Month: June 2020

PERA-related Legislation Sent to Governor

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After a historic pause, the state legislature returned to work in May. Four bills containing language related to PERA have been approved by both the House and Senate since the legislative session resumed. They now move to Governor Polis’s desk, where he can sign them into law or veto them. If he does not take action, the bills automatically become law after 10 days.

A brief description of each bill, as well as the position taken by PERA’s Board, is included below.

HB 20-1379: Suspension of the state’s direct distribution for one fiscal year

PERA Board position: PERA’s Board opposed the bill. As fiduciaries and pursuant to its funding policy, the Board opposes any reductions in contributions to PERA while PERA has unfunded liabilities.

What the bill does: This bill was introduced after the shuttered economy required billions to be cut from the state budget. The bill suspends the state’s $225 million direct distribution to PERA for the 2020-21 fiscal year. The direct distribution is an amount of money set aside annually in the state budget to bring PERA to full funding. It was first put into law in 2018 as part of SB 18-200. The bill does not adjust retiree benefit payments and is not related to direct deposit. The direct distribution is used solely to pay off PERA’s unfunded actuarial accrued liability.

The direct distribution is not the only source of contributions PERA receives. PERA also receives member contributions and employer contributions. In 2018, member contributions totaled $938 million and employer contributions totaled $1.745 billion. As an employer, the state contributed $567 million in employer contributions in 2018. The state will continue making normal employer contributions during the suspension of the direct distribution in the next fiscal year.

HB 20-1394: Changes contribution rates for judges for two fiscal years

PERA Board position: PERA’s Board opposed the bill. The PERA Board, as fiduciaries and pursuant to its funding policy, opposes reductions in contributions to PERA while PERA has unfunded liabilities.

What the bill does: Like HB 20-1379, this bill is the result of an array of budget cuts the state made in May. The bill makes a temporary change to the contribution rates for state judges and their employer. Judges will contribute an additional five percent to PERA for fiscal years 2020-21 and 2021-22 while employer contributions are reduced by five percent.

These additional member contributions will go directly to each member’s account and are treated as normal contributions. While this change will affect a judge’s take-home pay, it will not affect his or her highest average salary calculation.

While the total contributions coming to PERA will remain equal, the dollars received from employer contributions have a stronger effect in reducing PERA’s unfunded actuarial accrued liability than employee contributions. As a result, the bill has a slight negative effect on PERA’s goal of becoming fully funded.

This bill only applies to state court judges. The bill does not affect PERA contributions for those who work for the judicial branch in other roles, nor does it adjust contributions made by Denver County Court Judges.

SB 20-057: Adds firefighters employed by the Department of Public Safety to the Safety Officer benefit structure in PERA

PERA Board position: The PERA Board of Trustees considered this bill at its January 17 meeting and decided to not take a position.

What the bill does: The Division of Fire Prevention and Control is part of the Department of Public Safety. This bill alters the benefits firefighters in this Division receive, including PERA benefits, to reflect the nature of the job description.

Certain PERA employers hire people who fall under the category of “Safety Officers.” The state legislature, not PERA, determines which positions fall under this category. Safety Officers have a higher PERA contribution rate than other PERA members. They also use different tables to calculate their benefit. These tables were formerly referred to as “Trooper tables,” as State Trooper was once the primary job to fall under this category. However, in 2018, the state legislature added county sheriffs, corrections officers, and similar positions to the category, a change that went into effect in 2019.

SB 20-057 adds all current and future employees classified as a firefighter I through firefighter VII to the category of Safety Officer, beginning on July 1, 2020.

Current employees who had been building a benefit with PERA under the standard PERA tables will begin building a dual-service benefit under this new structure that takes into account the benefit earned under each structure.  

HB 20-1127: Modifies the rules for retirees hired by a BOCES

PERA Board position: The PERA Board of Trustees considered this bill at its January 17 meeting and decided to not take a position.

What the bill does: PERA retirees who wish to work at a PERA employer in retirement must follow requirements established by the state legislature. The bill modifies the rules for certain retirees hired by a Boards of cooperative services (BOCES).

BOCES provide special education services to the school districts they serve. Almost all of these school districts are in rural parts of the state. BOCES often face difficulty hiring qualified people to serve as special service providers in these areas.

The bill allows a PERA retiree who is a special service provider (which includes school psychologists, early childhood education teachers, speech language pathologists, and more) to work beyond the limits set by these requirements. They can do this for up to five consecutive years without a reduction in their benefits.

The bill requires a BOCES that hires a PERA retiree to provide full payment of all PERA employer contributions, disbursements, and working retiree contributions. In addition, the BOCES is required to pay an additional amount equal to two percent of the retiree’s salary to PERA.

Under the bill’s provisions, all BOCES combined may hire no more than 40 people over five years.

Editor’s note: This story was updated on 6/9 to reflect the passage of SB 20-057

2020 Proposed Legislation Status

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A summary of proposed legislation affecting Colorado PERA. Check back often for new bills and updated status reports. Last updated: July 14, 2020.

HB 20-1379

Suspend Direct Distribution To PERA Public Employees Retirement Association For 2020-21 Fiscal Year

Concerning suspending the direct distribution to the public employees’ retirement association for the 2020-21 state fiscal year, and, in connection therewith, reducing an appropriation.

Bill summary: Current law provides for an annual direct distribution, currently set at $225 million, to PERA until fully funded status is attained.

The bill would suspend that direct distribution for the 2020-21 fiscal year.

Sponsors: Rep. Kim Ransom (R-Douglas County) | Sen. Bob Rankin (R-Carbondale)

Bill Status: Passed by the House and Senate. Sent to the Governor for signature on 6/6. Signed by Governor on 6/29.

Bill History: Bill introduced 5/26, assigned to House Appropriations committee. House Appropriations referred the bill, unamended, to House Committee of the Whole on 5/27. Bill passed Second Reading unamended on 6/1. Bill passed House on Third Reading on 6/3: Aye-48, No-14, Other-3.

Bill introduced in Senate on 6/3. Senate Appropriations referred unamended to Senate on 6/4. Bill passed Second Reading unamended on 6/5. Bill passed Senate on Third Reading on 6/6: Aye-28, No-5, Other-2.

Board position: The PERA Board, as fiduciaries and pursuant to their funding policy, opposes reductions in contributions to PERA while PERA has unfunded liabilities.

HB 20-1394

Public Employees’ Retirement Association Judicial Division Contribution Rate Modification

Concerning a modification to the contribution rates to the public employees’ retirement association for the judicial division of the association for certain fiscal years, and, in connection therewith, reducing an appropriation.

Bill summary: The bill addresses contribution rates for employers and employees in the judicial division, which is made up of judges.

The bill would decrease the employer contribution rate by five percent for the 2020-21 and 2021-22 state fiscal years. For those same fiscal years, the employee contribution rate would rise by five percent.

The changes do not apply for employer or member contributions for judges employed by the Denver county court. The bill does not change contribution rates for any other division of PERA

Sponsors: Rep. Julie McCluskie (D-Dillon) | Rep. Kim Ransom (R-Douglas County) | Sen. Dominick Moreno (D-Commerce City) | Sen. Bob Rankin (R-Carbondale)

Bill Status: Passed by the House and Senate. Sent to the Governor for signature on 6/5. Signed by Governor on 6/29.

Bill History: Bill introduced 5/26, assigned to House Appropriations . House Appropriations referred the bill, with amendments, to House on 5/27. House Second Reading passed with amendments (committee) on 6/1. Bill passed House on Third Reading on 6/3: Aye-64, No-0, Other-1.

Bill introduced in Senate on 6/3. Senate Appropriations referred unamended to Senate on 6/4. Bill passed Second Reading unamended on 6/4 Bill passed Senate on Third Reading on 6/5: Aye-33, No-0, Other-2.

Board position: The PERA Board, as fiduciaries and pursuant to their funding policy, opposes reductions in contributions to PERA while PERA has unfunded liabilities.

SB 20-057

Fire Prevention & Control Employee Benefits

Concerning the inclusion of firefighters employed by the Department of Public Safety in the Division of Fire Prevention and Control in certain employee benefits.

Bill summary: Currently, wildfire firefighters employed by the state contribute to PERA and receive benefits as determined by standard PERA Tables. This bill would reclassify these firefighters as “safety officers,” which would adjust their contribution rates and benefits to those found on PERA’s Safety Officer Tables, formerly known as Trooper Tables.

This move would result in a higher contribution rate for both employees and employers and would allow firefighters to qualify for full-service retirement at a younger age than other PERA members. These changes would apply only to service credit earned after the bill goes into effect.

The bill also addresses other benefits available to firefighters.

Sponsors: Sen. Pete Lee (D-Colorado Springs) | Rep. Marc Snyder (D-Manitou Springs) and Rep. Lisa Cutter (D-Littleton)

Bill Status: Passed House and Senate. Sent to Governor for signature on 6/9. Signed by Governor on 6/29.

Bill History: Bill introduced 1/8. Senate Finance approved the bill on 1/28. Senate Appropriations passed with amendments on 3/6. Passed third reading on 3/11: Aye-32, No-3, Other-0.

Introduced in House on 3/11. House Finance referred unamended to Appropriations on 5/28. House Appropriations referred unamended to House on 6/3. Passed House second reading on 6/8. Passed third reading on 6/9: Aye-53, No-9, Other-3.

PERA Board position: The PERA Board of Trustees considered this bill on their January 17 meeting and decided to not take a position.

HB 20-1127

Extend Public Employees’ Retirement Association Retiree Work After Retirement Limit

Concerning an extension of the employment-after-retirement limitations for retirees of the public employees’ retirement association employed by a board of cooperative services after retirement.

Bill summary: Boards of cooperative services (BOCES) provide special education services to the school districts they serve. Almost all of these school districts are in rural parts of the state, and it is difficult for BOCES to find qualified people to serve as special service providers in these areas.

BOCES could address this issue by hiring PERA retirees to fill these roles, but PERA’s working-after-retirement provisions, including the limitation on the number of days in a calendar year that a service retiree may work for a PERA employer without a reduction in benefits, could be a barrier for some retirees.

The bill modifies the current PERA working-after-retirement provisions for certain retirees hired by a BOCES if:

  • The BOCES hires a retiree to provide services in two or more rural school districts;
  • The BOCES hires the service retiree to provide special services to students; and
  • The BOCES determines that there is a critical shortage of special service providers and that the retiree has specific experience, skills, or qualifications that would benefit the districts that the BOCES serves.

Under the bill, a PERA retiree who is a special service provider and who is hired by a BOCES may receive salary without a reduction in benefits for any length of employment in a calendar year.

The bill requires a BOCES that hires a PERA retiree to provide full payment of all PERA employer contributions, disbursements, and working retiree contributions. In addition, the BOCES is required to pay an additional amount equal to two percent of the retiree’s salary to PERA.

A PERA retiree may not work under these modified rules for more than five consecutive years. All BOCES combined may hire no more than 40 people over five years.

PERA is required to submit a report to the general assembly regarding specified aspects of the extension of PERA’s working-after-retirement limitations.

Sponsors: Rep. Julie McCluskie (D-Dillon) | Rep. Barbara McLachlan (D-Durango) | Sen. Nancy Todd (D-Aurora) | Sen. Jerry Sonnenberg (R-Sterling)

Bill Status: Passed House and Senate. Sent to Governor for signature on 6/1. Signed by Governor on 7/13.

Bill History: Bill introduced in House on 1/15. House Finance approved the bill on 2/10. House Appropriations approved the bill on 2/21. Bill passed Third Reading on 2/28: Aye-50, No-13, Other-2.

Introduced in Senate on 3/2. Senate Finance referred unamended on 3/12. Bill passed Third Reading on 6/1: Aye-28, No-7, Other-0.

PERA Board position: The PERA Board of Trustees considered this bill on their January 17 meeting and decided to not take a position.

Retirement Roundup: Retirement’s First Five Years are Critical

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

Opinion: Why your first five years of retirement are critical | MarketWatch

Spending is often highest in the first years of retirement. Travel, eating out, and shopping for clothes, furniture, and household goods all typically decline as we age. It’s important to reflect these spending patterns as you plan your retirement budget. Trying to shoehorn in an average spending amount that stays steady throughout retirement is often not realistic. Eating into your savings to fund early-retirement fun is an option, but it’s important to make sure the math adds up.

How the State Pension Funding Gap Fares in an Unpredictable Economy | PEW Trusts

Market turbulence in 2020 has affected state retirement systems, just as it has affected individual investors. Global equities have recovered much of the losses seen earlier this year, but a thorough analysis won’t be possible until after this year is complete and fiscal reports are compiled. The story states that “plans that pay down a portion of debt each year are among the most robust” and gives suggestions for methods for navigating the economic landscape: “In addition to setting a strong actuarial funding policy and following through on making required contributions, Pew finds that lowering investment return assumptions, implementing pension stress testing, and adopting cost-sharing policies contribute to strong fiscal health positions.”

How Exposed are Retirement Savings to Market Risk? | Center for Retirement Research at Boston College

Between February 19 and March 23, the major stock indexes had fallen by more than 30 percent. This study examined how that market-wide drop affected retirement savings, specifically. The study noted that, because many employers have moved from a defined benefit plan to a defined contribution plan, this market decline affects individuals more than it would have in previous decades. The report concludes that “individuals were sheltered from the immediate impact…in defined benefit plans. But they did experience a direct hit…in 401(k)s/IRAs.”

Majority of Americans Plan Financial Changes Post-COVID-19 | Insurance News Net

The sudden change in economic conditions has led to people making changes to their household budgets. Nearly all (94 percent) of respondents to a recent poll said they are spending less on non-essential items. One in five said they would increase contributions to their retirement plans after the impact of COVID-19 subsides, and two in five said they would save more, in general.

PERA Board Discusses Investments During June Meeting

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Colorado PERA’s Board of Trustees met on June 19. At the meeting, the Board approved the release of PERA’s 2019 Comprehensive Annual Financial Report. This report, which is covered at length in another story on PERA On The Issues, includes information on PERA’s investment returns for the 2019 calendar year. The total fund’s investment portfolio returned 20.3 percent, net-of-fees.

The Board covered a number of other agenda items, including information about legislation, the PERA Board election, and updates on projects currently underway within the organization.

Top of mind for many, however, was the investment landscape so far in 2020. While the CAFR mentioned above contains a detailed, audited account of 2019, it does not contain information past December 31, 2019. Investment returns for 2020 will be released in 2021. However, the Board did receive investment reports about broad trends to consider.

PERA’s investment staff monitors market trends, and the Board receives an outside perspective on PERA’s investments with help from its investment consulting teams at Aon, a leading global professional services firm. Laura Flaum, a senior consultant at Aon, shared with the Board her view on the year thus far: “We do expect to see the PERA portfolio make up some of the losses that we [saw in the first quarter] given the portfolio’s exposure to global equities,” she said. Global equities make up just over half of PERA’s asset allocation.

Flaum added that PERA’s second-largest asset class, fixed income, has played an important role so far in 2020. Fixed income, which makes up about a quarter of PERA’s overall asset allocation, consists of bonds issued by both companies and governments. Flaum explained that fixed income serves as downside protection and a risk mitigation tool during market downturns.

During the volatile markets in the early part of the year, Flaum said that fixed income “did perform as it was intended to, and this really illustrates the benefits to having a diversified portfolio.”

The Importance of Staying the Course

PERA’s Chief Investment Officer, Amy C. McGarrity, spoke to the Board about PERA’s investment strategy during volatile times. “There’s no shortage of people with opinions on where the markets are going in the near term,” she said. “But, in my opinion, market timing is extremely difficult.”

McGarrity briefly shared an example to illustrate her point. If you invested $10,000 in the S&P 500 on January 1, 2000, and left your money invested for the entire 20 years, your portfolio would have grown to $32,192 at the end of 2019.

But let’s say you miss just the five best days during those two decades. Your portfolio would be worth $21,359 today—48 percent smaller compared to those who were invested the entire time.

And, if you missed the 20 best days during that 7,305-day span, your initial $10,000 investment would be worth $10,145—virtually unchanged.

“The key, in my opinion, is to remain invested in markets,” McGarrity said, “because it’s very difficult to predict where it’s going in the near term.”

One way PERA’s investment team responded to volatility was to keep an eye on PERA’s asset allocation, ensuring that the overall portfolio stayed within the Board’s guidelines as values changed quickly. McGarrity said that doing so is crucial to meeting long-term objectives. “We think over time that the asset allocation that [the Board has established] will achieve the results that we are expecting,” she said.

PERA Releases 2019 Financial Returns

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The Colorado PERA Board of Trustees approved the 2019 Comprehensive Annual Financial Report (CAFR) on June 19. The CAFR contains information about PERA’s investments, funded status, membership, and more.

A Snapshot in Time

PERA releases this report every June. However, the information included in the CAFR actually changes on a daily basis. People start PERA jobs and leave them. People retire. The value of PERA’s investments fluctuate. Contributions come in, and payments go out. Compiling and analyzing all this data and having it audited by an outside firm takes a significant amount of time, too.

As a result, PERA follows the industry standard of compiling this data as it exists on a single day—in this case December 31, 2019. While the report is released in 2020, the 2019 CAFR doesn’t take into account any developments since December 31, 2019; they will appear next year in the 2020 CAFR.

Strong Investment Returns in 2019

PERA experienced a positive investment year in 2019. At the end of the year, the fund had a fiduciary net position of $51.7 billion, compared to $44.9 billion the year before.

The total fund’s investment portfolio returned 20.3 percent, net of fees. Returns for the past 10 years are shown below:

PERA’s Improved Funded Status

The CAFR also contains information about the projected time for PERA to reach full funding. Funding levels take into account many variables and assumptions, including investment performance and demographic information.

The projected time needed for each division to reach full funding is listed below:

The CAFR and the Automatic Adjustment Provision

The Automatic Adjustment Provision (AAP) modifies employer and employee contributions, the retiree annual increase, and the state’s direct distribution based on PERA’s progress toward its funding goals. This calculation is performed once a year, in conjunction with the CAFR’s release. The AAP was not triggered following the release of the 2019 CAFR.

When the AAP is triggered, the implementation of those changes are delayed for one year. The 2018 CAFR, which was released in June 2019, did trigger the AAP. As a result, those changes are going into effect on July 1, 2020, following the one-year delay. Member contributions for most Divisions will increase by a total of 1.25 percent to a total of 10 percent of pay. Employer contributions to PERA will also increase by 0.5 percent and will range from 14.2 percent to 23.6 percent of payroll. The annual increase paid to retirees will be restored this year at 1.25 percent for most eligible benefit recipients.

Learn Even More About PERA’s Finances

At 275 pages, the 2019 CAFR is longer than most people care to read. However, making this information available and accessible is a core tenant of PERA’s commitment to transparency. You can learn more about this report by exploring an interactive, digital overview of the CAFR.

Another available resource is the 2019 Popular Annual Financial Report. This 12-page report condenses and presents the information in a more traditional layout, similar to a popular annual report a corporation might release to shareholders.

Note: This story was updated on June 30, 2020.

Retirement Roundup: Estate Planning Tips

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

Crisis Makes Estate Planning More Urgent | Morningstar

The risk of suddenly falling gravely ill—or worse—is suddenly a watercooler topic. Considering these situations can be unpleasant, but it could provide the impetus to do something constructive about it: create or update your estate plan. In this Q&A, learn how and where to get started.

Are you considering a COVID-19 induced early retirement? | South Florida Sun Sentinel

The global pandemic has upended more than summer plans. People are reconsidering where they live, how they’ll work, and, in some cases, if they’ll work for much longer. If you suddenly find yourself drawn to the idea of beginning retirement sooner than you had planned this time last year, think through these important questions first.

Retirement-Age Households Show a ‘Chunk or Nothing’ Withdrawal Pattern | PlanSponsor

How do you think you’ll use your 401(k), 457, or other retirement account in retirement? Will you withdraw a set amount every month or year, or will you take withdrawals for big-ticket items? This article shares research that shows that nearly half of retirees take out nothing, letting their investments grow, or take out a “chunk,” defined to be eight percent of the account balance or more.

Three vital estate planning documents for graduating seniors | Portland Press Herald

Turning 18 marks the beginning of adulthood, symbolically and legally. While, to this point, paperwork has meant homework, it now means something different. The author of this article suggests 18 is not too young to sign your name on documents indicating your healthcare proxy, HIPPA release, and power of attorney. You might not need them for decades, but you’ll be thankful you have them if you need them sooner.

Telehealth: Challenges and Opportunities During a Pandemic

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You can trade stocks, apply for a mortgage, and hire a person to deliver your groceries to your doorstep, all without getting off the couch. With the internet in your pocket, it makes sense that you also could have a consultation with your doctor without leaving home.

Telehealth has been in the news for years, and the groundwork needed for the system to work in a widespread way has been growing. In 2010, 35 percent of hospitals had at least partial implementation of a telehealth system, according to a 2019 report from the American Hospital Association. In 2017, that number was 76 percent.

Using telehealth can be both convenient and financially beneficial. Videochatting with a doctor can save a more expensive trip to an urgent care in some cases. If you live in a rural area rural areas, if it’s hard to get out of the house, or if it’s late at night, telehealth can provide a better way to access care.

While the use of telehealth has grown, it hasn’t necessarily kept pace with adoption rates of other technologies. First, availability does not always lead to usage. One recent article by Kaiser Family Foundation stated “telemedicine in the U.S. had been minimal prior to COVID-19,” reporting that only “an estimated 15 percent of physicians used telemedicine to facilitate interactions with their patients.” Despite the upsides of telehealth, many people place an even higher value on face-to-face communication.

The adoption of telehealth also follows familiar socioeconomic patterns: A story in Health Affairs states that community health centers, which deliver healthcare to nearly 30 million low-income patients have not been able to keep pace with deeper-pocketed hospitals. In Colorado, only 28 percent of community hospitals reported using telehealth as an option for consultations as of 2017.

But these studies and reports all took place prior to COVID-19.

Shutdown Brings Skyrocketing Demand

The global pandemic has brought a jolt to telehealth prospects as the risk in seeing a doctor in person grew from negligible to considerable overnight. In a press release, the company eClinicalWorks claimed that its network of 40,000 physicians went from spending 100,000 minutes per day using its telehealth platform to more than 1.5 million per day by April 6. LiveHealth Online, the telehealth service available to PERA retirees enrolled in an Anthem PERACare plan, saw usage at the end of April rise 30 to 50 times higher than pre-March averages.

Changes in regulation have increased access, too, as longstanding disagreements over licensure and reimbursement details regarding Medicare providers have quickly been swept aside as this once-experimental option has quickly became the only option. Some have stated concerns about billing fraud and abuse, but, for now, the urgency to find new, safer ways to provide care overshadows what were compelling hesitations a few months ago.

Telehealth After the Pandemic

Will the sudden momentum brought by COVID-19 have enough inertia to bring telehealth into the mainstream after this crisis?

Some experts argue that the combination of market incentives ($175 billion by 2026, according to one estimate), created a massive opportunity to make an impression on a large number of first-time users; continued improvements in technology and the user experience puts a future of widespread telehealth adoption within reach.

Others point out obstacles such as socioeconomic disparities, language barriers, and the perception of sacrificing quality for convenience that current models must still address.

An Opportunity for Innovation

The scramble to meet patient needs amid sudden disruption has not only expanded the reach of telehealth, it has also opened up the opportunity to experiment.

Prior to March, telehealth services often mimicked the urgent care model: You could call in to get care quickly, but the doctor on the other end of the screen was not a provider you knew.

Linart said that the pandemic led to some providers offering consultations directly to their patients using non-specialty tools, like Zoom, FaceTime, or Google Meet—essentially creating a telehealth option for their patients overnight. For some, knowing you can talk with a doctor you know on a platform you’re already familiar with could mitigate some of the barriers to using telehealth.

This bootstrap model is likely to face a more critical eye as health delivery slowly gets back to normal, but the appeal from a customer perspective is apparent. It’s hard to undo success.

Regardless of what changes in the years ahead, one thing seems certain: telehealth is not going to go away. You won’t find an expert who thinks telehealth is just a fad. The question is when, not if. Or, as law professor Kristi V. Kung put it in an article on HealthTech, “we can’t put the genie back in the bottle.”

Linart agrees: “I really think the use will stay,” she said. “Maybe it won’t be quite as high as it is now because some types of appointments are better in person, but there will be more things that people will want to do virtually.”