Month: December 2019

Best of PERA on the Issues 2019

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2019 was another busy year for Colorado PERA and the people who bring you PERA on the Issues. Here are a few highlights from the stories and issues covered in the last year.

Top topic of 2019: Social Security, WEP and the GPO

If it’s unexpected that the most popular topic covered by PERA on the Issues is something over which PERA has little control, it shouldn’t be. Although rules governing Social Security are set at the federal level, PERA members are especially concerned about the fairness of two provisions: the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These provisions can reduce Social Security benefits paid to public service employees (and their spouses) who do not participate in Social Security.

The article with the most traffic on the site in 2019, New WEP/GPO repeal bill needs broader support to become law, questioned whether bipartisan legislation introduced in Congress in January had any chance of being signed into law, or if it was destined to see the same fate as multiple previous attempts at legislation that would resolve the issue. Readers also had a chance to learn about efforts of PERA staff to educate members of Congress in another popular article about WEP and GPO impacts on PERA members and other Coloradans. A third article explained in more detail how these two distinct retirement benefit programs are interrelated.

Other hot topics

Readers in 2019 remained interested in an important PERA on the Issues topic: state legislation. During the legislative session that ended in May, the Board of Trustees and PERA staff closely followed bills addressing member contribution rates for local government employees and climate-related financial risks, an issue discussed at length in the 2019 Investment Stewardship Report.

Finally, readers also viewed tactical information about ways that workers might grow their retirement savings and assess risks to their retirement security. These top-performing stories are good reminders that readers care about the policies and practicalities of saving for a secure retirement.

Talking with members and looking ahead

While a post about WEP all the way back in 2015 is still the standard-bearer as most-discussed for PERA on the Issues with 125 comments, the WEP/GPO repeal bill proposed in 2019 drew more than 115 comments this year. This is yet another indicator of just how important this issue remains for our members and readers. PERA staff will continue to track any developments at the Congressional level and keep our readers informed. Staff will also monitor developments in Colorado’s General Assembly, where the session will begin on January 8, 2020.

Keep watching your inbox for more news from PERA on the Issues and let us know how we can continue to provide information that is useful and illuminating.

To our readers, we wish you a healthy and happy holiday season and look forward to hearing from you in the new year.

Are public sector workers satisfied?

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Melissa Vigil moved to Fort Collins to earn a Ph.D. in organic chemistry. Three years later, those plans changed. “I realized that while I love chemistry and science in general, I wasn’t a happy lab rat,” she said. “I switched to teaching to share my passion for science with students.”

Eleven years later, Melissa is still teaching at Fossil Ridge High School, part of Poudre School District.

Like many Coloradans, Melissa spends a lot of time outside—white water rafting, skydiving, hiking, snowshoeing, shooting, stand up paddle boarding, swimming, and more. And, like many who work in public service careers, she measures success by the impact she has on others. “I feel most proud when I’ve done something tangible when I leave for the day,” she said. “Whether that’s having a successful parent-teacher conference to teach a kid a life lesson bigger than a science concept, finally getting caught up on grading, or creating a new way to engage students.”

Melissa’s career outlook and values are shared by hundreds of thousands of state and local employees across the country. A recent study published by the National Institute on Retirement Security (NIRS) collected and analyzed data surrounding the sentiments public sector workers have about their jobs and the compensation they receive for it.

What Do Public Sector Workers Think About Their Jobs?

State and local employees like helping others, and they like their jobs…

Nearly 90 percent of state and local employees reported being satisfied with having the ability to serve the public. Although 71 percent say that their jobs are stressful, 85 percent are satisfied with their jobs.

In Colorado, 90 percent of state employees report feeling that the work they do is important, according to a 2017 study.

…Yes, even Millennials

Amid reports of Millennials hopping from job to job, the NIRS study showed that 84 percent of Millennials working in state and local government are satisfied with their current job. Eighty-five percent said they plan to stay at their current employer until they are eligible for retirement or can no longer work.

They like their jobs despite a mixed view on pay

Twenty-two percent reported their salaries being very competitive, and 80 percent say they could earn a higher salary in the private sector.

A defined benefit plan is a major factor in retention

Ninety-four percent of state and local employees have favorable views of defined benefit pensions. Fifty-eight percent said that moving them from a pension and into an individual retirement plan would make them more likely to leave their job. And those Millennials: 74 percent said a pension benefit is a major reason they chose a public sector job.

The mission of Colorado PERA is to promote long-term financial security for our membership. The passage of Senate Bill 18-200 puts PERA on the path to become fully funded within 30 years.

Retirement Security in Colorado

Melissa Vigil loves teaching, but she doesn’t think she’ll teach forever. She said that teaching is a demanding profession. “I want to be able to retire at an age where I’m still fighting to give students my best,” she said. “And selfishly, I’d like to retire at an age where I can enjoy my retirement. My husband and I have a long list of places we would love to travel to!”

As a result, she said “it means everything to be able to rely on a secure retirement.” But planning for retirement isn’t always easy. “I, like many people, find it a bit overwhelming,” she said. “What is most helpful for me is a two pronged approach—some electronic and some in-person information.”

Preparing for retirement isn’t something you do once. Learning about retirement takes place throughout a person’s career. To that end, thousands of people take advantage of PERA’s face-to-face educational opportunities and webinars every year.

The Importance of Understanding the Public Sector Mindset

The trends highlighted in the national study mirror those found in Colorado. “It’s clear from the research that public service is important to state and local workers like teachers, nurses, police officers, and firefighters,” said Dan Doonan, NIRS executive director. Driven by a sense of purpose, state and local workers often accept lower salaries than they could earn in the private sector. “Understanding at a deep level these employee preferences and concerns will best position state and local policymakers to recruit and retain qualified, experienced employees that taxpayers depend upon.”

Retirement Roundup: How All 50 States Tax Retirees

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A digest of news from publications around the nation about finance, investing, and retirement.

How all 50 states tax retirees | Kiplinger

Retirees relocate for lots of different reasons, from the weather to proximity to grandchildren. Moving from a pricey part of the country to one with low housing prices could also lower your expenses and make your retirement savings last longer. But as you consider the cost of living in potential retirement destinations, don’t overlook the impact of state taxes on your bottom line. Spoiler alert: Colorado is in the middle of the pack.

These tips can help retirees make required minimum distributions easy and tax penalty free | CNBC

If you’re 70½ or older and have, or inherited, a retirement account, you need to take your required minimum distribution (RMD) by December 31. Miss that deadline, and you’ll face a tax penalty. RMDs are the minimum amount that must be withdrawn from retirement funds, such as an individual retirement account (IRA) or employer-sponsored plans like 401(k)s. The amount you need to take out varies from year to year and is based on specific calculations. But simple tips, like getting paperwork in order and double-checking your math, can make the process easier.

Don’t tell me how to retire | NextAvenue

The traditional definition of retirement – stop working at 65, full stop – is outdated. An episode of Friends Talk Money, a podcast on personal finances after 50, looks at examples where retirement in 2019 looks very different from that traditional picture.

Help needed to curtail Gen X’s anxiety about retirement | PlanSponsor

Generation X investors are less confident about their financial future than Millennials or Baby Boomers, according to E*TRADE’s quarterly StreetWise survey. Not having enough saved for retirement tops the list of worries for Gen X (ages 35 to 54), with nearly one-third (32%) choosing it.

Thousands of Americans are signing up to trade stocks for free. Here’s what to do instead | Money

In October, the discount brokerage Charles Schwab announced a new policy of commission-free stock, ETF and option trades. Following that announcement, rivals E*Trade, Fidelity and Ameritrade quickly followed suit. Schwab, which agreed in November to purchase Ameritrade for $26 billion, recently said it signed up 142,000 new customers in October, up 30 percent from the number it signed up in September. When it comes to investing, costs do matter. And anything that promises to lower investors’ costs is worth applauding. But your investment horizon should also be long-term. Making trades free seems to run counter to that, encouraging people to trade more.

PERA Board Meeting Notes: Setting PERA’s Portfolio Mix

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How should PERA invest the roughly $50 billion PERA portfolio?

That question was answered on November 15, when PERA’s Board of Trustees approved updated asset allocation guidelines. Asset allocation is the term used to describe how the total amount of dollars invested are divided among various investment types, also known as asset classes.

The Board does not make individual investment decisions—PERA’s investment team fulfills that role. Instead, the Board sets the course for PERA’s investment strategy, broadly speaking. This is not a one-time decision. The Board usually reviews and approves asset allocation needs every three to five years.

The Board first sought a thorough review of its options. In particular, they weighed how different proposed options would contribute to the overall goal of becoming fully funded in 30 years. They considered risk, return, and the cost of managing investments, among other factors.

The Board worked with Aon, an outside firm, on this project. Aon compiled a report that included multiple options for the Board to consider. (Read prior reporting on this process here. The full report can be viewed in full here.)

The Board sets two important guidelines for each asset class. The first is a long-term target, which is defined by a specific percentage. The second is a target range, which includes a minimum and maximum percentage.

The target range gives the investment team increased flexibility. For example, if one asset class is performing better than expected relative to other asset classes, it might grow beyond the long-term target. The target range’s higher ceiling allows that asset class to continue to grow without unnecessarily selling assets, which incurs additional costs.

PERA’s asset allocation, as approved by the Board
Effective 1/1/2020
Long-Term Target Target Range
Global Equities 54% 48%-60%
Fixed Income 23% 18%-28%
Private Equity 8.5% 4%-13%
Real Estate 8.5% 4%-13%
Alternatives* 6%0%-12%
Cash 0% 0%-3%

*Note: The asset class currently named Opportunity Fund was renamed Alternatives, effective 1/1/2020.

Choosing an asset allocation is a decision that individuals and institutional investors alike must make. But this comparison has limits. Individuals investing for their own retirement have a closed time frame. They need income in retirement, but that need ends upon death. PERA, on the other hand, operates in an open-ended environment. It needs to last in perpetuity. When the Board sets the asset allocation, they seek to maximize long-term returns, meeting the retirement security needs of all 600,000 Colorado PERA members

For more information about PERA’s investment strategy and performance history, visit the investments page of copera.org or watch the video below.

PERAPlus Investing Costs Continue to Fall

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Low-cost investing was a popular topic in 2019.

In January, Jack Bogle, legendary investor and founder of The Vanguard Group, died. Bogle was known for giving straightforward, cost-conscious investment advice to the average, everyday investor. His tips were simple: keep investment costs as low as possible, diversify broadly, stay the course.

In October, Charles Schwab Corp. made waves in the investment world when the company announced it would eliminate trading fees for all U.S. stocks and exchange-traded funds (ETFs). Companies including Fidelity, E*Trade, and TD Ameritrade soon followed suit.

More than 90,000 Colorado PERA members have a PERAPlus 401(k) or 457 account. They also have access to low-cost investment choices. In 2019, those costs continued falling.

What you need to know about investing fees

Investing isn’t free. It’s worth understanding the various types of fees you encounter while investing. Over time, small differences can add up. For example, the difference between an annual fee of 0.25 percent and a fee of 0.75 percent can cost a person tens of thousands of dollars over the course of his or her career.

Account fees and minimums

A PERAPlus account costs $1 per month for all members, regardless of account balance. This fee has remained unchanged since PERAPlus launched in 2011. PERAPlus accounts don’t have minimum balance or contribution requirements.

To cover the administration of the investments themselves, PERA funds have an annual administrative fee equal to 0.03 percent of the market value.

Management fees

This is the fee that investment firms charge to manage the assets. Like the administrative fee listed above, this is calculated by multiplying the management fee by the participant’s market value in that fund. For example, a management fee of 1 percent would result in a $10 charge for every $1,000 of market value.

As of November 2019, the total fee (plan administration plus investment management) for PERAPlus funds ranged from 0.08 percent to 0.3 percent. Fee information for each PERAPlus fund can be found here.

PERA has reduced these fees consistently for years. PERAPlus fund fees decreased an average of 68 percent between 2011 and 2018.

Trading costs

This is a transaction fee, usually a flat dollar amount, paid to the brokerage where an investor buys or sells a stock or fund.

PERAPlus investors are free to buy or sell PERA’s 17 funds at any time at no cost. Those who wish to have additional investment options can move funds to a self-directed brokerage account at TD Ameritrade. TD Ameritrade’s fee structure applies.

Front-end and back-end loads

Some mutual funds charge a one-time fee, usually a percentage of the amount invested, whenever an investor buys or sells that fund. This fee is in addition to whatever trading fee the brokerage charges. Front-end loads occur when you buy a fund, back-end loads occur when you sell. None of the PERAPlus funds have loads.

Financial planner fees

This is a fee you pay for someone else to manage your account for you. PERAPlus accountholders have the option to hire an account manager at Voya. The annual fee begins at 0.5 percent of the participant’s account balance. As the account balance gets higher, the percentage goes down.

How PERA cut one fee by more than half

In 2019, four PERAdvantage funds saw additional fee reductions: the Fixed Income Fund, the International Stock Fund, the U.S. Small and Mid Cap Stock Fund, and the SRI Fund.

The U.S. Small and Mid Cap Stock Fund saw the most precipitous drop, with annual fees falling from 0.46 percent to 0.18 percent. This drop came on the heels of a restructure of the fund.

In 2018, PERA initiated a due diligence review of the U.S. Small and Mid Cap Stock Fund. An investment team reviewed elements such as risk, cost, and composition. “We were comfortable with the active risk in the fund, but we thought we could do it at a lower cost,” said Jim Liptak, Director of Equities at PERA.

At that time, the fund contained three underlying funds. Like ingredients in a recipe, each underlying fund contributes something to the overall mix. During the review, staff decided to move from three underlying funds to two. “We knew we wanted to add a small-cap fund we were already managing internally on the [defined benefit] side,” Liptak said. “It demonstrates strong relative performance at a low cost.”

The objective then became identifying a mid-cap fund that would pair effectively with the more growth-oriented small-cap fund. Liptak said the ideal pairing was a value-oriented fund. Growth-oriented equity portfolios focus on companies that are expanding at above-average growth rates. Value-oriented funds focus on companies that are underpriced relative to companies in similar industries.

Because PERA does not currently manage this type of equity fund in-house, the review team looked elsewhere to find the best fit. The team reviewed both passive and active investment options. Dimensional Fund Advisors provided the best solution. “We want the best long-term odds of success at the lowest cost,” Liptak said.

The PERAdvantage U.S. Small and Mid Cap Stock Fund restructure was completed in June 2019. The outlook and risk levels have remained similar, but the cost to PERA members has dropped by nearly 60 percent.

Health Care Headlines

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A digest of health care information about cost savings, public policy and staying healthy in retirement.

Prescription drug legislation in Congress: An update | AARP

Recent developments in both houses of Congress show movement on drug pricing legislation. The Democratic caucus in the House of Representatives passed the Elijah Cummings Lower Drug Costs Now Act, with a series of far-reaching drug pricing reforms. The Senate Finance Committee released updates to its drug pricing package. Finally, the Health, Education, Labor, and Pensions Committee reached a deal on surprise billing that includes small drug pricing elements. With the passage of the House bill, pressure may increase on Senate Republicans to sign on to the Finance Committee’s more moderate package. Yet for legislation to pass in this Congress, it may take focused attention and support from the Trump administration, which faces a number of competing priorities.

Gardner, members of Congress request delay of Health Insurance Tax | Colorado Politics

U.S. Sen. Cory Gardner and members of Congress from both chambers and both parties have sent a letter to congressional leadership requesting a delay in a $15.5 billion tax on health insurance companies.

Senators and Representatives who signed the letter indicated a concern that the tax, which would be passed on to consumers, would particularly impact seniors and Americans with disabilities. The Health Insurance Tax (HIT), part of the 2010 Affordable Care Act, imposes a fee on health insurance based on their premiums and market share. Congress put a moratorium on the HIT in 2017, allowed it to resume in 2018, and suspended it again in 2019. It’s unclear when Congress might act on legislation that would suspend the tax through 2021.

As Coloradans demand action on health care costs, lawmakers work on a public option | KUNC

The latest health care proposal coming out of the Capitol from State Rep. Dylan Roberts (D-Avon), which has bipartisan support, would create a new health insurance plan. The so-called “public option” would be governed by the state, but still use private insurance companies. The state would set reimbursement rates for hospitals and dictate how much the insurance companies must spend on patient care.

Colorado could soon get a lot of money from opioid settlements. But where should those dollars go? | The Colorado Sun

Colorado could soon be in line for tens of millions of dollars from legal settlements related to the opioid epidemic. That kind of windfall would represent a major leap forward in the state’s effort to combat the crisis, which has claimed the lives of more than 5,000 Coloradans since 2000. But it would also present a significant challenge over how to spend those funds. Already, the Attorney General’s office is involved in discussions over multi-state, multibillion-dollar settlements with several drug companies. Local governments that filed lawsuits separately could also be in line for dollars coming directly into their budgets.

House-Senate fix could break gridlock on ‘surprise’ medical bills | Politico

Bipartisan efforts to protect patients from “surprise” medical bills are regaining momentum after stalling out over the summer. Leaders of the House Energy and Commerce Committee and the chairman of the Senate health panel recently announced a deal they said would rely on “a new system for independent dispute resolution often called arbitration.”

The announcement comes as consumer advocates pushed for a solution that would hold patients harmless in billing disputes between health plans and providers. Congress set the issue as one of its top health care priorities this year, citing sometimes jaw dropping bills for care received out of network.

The Polis administration wants a greater say over hospital prices for more than 1 million Coloradans  | The Colorado Sun

Colorado’s top insurance regulator has said that he will soon propose a rule that allows him to dig deeper into hospitals’ deals with health insurance companies, the latest in the Polis administration’s push for greater say over hospital prices. The new rule will give him the ability, as part of the rate-review process, to determine whether the underlying prices that insurance companies negotiate with hospitals are affordable. It will also allow him to look at whether insurance companies are passing onto consumers any price breaks that they negotiate with hospitals or whether they are pocketing the savings for themselves.

As his wife’s caregiver, a doctor discovers what’s missing at health care’s core | Kaiser Health News

Caring for someone with a serious illness stretches people spiritually and emotionally, often beyond what they might have thought possible. In his recently published book, “The Soul of Care: The Moral Education of a Husband and a Doctor, Dr. Arthur Kleinman, a professor of psychiatry and anthropology at Harvard University, describes his awakening to the realities of caregiving when his beloved wife, Joan, was diagnosed with a rare form of early Alzheimer’s disease. He learned that no one who goes through this emerges unchanged. He became less self-centered, more compassionate and more aware of how the health care system fails to support family caregivers, the backbone of the nation’s long-term care system.