Two members of
PERA’s leadership team have recently been selected by Governor Polis to serve on
Colorado statewide boards impacting private-sector retirement security and
state employees. These appointments underscore PERA executives’ retirement,
investment, financial, and human resource administration knowledge.
Colorado PERA
Chief Investment Officer Amy C. McGarrity was appointed to the Colorado Secure Savings Plan
Board, which studies the feasibility of creating the
Colorado Secure Savings Plan and other appropriate approaches to increase the
amount of retirement savings by Colorado’s private sector workers. McGarrity
was appointed to serve as a representative with expertise in investment or
retirement savings plan administration. Her term will expire on July 1, 2021.
“PERA has an
excellent track record when it comes to designing supplemental retirement
savings vehicles like the PERAPlus 401(k) and 457
Plans to help public sector workers increase their
retirement savings,” McGarrity said. “I’m honored to be appointed to the
Colorado Secure Savings Board, and look forward to applying my background and
passion to improving retirement security for all Coloradans.”
Internal Audit
Director Sarah Wager was appointed by Governor Polis to the State
Personnel Board in June. The State Personnel Board
adopts, amends, and repeals the procedures concerning
the State personnel system. Her term on the Board expires June 30, 2022.
Wager
noted, “I’ve worked within the State Personnel System for nearly 25 years, as
an employee, a supervisor, a member of executive leadership, and have been
responsible for overseeing human resource activities at a State agency. I am
excited and honored to use my knowledge of the State Personnel System and
employment matters impacting State employers and employees and to serve on this
Board and contribute to the Board’s important mission.”
Colorado
PERA is known for its expertise on critical issues impacting the well-being of
public workers and retirement security of all Colorado residents. In their
roles on state boards, McGarrity and Wager will continue to support sound public
policy in their respective areas of expertise to the benefit of government
employees and all Coloradans.
Colorado PERA’s 2019 Investment Stewardship Report, released earlier this summer, documents how PERA’s investment stewardship – including cost-conscious investment strategies – protects the plan’s long-term financial sustainability and preserves the value of contributions to the plan for decades.
With today’s active members retiring a full generation into the future, PERA must protect and preserve the value of its investment fund over a long time horizon. This means focusing on the long-term profitability of the companies in which it invests, rather than seeking quick, short-term returns.
To enhance the long-term sustainability of its investments, PERA values firms and partnerships that have adaptive business models, making them well-positioned for continued profitability over the long term. PERA considers relevant issues in investment decisions, which may include environmental, social, and governance (ESG) factors.
When evaluating public investment opportunities or private investment properties and managers, PERA investment staff may consider environmental stewardship factors that are material to profitability. Staff have found financial value in some companies, properties, and partnerships that integrate relevant environmentally sustainable practices in their business models:
PERA’s timberland manager is committed to responsible natural resource management, including providing investment returns on wood fiber products while protecting ecological and social quality, such as forests, watersheds, threatened species, and biodiversity. Through those efforts, the manager has preserved 460,000 acres of sensitive lands and sold 4.1 million tonnes of carbon credits.
PERA’s real estate portfolio includes over three million square feet of directly owned properties that have earned the ENERGY STAR® designation, which ranks PERA’s certified buildings in the top quartile of peer buildings nationwide, based on energy efficiency metrics, according to the U.S. Environmental Protection Agency. PERA also directly owns 635,393 square feet of LEED-certified property, as awarded by the LEED® green building program.
Through private equity and debt investments, underlying companies in which PERA invests include producers and suppliers of eco-friendly energy including solar, wind, geothermal, and hydro-powered energy production. Other firms develop low-cost technologies used to produce biofuels by converting municipal solid waste and biomass into green chemicals.
PERA also takes pride in its contributions to Colorado’s economy, including direct investments in Colorado companies, employing hundreds of local employees and providing retirement income for thousands of Colorado retirees.
As of December 31, 2018, PERA had more than $566 million in Colorado investments, including both public and private equity of companies headquartered in Colorado, bonds issued by the Colorado Housing and Finance Authority and Colorado real estate – both direct ownership and pooled investment capital.
PERA employs more than 300 Colorado residents and pays retirement benefits to more than 121,000 retired public employees and beneficiaries.
PERA also encourages the companies in which it invests to adopt strong corporate governance practices by exercising its shareholder voting rights by proxy.
As a shareholder of public companies, PERA has the right to vote on important governance issues, such as separating the chairman and CEO roles within a firm and declassified corporate board structures that require members of governing boards to re-run for election every year. Exercising that right is part of PERA’s fiduciary duty to its members and beneficiaries.
PERA views its shareholder rights as a means to encourage positive direction in the oversight of the companies in which it invests. Conversely, divestment would limit PERA’s influence over issues of corporate governance because it would eliminate PERA’s shareholder voting rights from those firms which it could no longer consider for investment.
Divestment, or withholding investments from firms that do not adhere to a prescribed set of values, is one approach to screening for environmental, social and governance factors in investment decisions. At the opposite end of the spectrum is impact investing, or specifically directing investments to firms that adhere to a specific set of values. However, neither of those approaches would suit the objectives of all 600,000 individuals who rely on PERA for their retirement security. Simply put, PERA cannot invest in a way that meets the personal beliefs of each member. And such an approach would not fulfill PERA’s fiduciary responsibility to preserve the long-term sustainability of the PERA Fund for its members and retirees.
As the PERA Board of Trustees explains in its Statement on Divestment, updated in January, 2019, “PERA will implement the divestment mandates passed by the Colorado General Assembly but would recommend the legislature thoughtfully consider such proposals with caution and fiduciary care.” Instead, PERA invests according to strong financial diligence, evaluating its investments for their potential for continued profitability over the long term.
Members who are interested in investing in alignment with personal values of environmental and social sustainability have the option to invest their own savings in the PERAdvantage SRI Fund. This fund combines performance objectives with a focus on sustainability and is available through the PERAPlus 401(k) and 457 voluntary retirement savings plans, as well as the Defined Contribution (DC) plan.
Considering relevant factors in its investment decisions is another critical component of PERA’s investment stewardship philosophy. More on PERA’s four-part stewardship approach is available here.
Tara
Stacy was recently named as the Director of Investment Stewardship. Tara has
been with PERA since 2017. We talked to Tara about her new role and share the
highlights with PERA on the Issues readers below.
Tara Stacy, PERA’s Director of Investment Stewardship
PERA on the Issues: How long have you been in your new job as Director of Investment
Stewardship? Is this a new position at PERA?
Tara Stacy:
Director of Investment Stewardship is a new position
at PERA. I’m a few weeks into my new post, but I’ve been with PERA for two
years now. I started here as an analyst in the Chief Investment Officer’s (CIO)
Office of Investment Administration. This new role developed organically from
some of the work I did in that capacity, so I am excited to continue leading
PERA’s progress in investment stewardship.
PERA on the Issues: What is your background in this area?
Tara Stacy:
Prior to joining the PERA investment team, I was at a
private, buy-side investment firm here in Denver for eight years. I was an
equity trader, trading stocks and currencies in global markets. Before that, I
was a portfolio administrator for institutional client accounts at the same
firm. That included clients with environmental, social, and governance (ESG)
related portfolio guidelines. So in trading and in administration, I was implementing
ESG mandates and looking at how investment performance was impacted by those
considerations.
Since joining PERA, I’ve been involved with managing
adherence to PERA’s investment policies and statutory divestment mandates, as
well as research and analysis relevant to the performance of PERA’s
investments. Over the past few years, that work has become more focused on using
my experience as PERA’s investors and management recognized the need to
formalize and strengthen our approach to investment stewardship. In 2018, PERA
released its first Investment Stewardship Report in answer to growing interest
in sustainable investing themes among our peers in the industry and among our
stakeholders. From there, the question became, ‘how can we build on this and
make our investment stewardship something that is even more financially meaningful
to PERA’s investment portfolio, and thus more meaningful to PERA members and
beneficiaries?’ My work is about answering that question.
PERA on the Issues: What does your typical day look like?
Tara Stacy: I have yet to see a typical day! My focus right now is on further developing PERA’s investment stewardship initiatives. That might involve strategizing with PERA’s CIO, sharing best practices in the industry, advising PERA’s executive management on related matters, evaluating our investment exposures to sustainability factors, driving PERA’s engagement with stakeholders around our stewardship or conducting research on sustainable investing trends and related risks and opportunities.
Of course I also spend a decent amount of time with our
investment teams, implementing investment stewardship initiatives, sharing
research and ideas with analysts and portfolio managers and meeting with
management teams of the companies in which we invest to talk about the ways
they’re considering or incorporating sustainability into their business models and
how that affects their profitability.
PERA on the Issues: PERA’s approach to investment stewardship encompasses many facets.
What are the top priorities you’re focused on?
Tara Stacy: There is a lot of complexity and nuance to
stewardship, with no single approach to suit all investors. There are so many
pieces in the mosaic of information investors must consider in meeting their
objectives. But when you step back and look at the big picture from PERA’s perspective,
it’s all about seeking financial sustainability. We have to maintain that
vision, and I’m focused on continuing to develop four foundational practices to
uphold that objective:
Protect
assets through cost savings and cost consciousness
Integrate
relevant factors into investment decisions
Advocate
for robust markets as a long-term institutional investor
Evaluate
exposure in portfolios to identify value drivers
PERA on the Issues: How does what you’re doing benefit the PERA membership?
Tara Stacy:
Financial sustainability is necessarily our primary
focus as fiduciaries to PERA’s members and retirees. We have to manage PERA’s
investments to protect the financial sustainability of the Fund for their sole
benefit. So we have a responsibility to make investment decisions based on all
relevant factors that impact the risk-return profile of PERA’s portfolio. By
further developing our investment stewardship, we are strengthening PERA’s
commitment to the retirement security of our membership. We’re still in the
germination stages with our formal investment stewardship program, but that
focus on financial sustainability for PERA’s membership continues to drive our
investments and my work.
PERA on the Issues: Any thing you’d like the PERA on the Issues readers to know
about you?
Tara Stacy: I’m honored and excited to continue serving PERA’s
members and retirees in this new capacity.
People
have lots of questions about Social Security. That’s not surprising. No
government program is more important to so many Americans, as it is the largest
retirement income source for a majority of older households. The New York Times
responds to some of the most frequent questions submitted by readers, such as:
Will it still be around when I retire? How does the spousal benefit work?
More
than two-thirds of Colorado voters support the state creating a retirement savings
plan for private-sector employees whose employers do not offer one, according
to a survey commissioned by a political group that pushes progressive
legislation at statehouses across the nation. The results come after Gov. Jared
Polis appointed eight people to a study
group created by the General Assembly to consider how Colorado could join a
small but growing number of states that are establishing these types of
programs. Sixty-nine percent of registered voters surveyed were in favor of
creating a plan.
CalSavers, California’s automatic individual retirement
account plan, which officially started in July, offers employees of small
businesses and other companies that do not offer a retirement plan the
opportunity to save through the state program. California now requires
employers with five or more employees to either join CalSavers or begin
offering their own retirement plan. That will give an estimated 7.5 million
California workers a retirement savings plan option. About 55 million Americans
nationwide do not have access to a workplace retirement plan today.
Social Security cuts, shrinking employer-sponsored pensions,
low savings rates, and longer life spans have raised fears of a looming
retirement crisis. But other trends point to better retirement outcomes, such
as women’s increased employment and earnings, longer working lives, and economic
growth that raises wages. The Urban Institute provides some answers using the
best, most recent data available to help sort out how the profound social, economic, and demographic shifts that
are transforming retirement will shape older adults’ future financial security.
Nine Oregon public employees have sued the state, saying
their pension benefits are unfairly reduced by a new law. The lawsuit, filed in
the Oregon Supreme Court, contests Senate Bill 1049, which the Oregon Legislature
passed and Gov. Kate Brown signed into law this year. The lawsuit says that the
legislation amounts to a breach of contract and illegal taking because it
reduces the amount of retirement benefits for the employees. SB 1049 was passed
by Oregon lawmakers in a bid to rein in the state’s unfunded $27 billion pension
liability tied to the Public Employees Retirement System. Policymakers have
long grappled with how to keep the costs of the pensions of local, state, and
school district retirees under control.
A new series of case studies finds that states that shifted
new employees from defined benefit pensions to defined contribution or cash
balance plans experienced increased costs for taxpayers, without major
improvements in funding. The report, “Enduring Challenges:
Examining the Experiences of States that Closed Pension Plans,”
published by the National Institute on
Retirement Security, also indicates that the move away from pensions
cuts employees’ retirement security and that employers may face increasing
challenges hiring and retaining staff to deliver public services.
Earlier this summer, Colorado PERA
released its 2019 Investment Stewardship Report, which demonstrates how PERA’s investment program pursues the
plan’s long-term financial sustainability.
PERA’s approach to sound investment
stewardship includes protecting members’ assets through cost-conscious
investment management. This, in turn, protects the long-term value of the PERA
portfolio, benefitting members and retirees. Knowing that many PERA members
will retire decades, even a generation into the future, PERA adheres to a
financial stewardship approach that limits costs today, preserving the value of
its assets for years into the future.
Investing sustainably for the
long-term: PERA’s investment portfolio must meet
the perpetual needs of its membership. With this long-term investment horizon,
the portfolio must be sustainable, requiring a broad and diverse range of
assets in different classes, markets, and sectors. And PERA must navigate excess
volatility created in the markets by investors who react to short-term signals.
One way to achieve this is by seeking companies with strategies built for
longevity. These are high quality firms that adapt their business models to
meet the expectations of stakeholders, including investors. In the long run,
this focus is intended to boost PERA’s investment performance and contribute to
its sustainability.
Managing assets internally: PERA staff manage more than 60 percent of total fund assets
internally, at a cost of less than 0.06 percent of those assets. Managing public equity and public fixed
income investments in-house saves an estimated $45 million per year over the
expected cost of outsourcing to other investment managers. PERA also selectively
partners with external experts who add value and help PERA to earn better
risk-adjusted returns at lower overall costs. Whenever possible, PERA
negotiates with those external partners for lower management fees as well.
Unbundling equity research and
transaction costs: As an
institutional investor, PERA is also concerned with research and transaction
costs, which have implications for large and small investors alike. As
discussed in previous PERA on the Issues posts, staff have
repeatedly called for increased pricing transparency through clear guidance
that would allow U.S. investors to pay directly for research, rather than
receiving research as part of a bundle of services paid for by equity trading
commissions. This is one part of PERA’s ongoing advocacy for fair markets and
fair costs.
Lowering 401(k), 457, and Defined Contribution
plan fees: For members who choose to participate in PERA’s 401(k) plan, the all-in costs have dropped by 68 percent
since 2011. This includes a reduction of the administration fees from 0.50
percent of assets in 1995 to 0.03 percent of assets in 2018, which also extends
to PERA’s 457 and Defined Contribution plans. These lower investment costs should
encourage PERA members to participate by allowing them
to retain more of their retirement savings, while increasing efficient plan
management.
Protecting members’ assets by watching
costs is a critical component of PERA’s investment stewardship philosophy. More
on PERA’s four-part stewardship approach is available here.
