and resignation of Robert Lamb in May. She will serve until the next Board of Trustees election in 2020. Ms. Pattelli’s first official Board meeting will be in September.

PERA’s governance structure distinguishes between the roles of the Board and the General Assembly. The General Assembly has authority to make changes to PERA benefits and contribution rates while the PERA Board is responsible for administrative oversight and has the responsibility to set the actuarial assumptions used by the plan. Trustees have access to world-class consulting firms to assist them in setting the assumptions (both demographic and economic) used in the measurement of the financial health of the system.

The Board is composed of 16 Trustees: 11 elected by the PERA membership; three Governor-appointed Trustees; a non-voting ex officio member elected by the membership from the Denver Public Schools Division; and the State Treasurer, who serves as an ex officio voting member of the Board. More information on the Board of Trustees may be found on the PERA website.

The PERA Board meets five to six times a year. In addition to attending meetings, Trustees also have a responsibility to educate themselves and stay current on topics affecting PERA. To fulfill this educational requirement, Trustees attend classes and seminars related to PERA and the public pension plan industry. New Trustees attend an orientation seminar to review PERA’s history, governance, fiduciary responsibilities, ethics, legal and legislative issues, actuarial principles, and other current issues facing the Board.

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

For more information:

Understanding the role of Trustees

Serving as a PERA Trustee fact sheet

Retirement Roundup: Social Security Shortfall

Posted on by planeteria

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

Social Security is staring at its first real shortfall in decades | The New York Times
A slow-moving crisis is approaching for Social Security, threatening to undermine a central pillar in the retirement of tens of millions of Americans. Next year, for the first time since 1982, the program must start drawing down its assets in order to pay retirees all of the benefits they have been promised, according to the latest government projections. Unless a political solution is reached, Social Security’s so-called trust funds are expected to be depleted within about 15 years. Then, something that has been unimaginable for decades would be required under current law: Benefit checks for retirees would be cut by about 20 percent across the board.

Retirement concerns show an uneven playing field for women | PlanSponsor
Although many older Americans are concerned about health care costs in retirement and outliving their savings, women are even more so, due in part to earning less than men throughout their careers, results from a recent National Council on Aging (NCOA)/Ipsos survey show. Fifty-six percent of Americans age 60 and older are concerned that health care costs will outpace their retirement savings, and 43 percent think the same of prescription drug costs found. Women are even more concerned than men, with 60 percent worried about the rising costs of health care and 46 percent worried about prescription drug costs. Of those over age 60, 51 percent of women are worried about outliving their savings, outpacing the 48 percent of Americans, overall, who share this same fear. Among those with household incomes of less than $50,000, 61 percent are worried about outliving their savings. And of women age 60 and older, 59 percent are worried about losing their independence, whereas this is true for 54 percent of Americans overall. Additionally, 46 percent of Americans in this age group are worried about being a burden to their families. Among women, 52 percent share this fear, whereas only 40 percent of men do.

Opinion: State pension funds shouldn’t be captive to politics | Buffalo News
The politicization of pensions continues plaguing [New York and other] states. In a misguided effort to fight climate change, New York State Sen. Liz Krueger introduced Senate bill 2126, the Fossil Fuel Divestment Act, earlier this year. This prompted an open letter from New York Comptroller Thomas DiNapoli, urging Krueger to reconsider this legislation on the basis that it limits his fiduciary responsibility to manage the state pension funds for the sole interest of its beneficiaries. DiNapoli is right — and the Legislature shouldn’t limit his ability to do his job. As a lifelong New Yorker and retired officer of the Fire Department of New York, the author believes in empowering fiduciaries to make the best decisions for the funds without the influence of politics. By cutting investments that have generated more than $4 billion over the past decade, the Senate bill would force DiNapoli to abdicate his fiduciary responsibility, which stands independent of political and social opinions.

The retirement quiz that everyone is failing | Forbes
Included here are 10 of the most difficult retirement questions someone will ever be asked. It’s a short but painful test that is designed to give people pause and question the ways they have been taught to think about and plan for retirement. Each question only requires a simple “Yes” or “No” answer. Scoring is simple, each “Yes” answer counts for 10 points. Anything below a 60 percent is failing and should garner immediate attention.

How much will your retirement cost? | Fox Business
How much will retirement cost? If that question stops you in your tracks, you’re not alone. A Bankrate survey found 61 percent of Americans don’t have a clue about how much they need to save for their future. That’s alarming news, considering pensions have dissipated and individuals are now expected to rely on themselves more than ever when it comes to saving for their future. You may have heard from some experts that a person needs about $1 million in the bank to retire comfortably, or perhaps even a more modest estimate of what it might take. But with all of the advice out there, how can anyone know which figure is most relevant to them?

Can you get what you need in retirement? | USA Today
The Rolling Stones kicked off their “No Filter” U.S. concert tour in June. It’s no secret this iconic band has been — and continues to be — the voice of a generation since they disrupted the music and cultural scene several decades ago. Equally impressive, however, is their ongoing demonstration that you can keep doing what you love in life regardless of age. While society has long labeled “retirement” as life after work, it seems increasingly more Americans — especially baby boomers — are following the Stones’ example by reimagining their later years and what they want out of them. Increased longevity, advances in medical care and dramatic social and cultural changes have given millions of Americans an additional 20 to 30 or more years of living life on their own terms.

Good governance is standard practice for Colorado PERA

Posted on by planeteria

Good governance practices don’t always draw headlines. But staying out of the news may be a reflection of a retirement system that is running smoothly and adhering to standards that protect the best interests of its members and retirees as well as employers and taxpayers.

The National Conference on Public Employee Retirement Systems (NCPERS) recently issued guidelines for governance best practice for public retirement systems. The guidelines serve as a checklist, of sorts, for policies, procedures, and practices of public retirement systems such as Colorado PERA that help ensure stakeholder needs are effectively met.

According to NCPERS, there is a strong link between retirement systems that follow best practices and their performance. Research shows that effective governance may improve long-term investment returns by up to 2.4 percent, annually. And, along with effectively implementing best practices, the need for retirement systems to communicate about how they work to benefit their stakeholders has never been greater.

The NCPERS Best Governance Practices for Public Retirement Systems includes the following categories of best practice, each of which PERA works to achieve.

Governance Manual

According to NCPERS, “a fund should adopt a governance manual that serves as a central repository for the fund’s primary governance documents.” PERA’s Governance Manual, first developed in 2001 and updated on a regular basis as standards change, provides a framework and starting point for our oversight and governance functions, including:

  • Summaries of statutes, regulations, and Board practices;
  • PERA’s Mission and Vision;
  • Board policies, including the Board Performance Evaluation Policy.

Board Practices

Board practices can have a proven impact on performance and risk oversight. The PERA Board of Trustees engages in best practices to ensure strong oversight and plan performance. A few practices are:

  • Development of a strategic plan, updated for 2019-2023;
  • Undertaking Board evaluations, as referenced in the Governance Manual;
  • Conducting actuarial valuations to inform the Board of the fund’s future financial needs;
  • Using asset allocation studies to identify asset mixes for meeting future financial needs;
  • Voting its proxies.

Board Policies

The PERA Board has adopted several policies designed to guide the retirement system to its stated goals, such as:

  • Standards of conduct, ethics and conflict of interest rules, such as those included in the Governance Manual;
  • A Board Communications Policy that facilitates effective communications and outlines standards and procedures for trustees and executives, included in the Governance Manual;
  • An Investment Policy that includes goals, monitoring procedures, and Board risk tolerances.

Risk Oversight

PERA’s risk management includes policies and assessments that provide accountability:

  • Risk assessments (e.g. audits) that test controls and potential outcomes of risk events;
  • Early adoption of sensitivity analyses, some of which is included in the CAFR;
  • Key measures, such as signal light reporting, that assess risk exposure.

Strategic Planning

Strategic planning is a hallmark of successful organizations. PERA’s Strategic Plan, newly updated in 2019, includes several components. A few examples consist of:

  • Goals and performance measures for key functions;
  • Review of long-term investment goals, investment risk tolerances, and diversification objectives;
  • Succession and leadership development plans and refreshed Board policy.

Reporting: Key Performance and Risk Measures

PERA issues a number of performance and risk reports, many of which are compiled within the annual CAFR. A few highlights:

  • The funded ratio as measured by the ratio of fund assets to fund liabilities;
  • Net annualized investment returns relative to the return assumption and benchmarks;
  • Future benefits owed to members as measured by the actuarial accrued liability;
  • Net assets available for benefits.

PERA also reports on the results of its effectiveness with members through the annual CEM Benchmarking review of service and cost, incorporating:

  • Timeliness and accuracy of distributions paid to members and beneficiaries;
  • Member satisfaction with fund services as measured by surveys and correspondence.

Stakeholder Communications

PERA regularly communicates with members and other stakeholders through the website, publications, PERA on the Issues, and other resources. A few of these include:

At PERA, we strive to exceed expectations and to provide transparency into complex operations. These policies and practices establish a foundation to ensure that PERA operates as an efficient, trustworthy partner in providing retirement and other benefits to more than 600,000 current and former Colorado public employees.

Retirement Roundup: 55 percent of Americans are making this retirement planning mistake

Posted on by planeteria

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

55 percent of Americans are making this retirement planning mistake | Motley Fool

When planning for retirement, it’s important to understand where your income will come from. Knowing all of your possible sources of retirement income will help you accurately determine how much of your money needs to come from retirement investments you make throughout your career. Unfortunately, the majority of Americans are anticipating some of their income will come from continuing to work well into their traditional retirement years. While working into your 60s and 70s may seem like a good plan – especially if you’re struggling to save enough to ensure a secure retirement – it’s a plan that’s unlikely to come to fruition for the vast majority of future retirees. And if your retirement security is based on the idea you’ll still have a salary coming in, you’re going to be in dire straits when you find out that working during retirement isn’t in the cards for you.

Are you on track to get the retirement lifestyle you want? | Forbes

There’s a lot of talk about the importance of making sure you’re on track for retirement, but what does that actually mean? How do you know if you’re on track? And if you’re not on track, how can you fix it? The answers lie in calculations and assessments you can do at home.

Retirement planning tips for millennials, GenX, and Baby Boomers | CBS News

A new Bankrate survey says 76 percent of Americans have at least one financial regret – and among those people, more than half are disappointed with their savings. What’s worse, approximately one quarter of Americans don’t have any retirement savings at all, according to a Federal Reserve survey. And yet another survey showed that while 67 percent of Americans said they’re totally confident about their savings, only 42 percent actually tried to calculate the amount they’d need. “They feel confident,” said CBS News business analyst Jill Schlesinger. “I’m not exactly sure why they feel so confident. [It’s] because the economy’s better, because jobs are more plentiful, because they’re getting wage increases, but we really need people to focus on this. Because you are going to responsible for your own retirement years.”

Retiring by 50? Great, but can you cover your health care? | USA Today

So you’re ready to sock away half your income, earn more through side hustles and aggressively invest so you can become financially independent and retire before age 50. But a big obstacle threatens to keep you from joining the financial independence/retire early movement, popularly known as FIRE: the high costs of health care and health insurance. Without a job and too young for Medicare, what health care insurance options remain for early retirees and their family? A handful, it turns out. “There are already tens of millions that provide their own health insurance whether they’re retired, freelancers, or independent contractors,” says Leif Dahleen, 43, author of the blog Physician on FIRE and an anesthesiologist by trade. “It’s not any different. You just put it in your budget.”

Senators take second try at Federal Retirement Commission Act | PlanSponsor

Senators Todd Young, R-Indiana, and Cory Booker, D-New Jersey, have reintroduced the Federal Retirement Commission Act. The Act would create a Federal Retirement Commission to conduct a comprehensive review of private benefit programs in the U.S.; investigate individual and household account balances and investment trends; examine such societal trends as wage and economic growth, health care costs and life expectancy; look into other countries’ retirement programs; and make recommendations to Congress on how to improve private retirement programs. The Commission would consist of the Secretaries of the Treasury, Labor and Commerce; two presidential appointees; and six Senate and House of Representative appointees from each chamber.

The year (so far) in public pension reform

Posted on by planeteria

For the past several years, public pension reform has been a hot topic as states and municipalities wrestle with how to keep their retirement plans funded. As many Colorado PERA members and retirees know, 2018 saw the Colorado General Assembly pass a significant reform bill, and numerous other states followed suit in 2019. Here’s a sampling of the new efforts as of mid-year.

Arkansas

State Highway Employees’ Retirement System

March 2019

Increased employee contributions over two years, from 6.0 percent to 7.0 percent by July 2020. Increased employer contributions from 12.9 percent to 14.9 percent starting July 2019.

Kentucky

Employees Retirement System

Pending as of June 2019

The Bluegrass State has been debating a variety of pension reform options for about two years. In early June, thestate Supreme Court ruled against the governor’s attempts to keep a financial analysis from public disclosure, and thegovernor has indicated that a special session of the state legislature may be necessary later this year to resolve various disputes.

New Mexico

Educational Retirement Board

April 2019

Comprehensive legislation changed the salary thresholds that determine employee contribution rates; increased employer contribution rates from 13.9 percent to 14.5 percent starting July 2019; changed years-of-service multipliers and highest average salary (HAS) guidelines for new hires; increased minimum retirement age for new hires; and changed return-to-work rules.

North Dakota

Public Employees Retirement System

April 2019

Eliminated retiree health insurance credit for new hires after January 2020; redirects employer contributions of 1.14 percent of salary to the retirement plans; modified HAS calculations for retirees after January 2020; and reduced the HAS multiplier from 2 percent to 1.75 percent.

Oregon

Public Employees Retirement System

May 2019

Extends the fund’s minimum payment schedule by eight years; redirected a portion of employee contributions (depending on hire date) into an account that supports pension benefits; cut 30-year employees’ overall benefits by 1 to 2 percent for those making more than $30,000 per year; mandated a one-time, $100 million contribution to an “incentive fund” that will provide a 25 percent match to extra employer contributions; gave employees more control over investment allocations; removed certain limits on working after retirement; and directed some proceeds from the Oregon Lottery to the employer incentive fund.

Other developments:

In March 2019, California’s state Supreme Court upheld 2012 reforms that curtailed the purchase of service credits and raised employee health care contributions.

In June 2019, two retired teachers sued the State Teachers Retirement System of Ohio over the indefinite elimination of annual increases for retirees. The plaintiffs are seeking to certify their suit as a class action.

In June 2019, Rhode Island’s state Supreme Court upheld the city of Cranston’s 2013 reforms that suspended cost-of-living adjustments, increased retirement ages, and introduced a hybrid DB/DC plan.