Month: April 2020

Retirement Roundup: Local and Rural Areas Look for Aid

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

Colorado Needs Local And Rural Federal Coronavirus Aid, But It May Be Slow Coming | CPR

Colorado has received $2.2 billion in federal aid. Major population centers received about a quarter of the funds directly. The state legislature is charged with sorting out the rest. Some are concerned the dollars won’t be spread around evenly. But nearly all agree: However the money is sorted out, communities everywhere will still face major shortfalls.

Are We Going to Get a Second Round of Stimulus Checks for $2,000 Each Month? | Kiplinger

Colorado’s per capita income in 2018 was about $36,000. That means that the recent federal stimulus checks of up to $1,200 per person cover about two weeks of income. For those who have lost earned income, the big question is: “what happens next?” On the heels of the CARES Act, some legislators are talking about sending out additional stimulus checks.

Why State Budget Officials Worry About COVID-19’s Impact on Sales Taxes | PEW Trusts

Sales taxes tend to be a less volatile form of income for states relative to other taxes, such as corporate income or oil extraction. However, with a sudden, precipitous drop in consumer spending, this usually reliable revenue source is now shakier than in past recessions.

Determining Sustainable Spending From An Investment Portfolio In Retirement | Forbes

Investment returns, longevity assumptions, assumed rate of return—these are terms you might be familiar with when reading about PERA’s DB funds. But the same concepts apply to individual plans, like a 401(k), especially when asking how much you can safely withdraw from those accounts in retirement.

PERA and Rural Colorado

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Retirees who are in a pension plan have a “deep economic impact” in supporting small towns and rural communities, according to research released in March 2020 by the National Institute on Retirement Security (NIRS). The research points to Colorado as an example of this nationwide observation.

The Retiree Effect

The NIRS study, which collected data from 19 states, found that while a majority of retirees with pensions concentrate in urban areas, the steady stream of income for those who live in small towns and rural areas make up a larger percentage of personal income.

The study suggests that small-town counties, which are generally those with fewer than 50,000 people, benefit the most from pension income. This is measured in two ways. First, monthly pension income is compared to the total personal income in each county. Second, monthly pension income is measured against each county’s GDP. Compared to metro areas, rural-area pensions make up a higher share of total personal income, though a lower share of GDP, likely due to high value of land, farm equipment, and goods found in many rural areas.

Type of CountyPension benefits as a share of GDPPension benefits as a share of personal income
Metro1.17%1.26%
Micro1.89%1.98%
Rural0.92%1.73%

There is no single reason behind these trends, though the authors do state: “Many public employees form strong connections to their local communities and choose to remain there after they retire. This means that their pension benefit dollars also stay in that community.”

The Colorado Impact

The county-level data needed to conduct this study nationwide only recently became available. But Coloradans have had access to statewide data for years via similar reports prepared by Pacey Economics. The 2018 report shows that Colorado’s economy largely mirrors the nationwide trend. In fact, PERA retirees play an economic role in rural communities and small towns that exceeds the national averages.

PERA retirement distributions relative to payroll by county
Source: Colorado PERA Economic and Fiscal Impacts, 2018

The report also states that “reliable, predictable income [allows] for an ‘automatic stabilizing effect’ on state, regional, and local economies, especially in economic downturns.”

PERA expects the 2019 report from Pacey Economics to be released soon. While the particular figures vary from year to year, the importance retirees play in their communities remains steady.

Legislative Update: An Uncertain Path Ahead

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Colorado’s legislature temporarily adjourned on March 14, well before the clock ran out on the 120 days legislators have to work with. This shutdown, of course, was due to COVID-19, a virus that has altered nearly every aspect of life around the globe. The medical reasons to shut down were clear. But the outlook on reopening is still hazy.

The Colorado Supreme Court cleared up some confusion earlier this month. It ruled that, because the adjournment occurred under a rule of procedure that allows for increased flexibility during disease-related emergencies, the legislature’s countdown clock would be paused, resuming when they return, instead of continuing to tick down while they are away.

Whenever lawmakers do return, they will face a list of questions with no easy answers.

The Road Forward

This ruling gives the legislature additional time to do their work—if the court had decided the legislative clock would continue ticking, session would end on May 6. But the additional time granted to legislators does not necessarily offset the scope of the challenge ahead.

The legislature has a plan to address a few high priority items. For example, the Joint Budget Committee is scheduled to meet on May 12 to hear an updated economic forecast presented by the Governor’s Office of State Planning & Budgeting and Legislative Council Staff. Other high-priority legislation includes the School Finance Act and reviewing sunset legislation, not to mention any additional legislation required to address the pandemic.

While the legislature has mapped out the first steps forward, nobody knows where, how, or when this year’s legislative session will end. The legislature might reconvene to pass a budget, temporarily adjourn again, and reconvene later in the year. They might consider rules to do their work remotely.

To what extent legislators address bills that were introduced as of March 14 is another unknown. This includes addressing bills that would modify the status of firefighters in PERA and change working-after-retirement rules for PERA retirees employed by a board of cooperative services.

Revisiting the State Budget

Passing a budget will be a daunting challenge. The six lawmakers on the Joint Budget Committee, who were allocating dollars amid a bustling Colorado economy in January, now find themselves facing a significant shortfall.

“Before the emergence of COVID-19, the JBC was working with an increase in funding of more than $500 million over last year,” said Michael Steppat, Colorado PERA’s Public and Government Affairs Manager. “Now they face a shortfall that could approach $3 billion. Plus, they have a little more than a month to revisit every single spending decision they have made whereas the normal budgeting process typically takes months.”

The manner in which PERA’s funding is part of the budgeting process is nuanced. Members and employers send PERA contributions based on a percentage of pay. The state budgeting process sets pay rates and employment levels for state employees—a legislative task separate from setting the contribution rates—while school districts and local governments determine pay and employment levels for their employees. As part of SB 18-200, the legislature also created the Direct Distribution, in which an amount, currently $225 million each fiscal year, is sent to PERA, although this component is not appropriated by the Joint Budget Committee.

Federal Funds and the State’s Budget

Over the past two months, the U.S. Congress has passed a number of bills that provide economic relief to individuals, businesses, and also funds for governments at the state, territorial, local, and tribal level. To date, the aid provided by all “phases” of legislation amounts to $2.7 trillion.

About $2.2 billion was allocated for Colorado, as part of the CARES Act, to be split between the state and local jurisdictions with populations exceeding 500,000. The funds do come with strings attached. According to U.S. Treasury guidelines, “expenditures must be used for actions taken to respond to the public health emergency.” In other words, the funds may not be used to offset indirect costs related to the pandemic, including “backfilling” the state budget.

PERA On The Issues will continue following this highly unusual legislative session and post updates as they occur.

Q&A With PERA’s New Chief Benefits Officer

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At the end of April, Patrick Lane will officially start his work as PERA’s next Chief Benefits Officer. He will provide management and strategic direction of: PERA’s retirement, disability, and survivor benefit payments; member account services; benefit counseling; and customer service programs. Prior to joining PERA, he was Director of Member Services for the Oklahoma Public Employees Retirement System (OPERS).

We spoke with Patrick to learn more about his background and to hear firsthand about his future at PERA.

PERA On The Issues: Welcome to PERA, Patrick! Tell us a bit about where you’re from.

Patrick: Have you heard the John Mellencamp song Small Town? That describes where I’m from. I was born and raised in a small Indiana town. I played basketball, read Kurt Vonnegut, and went to Indiana University. I’m a proud Hoosier!

PERA On The Issues: Moving your family to a new state is never an easy task, but you must do it during some unusual times. How is your move going?

Patrick: I will be moving near the end of April, officially beginning my work with PERA on April 30. My wife is a teacher, so she’s wrapping up the school year and assisting our girls with remote learning. They’ll be joining me in Colorado in early June.

PERA On The Issues: At first, why did you choose to work in public service?

Patrick: An uncle planted the seed of public service in me. He was a fun, dynamic individual. He was a police officer before becoming city manager and ultimately a New Mexico state senator. He showed me public service was an honorable profession. One of the best schools in public administration was in my backyard, so I chose to attend IU’s School of Public and Environmental Affairs.

I first thought I would go into city management like him. But, after a brief moment working on political campaigns after college, I joined Indiana’s state pension system as the executive assistant to the director. Now, here we are, three decades later.

PERA On The Issues: What made working in public pension administration compelling?

Patrick: A lot of it was good timing. When I started, there was a referendum on the ballot that lifted a prohibition on investing in equities. Indiana was the third to last state to lift this ban. The very first thing my boss, who was previously an investment banker, assigned me to do was to draft a letter for his signature authorizing our first investment into the S&P 500 and Russell 2000. It was a letter authorizing $80-million dollars being transferred from one account to another.

As a kid from small town Indiana, this was an eye-opening experience. I never dreamed of doing anything that involved billions of dollars. I was lucky to have such a wonderful mentor who provided me learning and growth opportunities. It was an exciting time, watching a $4-billion bond portfolio being transitioned into a $12-billion diversified portfolio when I left Indiana. Changes took place very quickly as the organization grew, and that is where leadership opportunities came for me.

PERA On The Issues: At PERA, the Chief Benefits Officer is responsible for an array of activities. How do you explain your new role to friends and family?

Patrick: I can count on one hand the number of times people ask a follow-up question when I tell them I work at a retirement system. All kidding aside, most of the time when I mention I work in retirement, I get asked if I’m in finance or investments. I explain that the investment team helps make the money, and I help get it to members.

PERA On The Issues: For an average PERA member or retiree, which elements of their PERA experience has the CBO’s fingerprints on it?

Patrick: There’s a quote from Dean Smith [legendary former men’s basketball coach at the University of North Carolina] about collegiate athletics being the front porch of a house (the university) with many rooms. That quote has stuck with me, and I use it often in our context. Complex organizations like universities or retirement systems have many equally important parts working together, but one stands as the public-facing image of the entire enterprise. Member services, customer service, communications—together, are the front porch of retirement systems.

I love knowing that if we do our job well and deliver on the promises we make, then we’ll have the reputation of putting our members first. We can give them the dignity that their public service deserves.

PERA On The Issues: You were most recently Director of Member Services at the Oklahoma Public Employees Retirement System. How will your experiences there inform what you do at Colorado PERA?

Patrick: My time as director of member services was focused on pursuing operational efficiencies to tackle backlogs in our benefits processing practice, which we were able to eliminate before I left. However, going into it I didn’t know how long it would take. Each plan is different with its own economies of scale. I don’t think there are too many “best practices” that you can just lift and insert in another plan. The improvements we made in Oklahoma were the product of incremental change. I’m proud of what we were able to do.

PERA On The Issues: How much did you know about PERA going in to the interview process? When you think about PERA, what are the defining characteristics?

Patrick: I’ve admired PERA from afar for some time. It goes beyond high scores in the annual CEM benchmarking. In my years on the National Pension Education Association Board of Directors, I met many PERA staff members. I found them all to be very intelligent and engaged, open to learning from other systems as well as willing to share their strengths. This position represented an opportunity to join that group. There’s a lot to learn! I’m very excited and very humbled by the opportunity.

PERA On The Issues: How will your role contribute to PERA’s overall plans for the future?

Patrick: The Board has created a very clear strategic plan that serves as a road map. I’ll be deeply involved with three of the four primary goals, including: finding ways to enhance our role as a partner with our members in their pursuit of retirement security; improving PERA’s organizational health and performance; and offering products, services, and education that respond to our member and employer needs.   

What that means in practice is making sure our members have the information they need to make sound decisions for themselves, not just financially but also the social and emotional factors of a rewarding retirement. Fostering strong partnerships with external service providers, providing exceptional service, and expanding member and employer engagement are important aspects of this, as well.

Working with staff to continue building a strong culture at PERA is also important. There’s very little that any one person does on their own; we’re only as good as the people around us. That requires ensuring that we are attracting and retaining the best talent we can and developing those people along the way.

PERA On The Issues: Thanks for your time, Patrick, and again—welcome to PERA! We look forward to hearing more from you in the future.

Patrick: Thank you! It was a pleasure.

Retirement Roundup: Colorado Faces Years of Budget Cuts

Posted on by planeteria

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

Colorado’s Government Braces For Up To 3 Years Of Cuts | CPR

Colorado may face three years of reduced revenue in a worst-case-scenario projection. In response, state government offices have been asked to trim millions from their 2020 budgets. Departments have been asked to review all spending decisions, suspend hiring for all non-critical positions, and delay new contracts and programs, if possible.

Your Money And Coronavirus: A Financial Protection Guide | Forbes

Student loan repayment help, stimulus checks, mortgage relief, aid for small businesses: The array of financial challenges and remedies you’ve been hearing lately about can be tough to keep straight. Forbes has created a helpful page that organizes this glut of information, so you can find what you need quickly.

Money Shame Surfaces in Tough Times | Squared Away Blog

Money is an emotional topic, and many people are reluctant to talk about it. At a time when financial uncertainties are a source of anxiety for millions of people, experts recommend talking openly about it. You don’t need to share every detail of your financial life in order to discover that your concerns are shared by many others. The sense that you are not alone can be a powerful antidote to the feelings of shame and anxiety that money-related worries can bring.

What we know about the fourth coronavirus relief bill | Vox

The CARES Act is barely a few weeks old, yet legislators are already talking about a fourth major piece of legislation to address the health and economic implications of COVID-19. The details of previous bills evolved as the rapid-pace negotiations progressed. Subsequent legislation is likely to take a similar path. This article suggests that a fourth bill is likely to be similar to the third, with primary components consisting of: expanded unemployment insurance, hazard pay for essential workers, expanded health care access, and additional direct payments to Americans.

PERA Investment Update

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In late February, global markets saw a dramatic increase in volatility. At the onset of this changed environment, PERA’s Chief Investment Officer, Amy C. McGarrity, shared how PERA’s long-term strategy accounts for such downturns. Ron Baker, PERA’s Executive Director, has explained how the organization adapted to rapidly changing circumstances while continuing its operations.

Now, in the new video below, the two PERA leaders discuss the status of PERA’s investments, PERA’s funded status, and the outlook for the days ahead.

https://www.youtube.com/watch?v=MtJI5yXMFDQ