Month: March 2020

PERA Board Meets Amid Unusual Circumstances

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Colorado PERA’s Board of Trustees met on Friday, March 20, in historic fashion. Board members called in. Those in PERA’s Denver building sat noticeably far away from one another. All this in response to the COVID-19 health crisis we all face. Aside from the unfamiliar seating arrangement, however, this scheduled meeting went on as planned.

At this meeting, the Board did not take major action on any issue. They did receive numerous updates about PERA operations and updated policies under routine review.

Executive Director’s Report

Executive Director Ron Baker informed the Board about PERA’s response to the global pandemic. “Work at the building is vastly reduced, but we’ve been able to maintain a high level of service via remote working,” he said.

Baker said that PERA is prepared to continue delivering retirement benefits to PERA’s benefit recipients. Services members rely on, including PERA’s customer service call center, field education services, and individual counseling sessions, are all still available online and over the phone.

Baker also noted that, amid the upheaval caused by COVID-19, progress toward achieving long-term strategic goals continues to be made. Examples include expanding the use of web-based counseling and launching organization-wide communications initiatives to better engage new PERA members and deliver information to all members in a more streamlined, accessible way.

Investment Updates

Against a backdrop of high global market volatility, Amy C. McGarrity, PERA’s Chief Investment Officer, delivered an update of PERA’s investment operations.

McGarrity noted the sharp increase in volatility across global markets. In any given short-term period, the portfolio may perform better or worse than long-term expectations. Instead of trying to predict what the markets will do from day to day, the PERA portfolio is positioned to deliver the expected long-term rate-of-return assumption (7.25 percent) over the long term (30+ years).

She said that the investment team “continues to perform at a high level” and that many have experience from the similarly volatile 2008-09, which gives them valuable insight as they work to achieve their investment goals.

Other investment activities since the Board last met include:

  • The addition of the PERAdvantage 2065 Fund to the target date funds available to members who participate in PERAPlus. Target date funds allow people to invest in a well-diversified portfolio, taking on risk appropriate for their age, with a single click. This newest fund is designed for people who intend to retire on or around the year 2065.
  • PERA’s Fixed Income asset class (DB Plan) is now entirely internally managed. PERA identified this as an opportunity to expand its proven ability to deliver compelling long-term returns at a low cost.
  • Investment Operations established a business continuity plan to ensure continued management of PERA’s portfolio if PERA systems were unavailable.

Active Risk Policy

PERA’s Board sets multiple policies related to investment activities, including PERA’s Active Risk Policy. At the meeting, Aon delivered a presentation on this topic. At the end of the presentation, the Board made minor policy adjustments.

Active risk is the amount of risk a portfolio has when measured against its benchmark. For example, an active risk of 1.0 percent means that in two out of every three years, the return can be expected to be within 1.0 percent of the benchmark. In nine out of every ten years, the return can be expected to be within 2.0 percent of the benchmark.

What makes this particular measurement notable? Having a policy that establishes a cap on active risk puts a measurable limit on the amount of risk taking that can occur at any given time. It’s important to note that the goal is not to eliminate all risk. Taking a certain amount of risk is important as risk corresponds to potential investment returns. According to Aon’s presentation, this window of allowable risk levels gives investment staff the flexibility to “take advantage of opportunities when they present themselves.”

Aon’s report stated that PERA’s “[global equities] active risk range has historically been between 40 and 120 [basis points], well below the 225 [basis points] allowable maximum” and that “PERA’s active risk profile has been consistently more conservative than peers.”

Fixed income active risk “has ranged between 20 and 50 [basis points]”, also well below the allowable maximum and “relatively more conservative” than peers.

At the end of the presentation, the Board made minor modifications to PERA’s active risk policy. Among other changes, risk levels will be calculated over a five-year period instead of three, and the process for PERA staff to report to the Board if risk levels exceed the limit at the end of any fiscal quarter was formalized. The Board committed to deepening their knowledge of active risk with annual educational sessions on the topic.

PERA’s Response to COVID-19

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The implications of the spread of COVID-19 now reach deep into every corner of our lives, and these are difficult times for all of us. We are all concerned about the health of our family and friends, and we also know that many are also burdened by worries about jobs, bills, childcare, and so much more.

I wanted to take a moment to let you know how Colorado PERA is adapting to this temporary new reality and what you can expect in the days and weeks ahead.

  • PERA will continue to operate and benefit recipients will receive their benefit payments. Every month, we send out more than $400 million in retirement benefits to thousands of benefit recipients, most of whom live in Colorado, and we will continue to pay retirement benefits even though 90% of our staff will be working remotely.
  • We will continue to serve you. You can still call Customer Service, send in forms, update your information, and log in to your account. We thank you for your patience if you encounter a slightly increased wait time—we are working to improve our capabilities every day. Additionally, if you are currently retired and still receive your benefit check in the mail, we ask that you consider using direct deposit instead. It’s free and simple to set up. Making this switch will alleviate the need for staff to be in the office, and you don’t need to make a trip to the bank.
  • All in-person services have been moved to webinar and phone platforms. This includes group meetings with our Field Education staff and individual meetings with a benefit counselor. Use our online meetings and appointment scheduler to sign up for these free services.
  • Our PERACare plans offer COVID-19 testing at no cost. If you use one of our PERACare plans, know that any test you receive for COVID-19 will be covered at no cost.
  • We continue to be a long-term investor. Some members have asked about PERA’s investments and financial health amid the recent global market. As PERA’s Chief Investment Officer, Amy C. McGarrity, noted a few weeks ago, we can’t predict what markets do, but we can—and do—incorporate risk into our investment decisions. In any given short-term period, the portfolio may perform better or worse than long-term expectations. However, we are confident that PERA is well positioned to continue to invest through the ups and downs of the market cycle, providing the opportunity to achieve our long-term goals.
  • We will continue to keep you updated. We will continue to share updates with our members via our website.

We don’t know when this unwelcome chapter will end. But I know that we already live among those who will help us get through it. In the coming weeks, Coloradans will look to PERA members as we find our way through to the other side. We will draw inspiration from the teachers who find innovative ways to continue inspiring their students, from the CDOT employees who work hard to keep our roads safe for the emergency workers and movement of goods we all rely on, and from the public health professionals working tirelessly to stop the spread of the virus. All of us at PERA thank these and countless others who are at the forefront of this crisis.

Sincerely,

Ron Baker
Executive Director, Colorado PERA

Multiple Approaches to Keep Prescription Drug Prices Down

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For years, prescription drug prices have been rising at a dangerous rate—dangerous because high prices keep some people from buying or using the medication prescribed to them.

Lack of awareness certainly isn’t an issue. Health care costs are at the top of mind for the American voter and leading businesses.

Despite its prominence in the national discussion, addressing this nebulous issue hasn’t been easy. A single overarching solution remains elusive. Instead, multiple legislative proposals each seek to address specific cost drivers. Meanwhile, health care plans, including PERACare plans, have features that allow participants to keep costs down.

Drug prices continue climbing

GoodRX tracks the prices of hundreds of brand drugs. They report that 601 brand drugs increased in price last year by an average of 5.8 percent. This was nearly three times larger than the overall inflation rate of 1.8 percent.

Kaiser Family Foundation reports that a quarter of those taking prescription drugs say they struggle to afford them, and nearly 30 percent say they didn’t take medications as prescribed in the past year because of cost. According to the research, “this includes about one in five who say they didn’t fill a prescription (19%) or took an over-the counter drug instead (18%), and about one in 10 (12%) who say they cut pills in half or skipped a dose.”

The reasons behind the seemingly endless increases amount to a tangled knot. Experts routinely try to untangle the problem, but it persists.

PERACare: Offering lower-cost options, passing along savings

Using generic drugs helps keep costs down. Generic drugs are chemically equivalent to their name-brand counterparts, but they typically cost much less.

The pricing schedule in all PERACare plans is reflective of this. Generic drugs are available at a lower price than name-brand equivalents. Many people already take advantage of the option that costs less, but not everybody. In fact, a significant amount of savings goes unused every year.

If everyone with an Anthem PERACare plan who currently uses one of just three common brand drugs—Synthroid, Lipitor, and Zoloft—started using the generic equivalent, not only would those members save money due to the lower copay, but the plan itself could save about $1 million per year. This, in turn, could reduce the plan’s overall expenses, which can help keep monthly premiums more affordable.

PERACare also helps keep prices down by passing rebates they receive from drug manufacturers on to PERACare enrollees in the form of lower monthly premiums. It’s a common practice for manufacturers of prescription drugs to send rebates to insurers or plan providers. Because PERACare is not designed to make a profit, rebate dollars PERA receives are used to lower premiums for everyone.

“PERA is committed to keeping costs down in any way we can, whether that is negotiating for the best possible administrative costs and premiums or auditing carrier performance to assure financial accuracy,” said Jessica Linart PERA’s Director of Insurance. “However, we also encourage retirees to help each other by making smart health care decisions. When retirees use health care that costs less, by using generic medications or visiting their primary care doctor instead of going to the emergency department, that helps keep plan costs down which ultimately helps all enrollees in the PERACare program by helping to keep premiums down.” 

Prescription Drug Legislation at the Capitol

Health care is taking a prominent role at the capitol this year. Bills that address prescription drugs are summarized below. Although the legislature temporarily adjourned due to concerns surrounding COVID-19, work on these bills may continue when work resumes. (Editor’s note: These summaries are for informational use and do not represent a PERA endorsement for or against the legislation.)

HB 20-1160 – Drug Price Transparency Insurance Premium Reductions

This bill would require health insurers, prescription drug manufacturers, pharmacy benefit management firms, and nonprofit organizations to send information about the costs of prescription drugs to the commissioner of insurance. This includes information on rebates and certain price increases. The commissioner is required to make the information available in an annual report. The bill also requires health insurers to pass rebate savings along to consumers by adjusting premiums based on rebate amounts.

HB 20-1078 – Pharmacy Benefit Management Firm Claims Payments

This bill would require pharmacy benefit managers to reimburse pharmacies at the same rates. It would also prohibit pharmacy benefit managers from retroactively reducing payments on a claim after a sale.

SB 20-107 – Drug Production Costs Transparency Analysis Report

This bill would direct the Colorado Department of Health Care Policy and Financing (HCPF) to analyze drug production cost for the highest-cost prescription drugs by volume purchased by a number of state agencies. HCPF would then request from drug manufacturers a detailed basis of the costs to the manufacturer, including costs associated with research and development, clinical trials, and materials. Manufacturers who don’t provide this information would be subject to a fine. This data would be turned into an annual report.

SB 20-119 – Expand Canadian Prescription Drug Import Program

This bill would expand a program initiated in last year’s legislation that seeks federal approval to import prescription drugs from Canada. This bill would expand the request to include the import of prescription drugs into the state if certain conditions are met.

Retirement Roundup: Monitoring Finances Amid COVID-19

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

When market drops, play long game with retirement savings | ABC News

Watching the value investment accounts fall is not fun, regardless of your age. Those with time on their side, however, have some flexibility. You’ve only truly lost money if you sell investments at a loss. But if retirement is far in the future, there’s no need to sell investments today. In fact, if you haven’t touched those accounts you still hold the same number of shares you did two months ago—it’s just that the value of each share has declined. A time-tested philosophy is to simply wait out the storm. Some might look into rebalancing or taking a look at your diversification levels, but general consensus says don’t make big changes during periods of volatility.

Protect yourself financially from the impact of the coronavirus | Consumer Financial Protection Bureau

The worldwide crisis resulting from COVID-19 is filled with unknowns. But losing an income, being unable to pay bills, or facing a sudden need for health care can turn these hazy question marks into a reality with issues that are crystal clear, even if the answers seem just as illusive. If the financial implications of the COVID-19 crisis begin to affect your finances, know what tools you have available and what steps you should take.

Legislature Takes Historic Pause Amid Coronavirus Concerns | CPR

For the first time in state history, the Colorado Legislature has paused the legislative session. For at least two weeks, no bill will move forward. As they venture into uncharted territory, House and Senate leaders aren’t even sure about whether the constitutionally-mandated 120-day session length should include the duration of this legislative pause. They have submitted the question to the Colorado Supreme Court. Whenever they do reassemble, one thing is all but certain: Everything will be different. Priorities have changed, the budget will need to be altered due to the expected downturn in the economy, and time might be short.

Retired or nearly there? How to weather a market downturn | Yahoo Finance

Those in retirement or nearing retirement during market downturns have a different set of financial concerns than those who won’t be withdrawing from those accounts for years. Cutting back on spending, if you’re able, is one way to give your nest egg some breathing room. If nothing else, downturns remind us all about the importance of diversification and having a plan that takes into account the risk of downturns.

Retirement Roundup: Health care a top issue in Colorado legislature

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

Colorado is forging ahead on new health care models while the nation waits | The Colorado Sun

“From a national perspective, [Colorado] is known as one of the cool places for health care reform, where people are trying new ideas,” according to Dr. Jay Want, executive director of the Peterson Center for Healthcare, who was featured in this story. From surprise billing protections to copay caps for insulin to the ongoing creation of a public option proposal, Colorado lawmakers are certainly making health care a priority. Some people, however, including hospital representatives, say that action is not synonymous with a good ideas, and are pushing back against some recent changes and proposals.

How to manage your 401(k) as the coronavirus upends the markets | CNBC

Stay the course. That’s what experts almost always prescribe when market volatility increases, as we’ve seen in the past few weeks. Despite that time-tested advice, many people still try to outsmart the unexpected when we see big swings in the market: Last Thursday, for example, trading activity was 11.37 times the average. Keeping the big picture at the forefront can help as we make our way through unpredictable conditions.

Adjusting the Retirement Savings Path | PlanSponsor

Unexpected events can alter even the most carefully constructed plans. In fact, half of all respondents in a recent poll said they were forced to “retire earlier than they would have liked.” Health issues and caring for family members are just two of many reasons people have needed to change course. So what can we do about it? This story suggests that instead of trying to predict the future, try gaming through different scenarios and save now to give yourself increased financial flexibility in the future.

A Fascinating Course On The Literature Of Retirement | Forbes

A University of Minnesota professor is teaching a course about retirement. No, John Watkins doesn’t teach finance or economics—he’s an English professor. The course, The Literature of Retirement: A Feeling For What Comes Next, is offered to students in the College of Continuing & Professional Studies. The course uses three texts: Quartet in Autumn, by Barbara Pym; The Sea, The Sea, by Iris Murdoch; and Shakespeare’s King Lear. Big life changes, including retirement, often force a person to reevaluate what’s important to them. For many, tackling those questions first requires opening up a good book.

Three Ways the CARES Act Affects Your PERAPlus Accounts

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On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The legislation provides nearly $2 trillion in economic support to individuals, businesses, health care providers, and governments at the federal, state, and local level.

Reports often highlight the CARES Act’s direct cash distribution of up to $1,200 for individuals. But the bill contains multiple other sources of relief for individuals who need access to additional funds amid this health crisis. For PERA members, the CARES Act makes it easier to access savings in PERAPlus 401(k) and 457 plan accounts, if needed.

Coronavirus-related Distribution

The CARES Act adds a new opportunity to receive up to a $100,000 distribution from a retirement plan account if an individual: (1) is diagnosed with COVID-19; (2) has a spouse or dependent diagnosed with the virus; or (3) is quarantined, furloughed, laid off, has their work hours reduced, or is unable to work due to lack of childcare.

Typically, individuals are charged a 10-percent penalty in addition to regular taxes if they make withdrawals from a retirement account, including a 401(k), before reaching the age 59½. The CARES Act waives the penalty for coronavirus-related distributions during 2020.  Further, taxes on this distribution can be spread out over a three-year period. Individuals will have the opportunity to pay the distribution back (pending future guidance from the IRS).

RMD Waiver

Required Minimum Distributions (RMDs) are waived for 2020 for Defined Contribution (DC) plans. For PERA retirees, no RMDs are required for the DC Plan, the 401(k) Plan, or the 457 Plan. Defined Benefit Plan RMDs must still be taken in 2020.

Expanded Loans

Members who are affected by COVID-19 (under the same criteria as listed in the distribution section) can take a loan of their entire account balance (up to $100,000) from a 401(k) or 457 account within 180 days of enactment of the Act.

The due date on loan repayments for members who are affected by COVID-19 is delayed for one year. Prior to the Act, the maximum loan amount was half the account balance (up to $50,000).

Before Using Retirement Funds, Consider This

This increased flexibility can bring a much-needed source of money in an emergency. However, many financial experts recommend tapping retirement accounts only as a last resort. Withdrawing retirement account funds during a market downturn limits your ability to bounce back when the market recovers. Instead, consider cutting unnecessary expenses and contacting creditors about repayment options before making withdrawals from your retirement accounts.

The development and passage of this law took place rapidly. PERA is working with Voya to interpret and implement these changes as soon as possible. Members with questions are encouraged to call PERA’s Defined Contribution team at (303)398-7665.

Important Information for PERA Members and Retirees About Receiving Federal Rebates

A major component of the CARES Act is a rebate of up to $1,200 per individual. These rebates will be processed by the IRS.

The IRS plans to use Social Security records and tax returns from 2018 and 2019 to coordinate these rebates. As a result, PERA retirees who neither receive Social Security payments nor file federal taxes, as well as PERA members who do not file federal income taxes, should be aware that they might need to take an additional step to receive a rebate. Once the IRS determines what this step is, it will conduct a public awareness campaign to provide additional guidance.

The House Committee on Ways & Means has addressed many common questions about this topic.

Editor’s note: We will update this story as more information becomes available. Last updated: March 31, 2020.

Update on Operations from PERA’s Executive Director

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Editor’s note: The dates mentioned in this story were updated on April 21 to reflect the most current information.

The emergence of COVID-19 has disrupted daily life around the world, including here in Colorado. There is much we still don’t know about this still-emerging pandemic. In a matter of days, we have all experienced sudden, extensive changes, the likes of which most of us have never experienced. These changes can be difficult to process. Most importantly, the concern about our health and the health of our friends and family weighs heavily for so many people.

The safety of our employees and our members is of upmost importance to us here at PERA. To that end, I would like to share steps Colorado PERA is taking to keep our employees and members safe and what you can expect in the days ahead.

PERA Service Changes

Members will see some temporary changes in how we interact with members. We plan to continue delivering a high level of service, answering your questions and responding to your needs quickly. However, we are eliminating in-person contact for a time as we do our part to stop the spread of this virus. These PERA services will be available online and over the phone. Specifically:

  • In-person individual counseling session at our three office locations will be suspended until May 16. If you had an in-person counseling session already scheduled, a PERA Benefits Counselor will be reaching out to convert your appointment to either a telephone or online appointment.
  • PERA is suspending walk-in customer service. Members are still able to turn in forms at our office locations in Denver and Westminster.
  • PERA-hosted meetings occurring around the state have been canceled through May 16. Webinars that cover the same topics will continue to take place as scheduled.
  • Customer Service Representatives are available by calling 1-800-759-7372 Monday–Thursday, 7:00 a.m. to 5:30 p.m. and Friday, 7:00 a.m. to 4:30 p.m. (Mountain time).
  • Please note that benefit payments will not be disrupted.

Investment Operations

As PERA’s Chief Investment Officer, Amy C. McGarrity, noted a few weeks ago, we can’t predict what markets do, but we can—and do—incorporate risk into our investment decisions. In any given short-term period, the portfolio may perform better or worse than long-term expectations. However, we are confident that PERA is well positioned to continue to invest through the ups and downs of the market cycle, providing the opportunity to achieve our long-term goals.

Finally, we know that many PERA members are at the forefront of the fight against COVID-19. Instead of being asked to stay at home, thousands of public safety officers, health officials, and others will be asked to go into the storm. We’ve seen this before. Time and time again, we’ve seen those in public service rise to whatever challenge is placed before them. They go from being the unsung heroes of daily life to being a source of inspiration and strength that we all need right now. We are thankful for these, our fellow PERA members, and for all who are involved in responding to the challenges we now face. It will not be easy, but they will undoubtedly carry the day.

We appreciate your cooperation and patience during this emerging and evolving situation. We will continue to keep you informed about any additional PERA developments. I hope you and your family remain safe during these uncertain times.

-Ron Baker