Month: April 2021

Recently Introduced Divestment Bill Would Affect PERA Investments

Posted on by planeteria

In this story:

  • A new divestment bill would limit PERA’s investment options
  • PERA’s Board has stated that PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants

A bill recently introduced in the Colorado House would limit the investments PERA has access to, which could affect the ability to maximize the long-term risk-adjusted return for members.

Bill Summary

If passed, the bill, HB 21-1246, would do the following:

  • Require PERA’s Board to create an exclusion list of all direct investments PERA has in fossil fuel companies.
  • Within 6 months after completing the exclusion list, the Board would be required to determine whether divestment from the companies on the exclusion list complies with the Board’s fiduciary obligations.
  • If the Board determines that divestment from any company on the exclusion list does comply with its fiduciary duty, the Board would be required to divest from those companies on the exclusion list.
  • And the Board would be required to cease new direct investments in any company that is a fossil fuel company.
  • Beginning one year after the effective date of the bill, the Board would be required to ensure that no money or assets of the fund are invested in an indirect investment vehicle unless the Board is satisfied that such indirect investment vehicle is unlikely to have in excess of 2% of its assets directly or indirectly invested in fossil fuel companies.

The Position of PERA’s Board

PERA opposes divestment efforts unless such opposition is inconsistent with its fiduciary duty and recommends the legislature thoughtfully consider such proposals with caution and fiduciary care.

Per the Board’s Statement on Divestment, PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants. Global issues are difficult to prioritize and proper recourse falls beyond the duty of the retirement system.

The Problem With Divestment

Divestment is expensive.

Requiring PERA to divest comes with significant costs – including costs to research, sell, and replace its fossil fuel investments. This bill would cost millions of dollars just to implement and does not include the opportunity cost of continued investment in the securities that meet the stated criteria.

Divestment is a slippery slope.

Just in the past several years, advocacy campaigns have pressed pension funds to divest from countless industries for varying reasons. Divestment could cost PERA members more by limiting the investable universe and PERA’s ability to generate the investment returns that make their retirement benefit possible. PERA’s investment program has generated over $69 billion over the last 30 years – returns that fund benefits and fuel local economies across the state.

Divestment is not effective.

Divestment mandates are a blunt instrument designed to impose economic hardship on the subject companies, but often result in assets simply being transferred from one investor to another with no impact on the company’s financial position. To make a change you need a voice and divestment means leaving the conversation entirely. PERA prefers engagement with companies to promote responsible business practices because it has a real and lasting impact.

PERA’s Investment Framework

PERA’s investment framework has been the focus of previous PERA On The Issues stories, including:

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2021 Proposed Legislation Status

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Below you’ll find summaries of proposed legislation affecting Colorado PERA. The status of each bill will be updated regularly.

Any position the Colorado PERA Board takes on a bill will be reflected below as soon as it becomes available.

Last updated: Aug. 31, 2021

SB 21-228

Bill Title: PERA Public Employees Retirement Association Payment Cash Fund

Concerning the creation of the PERA payment cash fund to be used for future payments to the public employees’ retirement association, and, in connection therewith, making an appropriation.

Bill Summary: The bill creates the PERA payment cash fund (fund) and appropriates $380 million from the general fund to the fund for the 2020-21 state fiscal year. The state treasurer is required to use the money in the fund for the $225 million direct distribution payment to PERA on July 1, 2022, subsequent direct distributions, and any of the state’s employer contributions or disbursements.

Sponsors: Sen. Chris Hansen and Sen. Dominick Moreno, Rep. Julie McCluskie and Rep. Kim Ransom

Bill Status: Signed into law by Gov. Polis on May 4, 2021

Bill History:

  • May 4: Signed by the Governor
  • April 5: Introduced in Senate
  • April 6: Passes Senate Appropriations Committee with amendment
  • April 8: Passes Senate second reading
  • April 9: Approved by Senate, introduced in House
  • April 13: House Committee on Appropriations refers unamended to Committee of the Whole
  • April 14: Passes House second reading
  • April 15: Approved by House

PERA Board position: The PERA Board did not take a position on this bill.

HB 21-1246

Bill Title: PERA Public Employees’ Retirement Association Divestment From Fossil Fuel Companies

Concerning divestment action by the public employees’ retirement association against companies financially involved with fossil fuel companies.

Bill Summary: The bill would require the PERA Board to create an exclusion list of all direct investments PERA has in fossil fuel companies.

Within 6 months after completing the exclusion list, the Board would be required to determine whether divestment from the companies on the exclusion list complies with the Board’s fiduciary obligations. If the Board determines that divestment from any company on the exclusion list does not comply with its fiduciary obligations, the Board will remove the company from the exclusion list.

If the Board determined that divestment from any company on the exclusion list does comply with its fiduciary duty, the Board would be required to divest from those companies on the exclusion list. And the Board would be required to cease new direct investments in any company that is a fossil fuel company.

Beginning one year after the effective date of the bill, the Board would be required to ensure that no money or assets of the fund are invested in an indirect investment vehicle unless the Board is satisfied that such indirect investment vehicle is unlikely to have in excess of 2% of its assets directly or indirectly invested in fossil fuel companies.

The Board would be required to issue periodic reports to the members of the pension review commission of the General Assembly outlining all actions taken to comply with the requirements of the bill.

Sponsors: Rep. Emily Sirota and Rep. Sonya Jaquez Lewis

Bill Status: Postponed indefinitely

Bill History:

  • March 25: Introduced in House
  • March 19: Postponed indefinitely by House Finance Committee

PERA Board Position: Per the Board’s Statement on Divestment, PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants. Global issues are difficult to prioritize and proper recourse falls beyond the duty of the retirement system. PERA opposes divestment efforts unless such opposition is inconsistent with its fiduciary duty and recommends the legislature thoughtfully consider such proposals with caution and fiduciary care.

HB 21-1136

Bill Title: Judicial Division Retirees Temporary Judicial Duties Compensation

Concerning modifications to the policies governing judicial division retirees returning to temporary judicial duties.

Bill Summary: Retired judges may currently perform judicial duties for 60 or 90 days with written permission from the chief justice of the Colorado Supreme court. This bill would allow retired judges to do the same for 20, 30, 60, or 90 days per year. In addition, under current law a retired judge must enter into the agreement prior to retirement or within thirty days prior to the retirement anniversary in the next five years of retirement. This bill would remove that limitation.

Sponsors: Rep. Kerry Tipper and Rep. Terri Carver

Bill Status: Signed into law by Gov. Polis on May 4, 2021

Bill History:

  • May 4: Signed by the Governor
  • April 26: Senate passes on third reading
  • April 23: Senate passes on second reading
  • April 23: Senate Appropriations Committee refers to Committee of the Whole
  • April 14: Senate Judiciary refers unamended to Senate Appropriations Committee
  • April 9: Introduced in Senate
  • April 8: Passed by House
  • April 7: House passes with amendments
  • April 5: House Appropriations Committee refers to Committee of the Whole with amendments
  • March 1: Introduced in House

PERA Board Position: The PERA Board does not have a position on this bill.

HB 21-1213

Bill Title: Conversion Of Pinnacol Assurance

Concerning the conversion of Pinnacol Assurance from a political subdivision of the state into a stock insurance company owned by a mutual insurance holding company.

Bill Summary: This bill would convert Pinnacol Assurance, which provides workers’ compensation insurance, into a private company. As part of this conversion, Pinnacol would disaffiliate from PERA and make a payment to PERA to cover its portion of PERA’s liabilities. Current Pinnacol employees would become inactive PERA members after the disaffiliation date but would be eligible for future benefits. Current PERA retirees who were employed by Pinnacol are not affected by this bill.

Sponsors: Rep. Matt Soper

Bill Status: Postponed indefinitely

Bill History:

  • March 22: Postponed indefinitely by the House State, Civic, Military, & Veterans Affairs Committee
  • Introduced March 5

PERA Board Position: The PERA Board holds that all disaffiliations should be treated the same and the methodology used to determine the cost for disaffiliation should align with the framework provided by the general assembly under current statute.

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Making Sense of Financial Literacy

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April 2021 is Financial Literacy Month. Now in its eighteenth year, the month has kept its focus on the original goal, as stated in the original 2004 Senate Resolution:

“to raise public awareness about the importance of financial education in the United States and the serious consequences associated with a lack of understanding about personal finances.”

President Biden has also proclaimed April to be National Financial Capability month, saying:

“High-quality financial education should build on and respond to people’s individual strengths, circumstances, and needs in order to help them work toward their own unique goals.”

What is “Financial Literacy”?

There is no single measure for financial literacy. Google “financial literacy quiz”, and you could spend an entire day taking tests.

For example, the National Financial Educators Council has created a half-dozen quizzes that ask general awareness questions on a wide array of topics (including standard and advanced versions).

About 59% of more than 60,000 test-takers passed the standard test referenced above, and the average score was 68%.

But what makes a particular personal finance topic relevant — paying off debt, owning a home, planning for retirement, and more — depends on the circumstances each person faces and the tools they have at their disposal. These, of course, can vary.

So, while quizzes like these are a fun way to gauge general awareness about financial topics, they aren’t the best measure of literacy on an individual basis. What, then, does it mean to be “literate?”

Bridging the Gap Between Knowledge and Action

Financial knowledge can equip a person to make more informed decisions. But without action, knowing about personal finance adds nothing to a person’s net worth. A person who saves 3% of their salary in a 401(k) but who isn’t confident they know how a 401(k) works is probably better off than a person who knows every detail about 401(k) accounts but who has no savings and has no plan to start.

In a sense, a person achieves literacy when they implement financial knowledge into their life in a tangible way. It’s similar to learning a language: Memorizing vocabulary words on flash cards is an important step in learning, but it takes more than a vocabulary to have a conversation or become fluent.

PERA offers members a variety of tools and resources to bolster financial literacy. One way to help understand what’s available is to think about each resource as either education-oriented or action-oriented. A few examples are shown below:

EducationAction

PERA partners with employers by offering free workshops about how to make sense of investing.		PERA members can enroll in a PERAPlus 401(k) with their employer or in PERAPlus 457 directly online. (more info here)
PERA offers webinars about planning for retirement.
Refine your own individual retirement plan. Meet with a PERA representative if you have additional questions about your PERA benefit.

The Importance of a Plan

Financial literacy is important. While it takes more than simply memorizing financial principles to reap the rewards, having a baseline of knowledge is an invaluable part of becoming financially secure. Not surprisingly, a lack of financial knowledge is a common barrier to getting started. 

So in recognition of Financial Literacy Month, go ahead – take an online quiz. Test your knowledge against others. But when you’re done, go a step farther. Strive for true literacy. Keep learning, and find ways to apply what you know.

Evaluating Sustainability in PERA’s Investment Portfolio

Posted on by planeteria

In this story:

  • PERA invests for the long term for its members
  • The investment team considers a variety of risk factors when evaluating investment opportunities
  • Comparing the risk in PERA’s investment portfolios to the risk found in their respective benchmark portfolios is one way these factors are evaluated
  • Because investments contain multiple risks, PERA takes a comprehensive approach, considering the sum of these factors rather than each in isolation

Colorado PERA invests billions of dollars on behalf of its members. It holds investments around the world in a variety of asset classes and industries. This diversified approach to investing helps PERA achieve its investment goal: to maximize risk-adjusted returns for the benefit of members and retirees.

PERA is also a long-term investor. To better understand how an investment might perform in the long-term, PERA’s investment team considers a variety of risks when evaluating investment opportunities.

Risks come in many forms, and they can be considered in isolation or in combination with other risks that can impact an investment decision. Examples can include:

  • Interest rate risk: How do interest rates impact valuations and expectations for future growth?
  • Competitive risk: Does a company operate in an industry that has highly innovative peers?
  • Climate risk: Does a company have a business plan that takes into account potential impacts of climate change?
  • Supply chain risk: How dependent is a company on resources that it does not directly control, and what are the risks associated with those suppliers?

PERA considers these and many others as they evaluate investments.

An Example of How PERA Evaluates Risk

One method PERA uses to evaluate risk is to compare a PERA portfolio to its respective benchmark .

For example, carbon risk is part of environmental or climate-related factors an investor may consider. So it can be helpful to compare the carbon risk in PERA’s portfolio to the carbon risk in the portfolio’s benchmark .

The chart* below shows the carbon intensity of a few PERA portfolios alongside the carbon intensity of each portfolio’s respective benchmark . Lower bars indicate lower carbon intensity .

While PERA does not target specific environmental, social, or governance (ESG) scores when making investment decisions, these factors are part of a much broader mosaic of understanding of a company’s fundamental business.

The Importance of Sustainability

PERA has in place many measures to evaluate its portfolio exposures to various risks and opportunities. Because investments contain multiple risks, PERA takes a comprehensive approach, considering the sum of these factors rather than each in isolation.

Investing is also a dynamic activity. Markets evolve as political, social, environmental, and economic conditions change. Broadly speaking, a company that operates with sustainable business practices may be better able to navigate these changes. How?

  • Sustainable business practices can signal the ability to manage risks and seize business opportunities more effectively than competitors.
  • Sustainable practices can lead to more efficient operations, which can boost profits.
  • Companies that have sustainable business practices also can attract and retain top talent. Top talent can yield innovation that enhances competitive advantages and, thus, returns to investors.

“PERA’s commitment to investing in companies that have strong financials, operations, and opportunities for growth means we have a bias toward higher quality companies in our actively managed portfolios,” said Tara Stacy, PERA’s Director of Investment Stewardship. “These companies are likely to score more favorably among their industry peers in other aspects of their business as well, such as in the management of various ESG risks.”

By focusing on financial sustainability, PERA is able to effectively evaluate and manage investment risks and opportunities across the portfolio in order to provide lasting benefits to its members and retirees.

* This report contains certain information (the “Information”) sourced from MSCI ESG Research LLC, or its affiliates or information providers (the “ESG Parties”). The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. Although they obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, nor should it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.