Month: December 2020

Inaugural Facebook Live Event Attracts Hundreds

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Colorado PERA’s Facebook page went live earlier this year. This launch was part of a broader effort to better adapt to member preferences, including how they want to communicate with PERA. The page has become a popular destination, garnering more than 10,000 likes in less than five months.

On December 2, PERA used this channel to host its inaugural Facebook Live event. Executive Director Ron Baker and Chief Investment Officer Amy C. McGarrity spent about 30 minutes taking member questions.

“PERA needs to be a partner with our members, stakeholders and employers,” Baker said. “We need to meet members where they are. This Facebook Live event is a step in that direction. We need to be the type of organization that provides service to our members when and how they’re looking for it.”

Find a summary of a few questions and responses below. You can watch the entire event here. Please note, some questions and answers are lightly edited for length and clarity.

Q: Will there be an automatic adjustment this year?

There will not be an automatic adjustment in July. The 1.25% annual increase amount for eligible retirees will remain the same. (note: Member contribution rates in most divisions will have a slight increase, completing the 2% increase that was part of SB 18-200. This planned increase, which is not due to the automatic adjustment, has been phased in incrementally since 2019.)

Q: Can I depend on PERA to manage my money well and to be there when I retire?

We are solely focused on investing your money for the long-term. Every dollar you contribute to PERA, by statute, will be returned to you with an interest and potentially a match, whether through benefit payments if you receive a pension or a refund of your account.

Q: Is PERA invested in cryptocurrency, like Bitcoin?

PERA does not hold cryptocurrency in our custody relationship, and we don’t have someone programming to obtain Bitcoin. But, broadly speaking, there is a way to gain access thematically to cryptocurrencies through public markets, like global equities and fixed income. We have a large exposure to global equities, so we likely have thematic exposure to companies that provide the backbone, the infrastructure, or have segments that participate in cryptocurrency.

Q: Why do PERACare costs continue to rise?

Certainly on the pre-Medicare side in particular, costs are trending up. That’s a national trend. As an organization we do everything we can to drive down the costs and to get the best premiums we can. But we also face the realities of an older population and the rising cost of health care services. In 2021, we kick off a process where PERA reviews and selects vendors. In this process our goal is to get the best plan design—offering the best plan at the best cost for our members.

Q: Is PERA sustainable? Will additional changes need to be made by the legislature?

Yes, PERA is sustainable. The work done in SB 18-200 was designed to allow PERA to have flexibility to address periods of time where we fall behind in reaching full funding by 2047. Having that flexibility allows PERA to move forward quickly without additional legislation.

News You Should Know: The Cost of Caring for Parents

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Caring for a Parent Can Take Financial Toll | Squared Away Blog

Those who care for aging parents know that providing care isn’t cheap. There are direct costs like gas and picking up household goods like groceries, as well as indirect costs, which can include reducing hours at work or retiring sooner. Researchers looked into what caregiving means in dollar terms for women in their 50s and 60s.

Millennial Myth-Busting: 5 Financial Rules of Thumb That Were Becoming Obsolete Even Before Covid-19 Arrived | Forbes

Which pieces of time-tested advice are younger adults following…and which are they casting aside? While you might be surprised at a few of these (“I thought owning was always better than renting!”), know that the wisdom of the ages is not being completely discarded. As the article states: “61% of adults still rely primarily on their parents for financial guidance.”

Tune Up Your Finances for a Better 2021 | Kiplinger

Getting finances in order is a popular New Year’s resolution. Although we all know the success rate of most resolutions, a resolution that requires a bit of paperwork might be a great fit in early 2021 as people continue to self isolate in their homes. Use this checklist to get your papers in order so you can hit the ground running on January 1.


Report: Primary care spending on the decline | Benefits Pro

At first glance, this might sound like good news—a rare story about health care costs that mention spending going down. But read on and you’ll learn why this is cause for concern. Primary care spending is a cost-effective way of delivering care. Meeting with your normal doctor on a regular basis can help catch issues early, before they become more worrisome and expensive to address.

News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

2020 Experience Study: Preparing for a Secure Future

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Key points from the story:

  • PERA plans for the long term by projecting how income, assets, and costs will change over time.
  • The Board sets actuarial assumptions, which are the underlying factors that affect these projections.
  • Every four years, the Board reviews the actuarial assumptions it uses with something called an experience study.
  • The Board completed this work in November.

Imagine you were asked to make a budget. Not just for this year but for the next 30. You know your income today, but you’d need to estimate how much you’ll be making one, two, three decades from now. You’d need to estimate the price of groceries and gas will change. You’d need to project how what you spend your money on changes over time—maybe childcare expenses go down but medical expenses go up.

PERA is in the business of thinking about the long term, too. A 35-year-old PERA member trusts that the contributions sent to PERA today are building a secure retirement 30 years down the line. So how does PERA go about planning for 2050?

Budgeting for the Future at PERA

PERA isn’t exactly creating a household budget, but the analogy is a good place to start.

Instead of income, PERA must project how contributions change over time as staffing levels and salaries fluctuate. It must consider what investment returns to expect over the long term and the many ways in which the long-term interest rate has an impact.

And instead of expenses like gas and groceries, PERA must project the amount retirees—both current and future—will receive during their retirements.

This might seem like a straightforward task, but it’s not. Because members and cobeneficiaries can’t outlive their pension, the amount they receive is tied to their lifespan. So PERA must project how long retirees live. Because the amount a member receives depends on length of service, salary, and age, PERA must project how these factors will change as well.

The cost of paying these benefits to current and future retirees is called PERA’s liability. It isn’t all due at once—that 35-year-old still has a few decades before collecting a pension—but it still counts as a liability today.

Calculating these figures far into the future is the first step in sound financial planning.

The Language of the Future

PERA plans for these future changes and conditions using something called actuarial assumptions.

Actuarial assumptions are grouped into two categories—economic and demographic. Economic assumptions include information like inflation, salary increases, and the projected growth in the number of employees hired by PERA employers. Demographic assumptions include information like the ages at which PERA members retire and how long people tend to live.

While most assumptions deal with factors outside PERA’s control, understanding them is essential.

Comparing Assumptions to Experience

Setting actuarial assumptions is not a one-time event. PERA’s Board regularly reviews actuarial assumptions using something called an experience study.

“The Board’s responsibility to set the actuarial assumptions of the plan is a task that’s very important,” said Ron Baker, PERA’s Executive Director. “This is a critical step to make sure PERA is accurately measuring and reporting on our financial status, and that’s a responsibility the PERA Board takes very seriously.”

An experience study compares what actually happened over the last few years against what PERA projected would happen. The Board can then adjust the assumptions PERA will use for the next four years. This rigorous review process keeps projections as accurate as possible. This process is an industry best practice for all pension systems.

PERA’s liability changes when an actuarial assumption changes. It’s as if the person making a household budget for the next 30 years determined that health care would likely cost a different amount in 2050 than originally planned and adjusted his or her retirement plan accordingly. Although those aren’t bills that need to be paid today, having a clearer goal of what those bills will be in the future makes it easier to prepare for when they do come due.

2020 Experience Study

At its November meeting, the Board reviewed the 2020 experience study conducted by their actuarial consultant (Segal) and voted to adopt the recommendations made by Segal on the assumptions PERA will use going forward.

Changes to assumptions include:

  • Lowering the inflation assumption from 2.4% to 2.3%
  • Lowering the payroll growth rate assumption from 3.50% to 3.00%
  • Lowering the active member growth assumption for each division. Current growth assumptions range from 1.00% to 1.25%. Recommended growth assumptions range from 0.25% to 1.00%.
  • A number of changes to the mortality assumptions.

Assumptions that didn’t change include:

  • Maintaining the investment return assumption of 7.25%
  • Maintaining the administrative expenses assumption of 0.40% of payroll
Using New Assumptions

The actuarial assumptions adopted have an effect on a number of calculations performed by PERA. For example, the calculations for reduced (early) retirement and the cost of purchasing service credit use these assumptions. Those calculations use factors, like longevity, that change when assumptions change.

The benefit checks that current retirees receive are not an actuarial assumption. Retirees won’t see any change to their monthly benefit because of the experience study.

These assumptions will also be used in the 2020 Comprehensive Annual Financial Report, which will be released in June 2021. This report contains a calculation of PERA’s liabilities using the actuarial assumptions adopted by the Board.

The ultimate goal of the experience study is to provide the most accurate portrait of the future possible. The routine and rigorous examination of this portrait enables PERA to prepare for the future and to provide retirement security for all of its members.

Year in Review: Top Stories of 2020

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It’s been an unusual year, to say the least. COVID-19 altered everything. The well-being of so many across the state, country, and world was at the forefront of everyone’s thoughts. But readers of PERA On The Issues were also interested in how the global pandemic affected PERA. The top stories of 2020 were primarily about the ways in which PERA and the state legislature adapted to these new circumstances.

Amid Massive Budget Cuts, Joint Budget Committee Votes to Suspend Direct Distribution

In 2018, the state legislature instituted an annual payment from the state budget to PERA, called a direct distribution. This $225 million payment was an important piece of SB 18-200 and goes toward paying down PERA’s unfunded liability. However, by the end of March the economy was in rough shape. It was clear that budget writers would face a shortfall amounting to billions of dollars. As a result, the legislature paused the direct distribution for 2020 — part of a long list of emergency cuts throughout the state’s budget.

Polis Budget Plan Includes PERA Direct Distribution

Months after the legislature paused the direct distribution, Governor Polis released his budget proposal for 2021. In it, he indicated one of his priorities was to restore the direct distributions in full. The governor does not write the budget — that responsibility falls to the state legislature’s Joint Budget Committee. But his budget proposal helps set the tone as this process gets underway. Typically, the state legislature passes a budget in late March or early April before sending it to the governor for a signature.

PERA-related Legislation Sent to Governor

The direct distribution was not the only PERA-related measure the legislature passed in 2020. Other bills included:

  • A temporary change to the contributions judges make to PERA
  • Reclassifying state firefighters as safety officers
  • An expansion of working-after-retirement exemptions for certain employees hired by a board of cooperative services (BOCES).

PERA’s Chief Investment Officer Addresses Market Drop

Those who follow the stock market can sum up 2020 with one word: volatility. The end of March saw a sharp sell-off as stock prices plunged. The uptick that followed was nearly as swift as the initial drop. In the midst of this uncertainty, PERA’s Chief Investment Officer, Amy C. McGarrity, penned a letter addressing PERA’s strategy.

Change is Coming to PERA On The Issues

After nearly eight years in publication, PERA On The Issues received a makeover. The new site design contains updates to improve the reader experience. For example, stories now look better on mobile devices, which is important as nearly half all people read PERA On The Issues on their phones. Although the site looks a bit different, the types of stories this site covers remains the same.

As 2020 comes to a close, we’re thankful to all our readers for continuing to rely on PERA On The Issues. In an environment awash with options, this website’s readership continues to grow. We’ll continue following and unpacking the issues that matter to PERA’s many stakeholders like we’ve done for years. We’ll see you in 2021.