Month: March 2021

News You Should Know: Does retirement stack up to expectations?

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Most retirees find retirement doesn’t live up to their expectations | Yahoo Finance

According to a September 2020 study, about three-quarters of retirees say their retirement lifestyle doesn’t match their pre-retirement expectations. What’s the reason? There are multiple. Plans of seeing the world, for example, might actually become a lower priority: Staying healthy is the number-one priority for retirees, followed by “quality time spent with family and friends.” Traveling is a “distant third.” Another reason? Fear of outliving assets.

Has COVID-19 really affected life expectancy? | Marketwatch

PERA members know that life expectancy is a statistic that PERA’s Board and staff follow. Understanding how long people will likely live is an essential component to understanding lifetime income. A question that’s often asked is: “how will COVID-19 affect life expectancy?” The loss of life has been staggering over the past year. This analysis shows that while life expectancy is unlikely to be affected much in the long run, it also not the best measure to use when trying to capture the magnitude of COVID-19’s impact.

Some Coloradans Are Paying Tens Of Thousands For Health Insurance. A Proposed Fix Is Stirring More Controversy At The Capitol | KUNC

For the third time in three years, Rep. Dylan Roberts (D-Avon) is running a bill in the Colorado legislature that would create a public health care option and be available to all Coloradans. Despite the bill failing in previous years, Roberts said such a plan would provide lower-cost health care, particularly in areas without many other options. A new feature in this year’s version: insurers, care providers, and others would be given certain goals to reduce patient costs. A state option would be offered to Coloradans in 2025 only if those goals are not met.

Help! I’m Afraid to Retire, Even Though I Can Afford to | Kiplinger

A financial planner shares her observations of a trend she sees in clients: After years preparing for retirement, the date gets closer and the client gets cold feet. One client captured the sentiment, saying: “I don’t know if I can actually start to withdraw the money and feel good about it. I have been so focused on saving, investing and planning for years that I don’t know how I will feel about starting to take money out, even if it’s for things I think I want.” This is a common feeling, especially for those without access to the reliable stream of lifetime income found in a defined benefit plan.

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

News You Should Know: Stimulus Bill Details

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American Rescue Plan Act of 2021 | NCSL

The National Conference of State Legislatures has created a full breakdown of what’s in The American Rescue Act. Search to see where dollars are allocated by sectors, like education, small businesses, and state and local government. In case you were wondering, the overview states: “State and local governments cannot use the funds towards pensions or to offset revenue resulting from a tax cut enacted since March 3, 2021.”

Health insurance costs for millions set to drop under final Covid-relief bill | CNBC

The American Rescue Act does more than send Americans stimulus checks. In addition, it contains provisions that will make health insurance cheaper for some, especially those who are unemployed. Among the changes: capping the maximum price an individual pays for health care coverage on federal and state exchanges to 8.5% of their income.

Colorado lawmakers, governor unveil $700M state economic stimulus plan. Here’s where the money will go. | The Colorado Sun

Colorado is working on stimulus measures of its own—paid for with better-than-expected tax revenues. Instead of one big bill, however, each provision will require its own bill. See the ideas proposed so far in this article.

Pandemic Lessons: The Importance of the Savings Hierarchy | Plan Adviser

Not all savings are created equally. For example, there are benefits to saving in a health savings account, but if your refrigerator breaks it would also benefit you to have enough cash saved in a savings or checking account. This article surveys not just how much people save, but where they stash it.

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

Issue Spotlight: Responsible Investing

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Every investor, whether an individual or an organization like PERA, makes investment decisions based on their goals or objectives.

PERA’s investment goals and objectives are listed in the investment policy adopted by the Board. It reads, in part: “The function of PERA is to provide present and future retirement or survivor benefits for its members. This objective requires the prudent assumption of investment risk in seeking to maximize long-term investment returns…”

That statement lays out both the goal – providing benefits to members in perpetuity – as well as the way it will achieve this goal: by maximizing long-term risk-adjusted investment returns.

Investing: The Big Picture

The world of investment opportunities is vast. It’s often subdivided into asset classes, or groups of distinct types of investments. These include publicly traded stocks, bonds, and real estate. Each asset class has unique features and risks associated with it.

PERA’s Board ultimately determines how much PERA invests in each asset class. They do this through their asset allocation policy. This policy lays out a target for each asset class – a percentage of the total funds PERA invests that should be dedicated to each asset class. Because the value of every investment can fluctuate, it’s impossible to “hit” the target in practice. So, the Board also provides a minimum and maximum percentage that each asset class can hold.

The Board regularly reviews and updates its asset allocation policy. Read more about the last time the Board did this, in late 2019, in this PERA On The Issues story.

Within that framework, PERA’s investment team makes its investment decisions.

Investing Responsibly

From time to time, outside groups push to mandate PERA to take up additional goals and objectives. These movements often advocate for the use of divestment – or selling off investments – in an effort to achieve policy goals unrelated to retirement security.

Regardless of a person’s attitude toward any particular policy goal, divestment is not an effective way to achieve that goal. Previous PERA On The Issues stories like this one have explored some of the ways in which divestment is ineffective.

The PERA Board’s Statement on Divestment explains their position in full, but states that “divestment is costly and limits PERA’s ability to effectively seek the best risk-adjusted returns to secure the retirement benefits of public servants.”

The Benefits of Engagement

PERA maintains its focus on being a responsible, engaged investor. What does this look like?

  • Every shareholder of a company owns a piece of that company. As a result, they are able to voice their opinions on some business decisions through voting. PERA outlines its approach to dozens of issues it reviews when voting in its Proxy Voting Policy, which the Board last updated in early 2021.
  • When casting these shareholder votes PERA considers many issues, including sustainability issues that could have a financial impact on a company.  
  • There are many sustainability factors that could have a financial impact on PERA’s investments. PERA’s most recent Stewardship Report lists a few: carbon emissions, labor rights, natural resource utility, executive oversight, animal welfare, corporate culture, and social impact. As the report states, “When stewardship efforts impact a firm’s financial success, they become financially meaningful to stakeholders.”
  • PERA advocates for companies to reliably inform shareholders about any climate-related risks and opportunities that could have a financial impact on the company. PERA has voted in support of 91 environmental proposals over the past three years.
  • With this information, investors are able to make better-informed decisions about how they invest. In PERA’s case, this means making investment decisions that align with PERA’s goals and objectives. Companies that adopt sustainable business practices may signal quality and longevity, which are important features for a long-term investor like PERA.
  • PERA staff actively engage with portfolio companies, legislators, regulators, standard setting bodies, and other institutional investors about matters that can impact PERA’s investments and the integrity of global markets.

Investing for Members

The world has faced a variety of critical issues since PERA’s founding in 1931. Maintaining focus on the primary goal has served PERA and its members well. The following statement from the Board’s Statement on Divestment shows that they intend to maintain that focus well into the future: “PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants.”

National Attitudes on Retirement Security, Part 2

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In this story:

  • In a recently published study, a majority of Americans agree on how to combat retirement insecurity
  • Responses indicate retirees need to know more about managing investments to last through retirement
  • A majority of those surveyed said access to a defined benefit program brings security that can’t be found in 401(k)-style plans alone
  • In particular, DB plans help offset market risk and the risk of outliving savings

“What do Americans think about retirement security?”

This was the central question to a study conducted by the National Institute on Retirement Security. The study took place in 2020 and involved participants from across the country.

Part 1 of this story covered the issues that survey participants raised:

  • 67% of respondents said the U.S. faces a retirement crisis
  • 56% are concerned they won’t become financially secure, and 58% said it’s getting harder as time goes on
  • 68% said they aren’t able to save enough to guarantee a secure retirement

In addition to highlighting concerns, the study also shed light on ideas and solutions.

Better Access to Information

More than 70% of those surveyed agreed: “the average retiree does not know enough about managing investments to be able to make their retirement savings last.”

This insight could mean that retirees need or want more opportunities to enhance their financial literacy.

Some organizations, including PERA, offer educational opportunities to members and customers in the form of workshops, webinars, and online tools. But not all do.

Furthermore, 55 million Americans do not even have access to the retirement savings plans that often come with these educational opportunities.

Limit Uncertainty in Retirement

Even the best access to sound financial information can’t eliminate certain risks:

In the face of these uncertainties, survey participants said that defined benefit plans are a good solution for retirement planning compared to relying completely on self-directed investing plans:

  • 54% said they would trade savings for guaranteed income.
  • 65% agreed that “pensions do more to help workers achieve a secure retirement as compared to retirement savings plans such as 401(k)s.”
  • 75% said: “all workers should have access to a pension plan so they can be independent and self-reliant in retirement.”

Final Thoughts

Retirement looks different for everyone. But obtaining a sense of security is a goal that nearly all retirees share.

Different financial tools work together to contribute to increased security:

  • Access to quality financial education can lead to more informed decision-making and planning
  • Access to self-directed retirement plans, including the 401(k) and 457 options PERA members have with PERAPlus, give flexibility about contributions, investments, and withdrawals
  • Access to a defined benefit plan like PERA members have leads to a stream of lifetime income, which helps offset many of the risks retirees face

Voicing support for policies that promote financial security helps ensure that retirees are able to spend their retirement years — whatever that looks like for them — in confidence.

News You Should Know: Investors Held Steady in 2020

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Opinion: Few 401(k) participants changed portfolio allocation when market tanked | Marketwatch

Financial experts often advise individuals to hold steady during times of market volatility rather than trying to “time the market,” which means guessing whether investments will go up or down in the short term. Data from Morningstar shows that during 2020’s market volatility, the vast majority of investors heeded this advice. About 19 out of 20 people in this dataset didn’t changed their allocation in the first quarter last year. People who use target-date funds were the least likely to change their holdings.

As legislative session gets ready to restart, economic recovery tops lawmakers’ list of priorities | The Denver Channel

Colorado’s legislature is back in session. Again. After a month-long hiatus, lawmakers are working through a growing pile of bills. Addressing the pandemic and economic recovery are the top priorities. But other issues, including transportation and education funding and police reform, made this list of pressing issues. (Note: PERA On The Issues monitors the legislature for any PERA-related legislation on this page and will provide updates as they occur.)

High-income taxpayers help some states stay above water | Marketplace

Altogether, tax revenue collected by all 50 states dipped 1.9% last year between April and December. But not every state was created equal. In fact, 22 states actually increased revenues during that time. And Colorado was one of five states who finished the year up at least 5%. Why? The particular makeup of tax revenue streams varies from state to state. While Colorado has a big tourism industry, the state as a whole is less reliant on tourism than, say, Nevada. Tourism is an industry hit particularly hard in the past year. The number of higher-earning households, which have not experienced the same financial burdens as others for a variety of reasons, also has had an effect.

Going The Distance For Vaccines In The Mountain West | KUNC

Having an appointment to get vaccinated against COVID-19 is great…if you have a way to get there. Mobility challenges are nothing new, but the implications for vaccinating an entire population bring a new light to the issue. Some people might have access to public transportation or ride services, but those who live in rural areas might not have the same options. Johnson & Johnson’s vaccine, which only requires one dose, could help.

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

Drug Prices Continue Multi-year Climb

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Prescription drug manufacturers continue to raise prices. Meanwhile, Colorado recently announced updated plans for a program that aims to bring lower-cost options to consumers.

You might think these sound like old headlines. You wouldn’t be entirely wrong. PERA On The Issues covered the rise of drug prices in January 2020 and last summer looked into executive actions that aimed to keep prices down.

So when GoodRX, which compiles data on medication costs, reported that companies raised the price on 822 brand-name drugs by an average of 4.6% in January, it was news. But it wasn’t necessarily new.

“The rise in prescription drug prices is a trend we have been monitoring for years,” said Jessica Linart, PERA’s Director of Insurance. “When drug manufacturers raise prices insurers must pay those higher costs, which unfortunately get passed on to consumers in the form of higher premiums.”

This is an issue that affects every type of insurance: employer-based and retiree plans alike.

PERACare uses multiple strategies to keep drug prices down to the extent possible. Some are administrative, such as using competitive bid processes to get the best pharmacy pricing from insurance carriers. PERACare staff works with consultants and other industry groups to monitor legislation that can impact drug costs.

Another strategy is to give retirees choices to keep costs down where possible. Incentivizing the use of generic equivalents instead of name-brand drugs and filling prescriptions through the mail, when possible, can save retirees money and help reduce overall plan costs.

Colorado’s Plans to Address Rising Prices

In January, The Colorado Department of Health Care Policy and Financing released an update on a number of plans underway that address rising costs. These updates include:

Import Drugs From Canada

Colorado has been developing a program to import some drugs from Canada, where prices are often lower than equivalent drugs in the U.S. This program originated in a bill signed into law in 2019. However, Colorado must coordinate and comply with federal regulations. The report states: “The Department estimates that Colorado will have an operational importation program by 2023.”

Give Prescribers Useful Information Sooner

The Department has created a tool for people who prescribe prescription medication in Colorado. The first phase of the project helps prescribers assess opioid risks. The second phase, which the Department expects to be operational this summer, provides information like co-pays and drug prices so that prescribers can make cost-effective decisions for patients.

Target the Highest-cost Drugs

Not all drugs are created equal. Some specialty drugs — drugs that are often complex or treat rare diseases — cost so much that they can affect the entire system. The report states: “an analysis of fiscal year (FY) 2019-20 claims data from Colorado Medicaid revealed that 1.42% of the prescriptions written to care for Medicaid recipients were so expensive, they represented 48% of total pharmacy expenditures.” Colorado is analyzing the impact these drugs have. “These numbers are similar to what we see with the PERACare plans,” Linart said. “Anything that can be done to moderate the pricing on specialty medications will be a benefit to retirees on those PERACare plans.”

See What Other States are Doing

Every state across the country faces similar challenges related to rising prices. And every state is coming up with ideas to address them. The Department surveyed more than 431 bills it found in state legislatures nationwide and shared its findings for others to consider.

National Attitudes on Retirement Security, Part 1

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In this story:

  • A new study looked at the attitudes people across the country have about retirement
  • Americans are generally concerned about their ability to have a secure retirement
  • Reasons for concern included rising costs, longer lifespans, and market volatility

Retirement studies often focus on statistics that capture trends about groups of people. “How much does the average retirement-age person have saved for retirement?” “What’s the average retirement age these days?” “What percentage of people are on track to retire by 65?”

Studies like these are helpful when trying to understand the various circumstances from which people approach retirement, but we don’t learn much about the people themselves.

A new study prepared by The National Institute on Retirement Security stands out because it does just that. People across the country shared their thoughts about retirement security. What do they worry about? How do they feel about the future? What do they trust?

Retirement Security Concerns

The responses highlighted a number of concerns Americans have about retirement security. Some of them include:

Many Americans feel retirement security is out of reach
  • 67% of respondents said the U.S. faces a retirement crisis
  • 56% are concerned they won’t become financially secure, and 58% said it’s getting harder as time goes on
  • 68% said they aren’t able to save enough to guarantee a secure retirement

When asked to cite reasons for their concerns, respondents gave a mix of reasons. The cost of health care and long-term care topped the list. About half of the respondents cited longer lifespans, lack of access to a pension, stagnant salaries, debt, and the complexities of managing retirement savings themselves. One-third mentioned stock market volatility .

Yes, COVID-19 has had an impact.
  • Half of respondents said the pandemic has increased their concerns about retirement security
  • One-third of respondents said they are rethinking their retirement plan, and two out of three said they are pushing their planned retirement date farther into the future.

A variety of reasons stand behind the pandemic’s financial impact. About a quarter of respondents said they’ve needed to use emergency savings. One in four said their employer reduced contributions to their retirement plan.

The Critical Component: Retirement Security

Retirement planning contains few one-size-fits-all explanations. For instance, there’s not a set dollar amount everyone shoots for. People approach the many non-financial decisions related to retirement — about healthcare, housing, and lifestyle — on a case-by-case basis, too.

There’s also the fact that this was a broad study, not limited to those with a particular type of retirement plan or to a particular part of the country. Why does that matter? Not everyone has access to the same set of retirement tools. For example, PERA members have access to both a pension and self-directed savings through a 401(k). However, the majority of workers today don’t have access to a pension and about one in three don’t have access to any kind of retirement savings account through their job. The retirement tools that any one person does or does not have likely influences their views.

But after considering the responses people shared in the responses above, a definition of retirement security that does apply to most people begins to emerge: Retirement security is feeling confident about planning for the future despite life’s unavoidable uncertainties.

Even in their working years, people employ methods to gain security: purchasing insurance and building up an emergency fund are two examples. Of course, taking these measures does not mean that bad breaks will not occur. But they can make tough times more financially manageable if and when they do.

So what tools would make the prospect of retirement more secure? The next issue of PERA On The Issues will explore how respondents answered that question and what PERA members should know about their own retirement.

PERA Board Selects New DC Plan Administrator at March Meeting

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Key points from this story:

  • The PERA Board selected Empower Retirement as the new recordkeeper for PERA’s defined contribution (DC) plans
  • Nothing will change for PERA members right away
  • New actuarial assumptions mean it will take longer for PERA to reach full funding
  • An automatic adjustment will likely be announced with PERA’s annual report in June

PERA’s Board of Trustees convened virtually for its regularly scheduled meeting on March 19. The Board heard updates from PERA staff on a number of aspects of PERA’s operations, and also took action on some items, including selecting a new recordkeeper for PERA’s defined contribution (DC) plans.

The Board also discussed how changes to PERA’s actuarial assumptions — estimates for inflation, rate of hiring and how long people will live, for example — will affect how long it takes for PERA to reach full funding.

Defined contribution plans recordkeeper

Background

PERA members who participate in the PERAChoice DC plan or PERAPlus 401(k)/457 plans know Voya Financial as the company that has been the recordkeeper for those plans since 2011. But recordkeeping needs change over time, so, last year, PERA began the process of reviewing its recordkeeping needs and selecting a recordkeeper who could deliver the best value for members.

Five companies responded to PERA’s request for proposals. At the March 19 meeting, the Board weighed the pros and cons of each company and voted to move forward with Empower.

What that means for PERA members

Nothing will change right away. At some point in the future, all accounts with Voya will be transferred over to Empower. After that happens, participants will be able to access their accounts directly through Empower, either by logging on to Empower’s website or by calling Empower on the phone.

Some of the advantages Empower brings to the table include:

  • Significant experience with large public plans like PERA
  • Expanded call center hours
  • Enhanced digital and mobile tools
  • Simplified account access

What’s next?

PERA staff will begin contract negotiations with Empower to finalize the details of the partnership and the transition from Voya to Empower.

PERA will be sure to communicate any changes to members before they happen.

What new actuarial assumptions mean for PERA

Background

Every four years, PERA conducts what is called an experience study. The Board uses this study as it reviews actuarial assumptions. Actuarial assumptions are projections about factors, including inflation and life span, that have an effect on PERA’s unfunded liability calculation, among other things.

An experience study compares the projections PERA had been using to the last few years of recorded data, known as “experience.” The Board can then adjust the actuarial assumptions PERA will use for the next four years. This rigorous review process keeps projections as accurate as possible.

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.

The last experience study took place in 2020. The Board updated its assumptions in November. The changes included revisions to the inflation, payroll growth, and active member growth assumptions, among others. Read more about those changes here.

What the new assumptions mean for PERA

At the March meeting, representatives from PERA’s actuarial consultant, Segal, provided further information to the Board on how specific assumptions will affect PERA’s calculations.

PERA’s liability — the cost of paying benefits to current and future retirees — changes when actuarial assumptions change. Some of those assumptions have a bigger impact than others. Positive investment returns, for example, can help reduce PERA’s unfunded liability, but lower-than-expected payroll growth and retirees living longer, and therefore receiving benefits longer, can have a bigger effect in the long term and add to PERA’s liability.

In this case, the newly adopted mortality and payroll growth projections will extend the estimated amount of time it will take PERA to achieve full funding. This doesn’t mean PERA is running out of money; rather that it will take longer than expected to reach its funding goals.  One result of these changes is that an automatic adjustment, established in Senate Bill 18-200, will likely be announced when PERA releases its annual financial report in June, but the changes would not take effect until July 2022. These adjustments help keep PERA a secure benefit for current and future retirees. Read more about how PERA’s Automatic Adjustment Provision works here.

PERA’s Board is committed to maintaining this routine and rigorous review to ensure PERA is able to plan for the future and provide a secure retirement for all its members.

The Board’s next meeting is scheduled for June 18.

What You Need to Know about the Upcoming Board Election

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Four PERA Board seats are up for election in 2021.

At the PERA Board meeting on March 19, the following details of the races were shared:

  • Three candidates are running for one open seat representing the State Division
  • Five candidates are running for two open seats representing the School Division
  • Four candidates are running for one open seat representing retirees in in the School Division

Election Timeline

  • May 3: Candidate responses to questions posted on copera.org
  • May 3-7: Ballots mailed to PERA members and retirees whose representative(s) are up for election
  • May 21: Deadline for members and retirees requesting a duplicate or special ballot
  • May 31: Deadline for ballots to be postmarked; Internet and phone voting closes at midnight (Mountain Time)
  • Mid-June: PERA notifies winning candidates of preliminary election results
  • June 18: Presentation of certified election results to Board for approval. PERA will notify all candidates of certified results after Board approval.
  • July 1: Deadline for ballot recount requests

PERA Board – Duties and Organization

Oversight and management of PERA is divided among a number of entities. The Colorado General Assembly sets contribution rates and benefit levels. State statute creates and empowers PERA’s Board of Trustees to set PERA policy and oversee PERA programs and operations. PERA staff implements the Board’s policies.

The 16-member Board includes: 12 Trustees elected by PERA members and retirees (including one non-voting member), three Trustees appointed by the governor and confirmed by the Senate, and the State Treasurer.

Board members are fiduciaries, which means they are required to act in the best interest of members. In addition to attending Board meetings, Trustees serve on various PERA subcommittees and are required to spend a certain number of hours attending educational sessions.