Month: August 2020

Retirement Roundup: Colorado Purchasing Alliance Aims to Lower Health Care Prices

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

Coronavirus complicated efforts to lower Colorado’s health care prices. But one idea is still moving forward. | The Colorado Sun

Earlier this year, Colorado lawmakers were sizing up major legislation aimed at controlling health care costs. Coronavirus put a halt to those plans. The Colorado Purchasing Alliance, led by Colorado Business Group on Health executive director Robert Smith, is seeking to change the way hospital prices are negotiated. Under his new model, multiple employers and people who buy health insurance on their own band together to negotiate, under the premise that a larger group leads to a stronger negotiating position. Some hospitals have voiced skepticism, however.

Yes, the World is on Fire. Here’s Why I Started Saving for Retirement Anyway | Money

It’s been a grim year. Thinking about the future can seem daunting. “That’s a dangerous—and wildly misinformed—mindset,” according to this article. Making plans doesn’t mean you’ll find all the answers, and that’s OK.

Planning For Retirement Health Care Expenses | Forbes

Most people know health care isn’t cheap. Why, then, do so many pre-retirees “badly underestimate” this universal retirement expense? One reason is that the future of health care—not to mention your health—contains many unknowns. However, we do know of a few price tags that are somewhat predictable. This article lists a few things to get you started.

Could You Be Worrying Too Much About Financial Security Due to the Pandemic? | AARP Articles about personal finance often use low-grade fear as motivation (e.g. “Will you have enough to retire?”; “Most Americans couldn’t come up with $400 in an emergency—could you?”). Amid the pandemic, these concerns can be even more worrisome. This article brings some perspective, showing that, while some money concerns can truly be urgent, you might, in fact, be worrying

Can an Executive Order Bring Down Drug Prices?

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The rising cost of prescription drugs is an issue of nationwide concern. Studies, articles, and think-pieces on the subject are churned out daily. Legislators question pharmaceutical executives and roll out plans to wrestle prices down. It’s the number-one topic on voters’ minds in 2020.

Despite all the attention and demand for action, change can seem nonexistent. One reason: Untangling the drug-price knot isn’t easy. A 2019 Consumer Reports article stated, “to pin all the blame on Big Pharma is an oversimplification.”

In July, President Trump signed a number of executive orders with a stated goal of lowering the price consumers pay for prescription drugs. The Public Sector HealthCare Roundtable, an organization in which Colorado PERA is a member, “vocally opposed” one particular executive order that seeks to change the way rebates work in Medicare Part D plans.

The executive order in question instructs the Director of Health and Human Services (HHS) to ban Medicare Part D plans, including PERACare, from passing on prescription drug rebates to those in the plan (a cost-saving mechanism recently featured in another PERA On The Issues article). Instead, the rebates, which are paid by drug manufacturers, would be passed directly to the consumer at the point of sale.

At first, this change might seem like a more efficient way of conducting business. But PERA’s Director of Insurance Jessica Linart said understanding a few details can illustrate some unexpected consequences of this change.

Linart said that when PERACare receives rebates from a manufacturer, the money is used to bring down monthly premiums for everyone. If these rebates disappeared, premiums would rise by the corresponding amount. This isn’t just a PERACare issue, either: the Congressional Budget Office estimated the price tag of this change to be $177 billion over a decade.

Second, giving the rebate directly to the purchaser of a drug might seem like a more equitable use of the money—after all, why should someone who buys a prescription drug split those savings among others in the plan who didn’t buy that drug?

Linart said the explanation lies in the different layers of payments in any insurance plan. Say the sticker price of Drug XYZ is $300. You pay a $50 co-pay at the counter. The remaining $250 is picked up by your insurance plan.

Now let’s say the drug manufacturer issues a $100 rebate for this drug. Currently, the plan gets $100 and, in the case of plans like PERACare, those dollars are used to lower premium prices.

Under the new executive order, the plan would no longer get the $100 to lower premiums and would be on the hook for the full $250, a cost that is borne by participants in the plan in the form of higher premiums. The consumer buying the drug would also not get $100. He or she would receive a rebate up the amount paid at the counter—in this case, $50. The manufacturer pockets the difference.

Healthsperien, a health care policy consulting firm, released a Roundtable-endorsed memo that addressed the executive orders. The memo reiterates that this executive order does not itself change the rebate rules; it only instructs HHS to make this change. The memo concludes that any final rule is unlikely to resemble the executive order exactly due to pushback from “multiple angles” and budgetary restrictions.

How exactly this executive order will play out remains to be seen. In the meantime, what can consumers do? Linart said being proactive about researching your options is a must: “In addition to the usual advice to take generic medications whenever possible, I’d suggest reviewing all of your medications with your physician on an annual basis to ensure the medications you’re taking are still needed, work safely together, and are the lowest-cost options.”

Linart said that while PERACare can’t control industry and regulatory realities, she and others work to get the best outcomes for members: “We work with a pharmacy consultant to continually review the operation of our pharmacy plan, and we go out to bid for pharmacy benefit managers every three to four years to get the most competitive pricing for our members.”

Change is Coming to PERA On The Issues

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PERA On The Issues has been keeping PERA members informed since 2012. Soon, you’ll see some exciting changes. Watch this video to preview these changes, or find a summary below:

  • You’ll soon see a new, updated website and email newsletter. The new design is a bit more streamlined and modern. It was made with mobile use in mind as nearly half of all readers visit the site on their smartphones.
  • We’ve done some reorganizing. Story categories have been adjusted to better capture the types of stories we cover.
  • Stuck on a word? We strive to make retirement topics accessible to everyone. But technical terms are sometimes unavoidable when talking about retirement. Our new Definitions Tool should help. If you see a term with a green bar underneath, hover your mouse or tap your phone. You’ll get a simple definition without leaving the story. This on-demand resource gives you additional context if you want it while streamlining your reading experience if you don’t.
  • Some things haven’t changed. As we bring PERA On The Issues into the future, we remain committed to delivering what our readers have come to expect: retirement news from a PERA perspective.

Retirement Roundup: Recession Effects on State Pensions

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

Sudden-Stop Recession Pressures U.S. States’ Funding For Pension And Other Retirement Liabilities | S&P Global

Nationally, pensions have been improving funding discipline, according to this report. But economic woes could undermine some of this progress. Colorado was mentioned for its “notable reforms,” though the story also noted the suspension of the direct distribution will have an effect.

2020 Election: Retirement Security | Kiplinger

Presidential campaigns are full of ideas. Many of these ideas wouldn’t get off the ground without Congress agreeing to pass the necessary legislation. So why listen? Presidents have the ability to shape debate, set priorities, and persuade the public, which can end up making a difference. So when Presidents share ideas to, for example, change the way Medicare works, people listen.

Selecting TDFs Ending in Zero Can Affect Your Retirement Savings?  | National Association of Plan Advisors

Do you invest in a target date fund? If so, what’s your birthday? That might seem like a strange question, but researchers found that your birth year can influence your investment choices, and not always for the best. People have a tendency to choose target date funds that end in a zero (2020, 2030, etc.) over those that end in a five, even if the latter is closer to their target date. As a result, people with a birth year of eight or nine tend to select funds designed for retirement around age 60, while those born in years ending with zero, one, or two tend to select funds with a retirement age closer to 70.

Retirement expert: The ‘do-nothing’ approach is not great advice right now | Yahoo! Money

Are you a do-nothing retirement planner? This article shows two types of “do-nothing” approaches to beware of. The first is never reviewing or updating your retirement plan. While many retirement plans allow you to put your investments on “autopilot,” this doesn’t take into account changes that take place in your life and outlook. The second “do-nothing” approach is to avoid the topic of retirement savings altogether.

PERA Presents at Legislative Audit Committee Hearing

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PERA presented to the Legislative Audit Committee on July 27. The primary agenda was a review of PERA’s financial returns. PERA staff and outside analysts were on hand to present and answer questions from committee members.

Financial Audit

Every year, an independent auditor hired by the Office of the State Auditor conducts a review of PERA’s financial status and fiscal controls. CliftonLarsonAllen LLP, which has been auditing PERA’s annual statements since 2015, audited the 2019 Comprehensive Annual Financial Report. The auditors gave the 2019 CAFR a clean audit, and committee members heard an overview of results from the annual report. You can read a summary of the 2019 CAFR here.

Signal Light Reporting

In 2014, the Legislative Audit Committee directed the Office of the State Auditor to contract with an actuarial firm to develop a methodology to simplify the understanding of PERA’s financial status. The result was the development of a tool called Signal Light Reporting, which PERA submits annually to the committee. This report summarizes the funded status of each PERA Division by using a color scale. The scale resembles a stop light, from green, indicating that PERA is projected to be on track to fully funded status, all the way to red. PERA submitted and shared the latest report, which shows that all divisions are on track to reach fully funded status by 2048 (green).

Ongoing Oversight at the Capitol

PERA reports to numerous committees at the State Capitol, including the Legislative Audit Committee, Joint Budget Committee, Joint Finance Committee, Pension Review Subcommittee, and Pension Review Commission. These regular check-ins provide lawmakers the chance to learn more about PERA and ask questions to PERA management. They also provide additional forums in which PERA members can learn more about how PERA works. For those not able to listen to the live broadcast, a recording can be found here.

How It’s Made: PERA’s Financial Report, Part 2

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This is the second installment of a two-part story. Read the first installment here.

Incorporating a View from Outside

After changes for the next year have been discussed and approved, the legwork begins, usually in late fall. This means welcoming into the mix a group of external auditors. PERA has internal auditors, but bringing in a truly outside perspective helps ensure the information in the CAFR is rigorously checked and, consequently, accurate to a high degree of certainty.

The word “audit” might conjure up IRS dread for some, but auditors are a routine presence in accounting departments in organizations like PERA. “In the fall, the auditors do what they call walkthroughs,” Maninger said. “They do deep dives into our processes, meeting with the Investments, Benefits, and other departments to see how they do their work. For example, they might follow the contracting and funding of a new private equity investment through every step until the wire goes out the door.”

In addition to analyzing the ways in which work gets done, they do a significant amount of statistical analysis of the mountains of data PERA keeps, looking for any anomalies. Say the auditors analyze monthly benefit payments. PERA sends out more than 100,000 checks of varied amounts every month. You’d expect the last digit of each check amount to be evenly distributed—about the same number of checks ending in a twos (e.g. $975.72) as eights (e.g. $1,000.68). However, if thirty percent of all checks ended in a two instead of the expected ten percent, the auditors would likely flag this as an anomaly and look into it further.

An anomaly doesn’t indicate that something is wrong, just that something could be. After investigating, they might discover an error or a process that needs improvement. “Our goal is to make the CAFR as accurate and as complete as we can possibly make it,” Maninger said. “We have a lot of information to share with members, and this information affects lives.”

Putting it All Together

The structure for the CAFR is usually in place by the end of the year. When January 1 rolls around, final returns start rolling in. Some of these returns are available immediately. Global equity and fixed income, for example, have prices that are readily available on any given day. Anyone can track the prices of PERA’s top holdings in global equity at the end of 2019—Apple, Microsoft, and Amazon—on a daily basis.

But returns in other asset classes may take until early April to receive and record. PERA owns companies that aren’t publicly traded in its private equity asset class. Determining the value of these companies takes a much longer time, as it requires a detailed financial analysis to come up with an informed price as opposed to watching for a stock ticker run across the screen on CNBC. This is one reason the CAFR isn’t released until June.

Another reason is that actuaries assess PERA’s demographic information—how many people are starting jobs and leaving them, beginning retirement and passing away, along with an array of other data points. This information is critical as PERA must chart the course for decades into the future.

Once these pieces are finalized and everyone, including the external auditors, signs off, the CAFR is sent to the Board of Trustees. They review it and, with a vote, they approve and release the report to the public.

Where to Start

The CAFR is unlikely to be a choice for a book club or a beach anytime soon. But, like the view from a window several stories up, it contains the best perspective on all things PERA. Reading only a few pages can help lead to a much better understanding of how PERA works and where it’s going.

“If someone is going to read anything at all in the CAFR, they should read the Letter of Transmittal,” Maninger said. “Ron [Baker, PERA’s Executive Director] works hard to communicate the most important parts of the CAFR in that letter.” The letter in the 2019 CAFR is found on page 3.

“If you’re interested in any changes or updates from past year, the section called Management’s Discussion and Analysis (page 29) will explain variances from one year to another,” she added

For those interested in PERA’s investments, Neugebauer said the Schedule of Investment Results (page 127) is the best place to see how PERA’s investments have done recently compared to their benchmarks.

Shelton said page 136 should be of interest to those who are saving and investing for retirement. “We have a number of options available for those who participate in 401k, 457, and DC plans, from investing in specific asset classes or using one of the Target Retirement Date Funds,” she said. “From my perspective, page 136 is important because it highlights the variety of options participants have and what the returns were for the most recent year. If they want to read more, descriptions of the investment options are on page 134.”

Meant to be Used

If you’re looking for a book to check out at your library, one method might be to look for the book that has tattered pages, dog-ears, and coffee stains. A book’s battered paper doubles as a public record of the value it’s brought to others.

That’s how Maninger, Neugebauer, and Shelton, view the CAFR. It’s not a yearbook, meant to commemorate a year that was: It’s a useful publication, meant to be picked up. “I have a copy at home,” Neugebauer said. “And in my office at work I have every copy going back to 1980.”

But the importance of the CAFR is perhaps best illustrated by a small action Shelton took months ago: “When we found out that we were starting to work remotely in March, I thought we were just going to be offsite for a week or two. But just in case, I grabbed my CAFR as I was going out the door.”