March 2022 | Colorado PERA

Staying the Course: PERA’s Approach to Market Volatility

Posted on March 16, 2022March 4, 2024 by planeteria

The year has gotten off to a rocky start in the stock market, as concerns about the economy, inflation, and the Russia-Ukraine conflict have led to a series of ups and downs in the major stock indexes.

PERA’s investment staff, led by Chief Investment Officer Amy C. McGarrity, manages a portfolio of more than $60 billion (as of Sept. 30, 2021) on behalf of PERA members and retirees. While staff monitor market activity and trends, PERA’s investment focus is on the long-term.

McGarrity recently participated in a discussion with other CIOs at the Council of Institutional Investors’ spring conference, where she and the other panelists spoke about the challenges of investing in today’s market environment and the importance of a strategic, diversified portfolio.

“We are in the business of providing retirement security, so we invest strategically,” McGarrity said. “We don’t try to predict what the markets will do from day-to-day, but instead we remain invested in our primary asset classes throughout the market cycle, with a focus on long-term returns.”

Strategic asset allocation

Pie chart showing PERA's preliminary, unaudited asset allocation as of Sept. 30, 2021: 58.8% global equity, 19.5% fixed income, 8.7% private equity, 7.8% real estate, 4.7% alternatives, 0.5% cash — PERA’s preliminary, unaudited asset allocation as of Sept. 30, 2021 (click to enlarge)

The PERA Board of Trustees sets PERA’s strategic asset allocation, which dictates how the fund’s portfolio should be split between various types of investments like stocks, bonds, and real estate. Those investments carry different levels of risk (potential for loss in value) and potential return (gain in value). For example, stocks can generate strong returns but often come with a higher level of risk, while bonds typically generate lower returns but also have a lower level of risk.

The result is a diverse mix of investments with varying levels of risk that can help protect the overall portfolio during times of market volatility.

While the stock market may go up or down in a given year, PERA’s strategic asset allocation was developed with the goal of ensuring PERA’s investments will generate value over the course of several decades, regardless of what happens in any one year.

Focusing on the long-term

Being invested for the long-term means being exposed to the ups and downs of market cycles. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns.

For example, in early 2020, global equity markets saw steep losses as COVID-19 spread around the world. By the end of the year, the markets had rebounded and even posted gains.

PERA’s assumed rate of return — one of the key numbers PERA uses to forecast how much money the fund will have on hand to pay benefits in the future — is 7.25 percent. While the actual return in a given year may be higher or lower than 7.25 percent, the goal is to meet the assumed rate of return over a period of 30 or more years. PERA’s annualized return over the past 10 years is 9.4 percent. By maintaining a well-diversified portfolio of assets and a focus on long-term returns, PERA is well-positioned to weather ups and downs in the markets and continue providing lifelong monthly benefits to current and future retirees.

Checking In With PERA’s Public and Government Affairs Manager

Posted on March 2, 2022July 8, 2024 by planeteria

Colorado’s 2022 legislative session is well underway, with more than 400 bills introduced since lawmakers convened in Denver in January.

To find out the latest on what’s happening under the gold dome, PERA On The Issues sat down with PERA Public and Government Affairs Manager Michael Steppat, who represents PERA at the Capitol.

What are some of the major issues lawmakers have been tackling this year?

This legislative session marks the third year legislators have had to deal with the challenges of the pandemic, but it has been more of a return to normal operations despite some COVID safety protocols remaining in place at the Capitol. The pandemic still continues to be one of the major issues in terms of the type of legislation considered, especially as lawmakers decide how to spend nearly $3.6 billion in one-time federal COVID relief funds. It’s important to note that none of these funds may be used for state pensions. However, the state budget for the next fiscal year expects to be around $40 billion, which is a 4% increase from the current one and a state record, boosted by stronger than expected tax revenues.

Other major issues include the kinds lawmakers have frequently taken on in recent years, such as public safety, healthcare, and education.

Two bills that would expand the ability for PERA retirees working after retirement without a reduction in benefits, HB22-1057 and HB22-1101, have passed the House and are now under consideration in the Senate. HB22-1087, which would exclude special district directors from membership in PERA, has also passed the House.

HB22-1029, a bill to make up the state’s annual $225 million payment to PERA that was foregone in 2020 due to pandemic-related budget cuts, has been introduced in the House but it’s not yet scheduled for a hearing. We expect that to happen in the coming weeks.

We’re tracking the status of each PERA-related bill here.

Lawmakers are working right now to craft the state budget for the next fiscal year. What can we expect to see in the budget that might affect PERA?

PERA funding is certainly part of the budget conversation, as lawmakers are considering not only HB22-1029, the PERA direct distribution bill, but also how best to use money in a cash fund the legislature set up last year for future payments to PERA. The Joint Budget Committee will be wrapping up its budget recommendations for the General Assembly to consider later this month.

Is there anything going on in Washington, DC that PERA members might want to know about?

Lawmakers have introduced several bills to modify or repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which can reduce Social Security benefits for pension recipients, though those bills have once again stalled in Congress. There’s also a bill under consideration, dubbed Secure Act 2.0, that would make some changes to retirement plans nationwide, such as raising the age for required minimum distributions (RMDs) and expand automatic enrollment in employer-sponsored plans like 401(k)s.

News You Should Know: Americans Express Support for Public Education Staff, Benefits

Posted on March 2, 2022March 4, 2024 by planeteria

Americans’ Views of Public School Teachers and Personnel in the Wake of COVID-19 | National Institute on Retirement Security

A new survey by the National Institute on Retirement Security found that a large majority of Americans — 83 percent — are worried about public school staff shortages. The survey also found strong support for those staff and the benefits they receive. Ninety-four percent of those surveyed said elected officials should ensure that healthcare and pension benefits continue to be funded and protected.

Colorado to Begin Accepting Cryptocurrency as Payment for Taxes This Summer | Denver7

Colorado Gov. Jared Polis announced plans to allow Coloradans to pay their state taxes and fees with cryptocurrencies like Bitcoin. Polis said the state will start rolling out the program in the summer, so you’ll still have to use traditional forms of currency for this year’s taxes.

COVID Has Changed Retirement — And Canceled the Celebrations That Usually Mark It | NBC News

Retirement has often been met with fanfare to celebrate the end of one life stage and the beginning of another. But the COVID-19 pandemic upended many traditions, including the typical retirement celebrations. A psychologist reflects on what that means for workers entering their golden years.

6 Reasons You’re Putting Off Writing a Will and How to Overcome Them | Next Avenue

For many people, estate planning is a topic that can wait until later — if they’re thinking about it at all. But having a will is important regardless of your age. Here are some common reasons for putting off writing a will and some tips for getting started.

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

PERA Executive Director Ron Baker Reelected to Board of Council of Institutional Investors

Posted on March 10, 2022March 4, 2024 by planeteria

Colorado PERA Executive Director Ron Baker has been reelected to the Board of Directors for the Council of Institutional Investors (CII). Baker was first elected to the CII Board in 2018.

CII is a nonprofit, nonpartisan association of pension funds, endowments and other financial entities. Its members manage approximately $4 trillion in assets on behalf of millions of workers and their families. CII is a leading voice for effective corporate governance and strong shareholder rights.

“I am honored to be reelected to the CII Board and continue PERA’s decades-long role in promoting fair, equitable markets that benefit long-term investors and the PERA membership,” Baker said.

As an institutional investor that manages funds on behalf of more than 630,000 current and former public employees, PERA has long been active in advocating for strong corporate governance policies that ensure transparency and ethical behavior.

Read more on PERA On The Issues:

PERA Board Discusses Election, Investments at March Meeting

Posted on March 29, 2022May 23, 2024 by planeteria

The Colorado PERA Board of Trustees resumed meeting in person for its March meeting, convening at PERA’s headquarters in Denver on Friday, March 18.

The Trustees discussed a number of important topics, including the upcoming Board election, PERA-related legislative activity, and PERA’s investments.

Board election

Four seats on the Board are up for election this year, and members interested in serving as a PERA trustee were able to submit their candidate packets in January and February. At this month’s meeting, the Board received an update on candidates for the four open seats and voted to move forward with elections for the School Division and State Division seats.

Current trustee Ramon Alvarado is running uncontested for the Higher Education seat in the State division, so the Board voted to appoint him to another term and forego an election for that seat. In the Local Government division, the Board will form an ad hoc committee to identify possible candidates for appointment to that seat, since there are no candidates running for the position.

Ballots will be mailed in early May and members of the School and State divisions will be able to vote for their respective Board seats.

Legislative update

PERA Executive Director Ron Baker and Public and Government Affairs Manager Michael Steppat provided the Board with an update on several pieces of PERA-related legislation that have been making their way through the Colorado General Assembly this session.

Lawmakers passed two bills that will expand the ability for PERA retirees to work after retirement without a reduction in benefits — HB22-1057 and HB22-1101 — and Gov. Polis signed them into law.

HB22-1029, which would make up the state’s annual $225 million payment to PERA that was foregone in 2020 due to pandemic-related budget cuts, has been introduced in the House but it’s not yet scheduled for a hearing. Steppat said he expects to see lawmakers take action on that bill in the coming weeks.

Click here for the latest bill status updates.

Actuarial audit

This year, the Board will hire an outside firm to conduct an audit of PERA’s actuarial methods and assumptions — which PERA uses for calculations such as projecting liabilities — as part of its regular review process. The Board reviewed four firms that submitted proposals and voted to select Buck, which has extensive experience with public plans and previously performed an audit for PERA in 2009.

Buck will perform the audit throughout the spring and summer, and then present the results to the PERA Board at its November meeting.

Fiduciary counsel review

The Board is also undertaking a review of the outside legal consultant who serves as fiduciary counsel to the Board, providing annual fiduciary training and giving advice as needed. The Board reviewed multiple finalists and voted to select Suzanne Dugan of Cohen Milstein Sellers & Toll, PLLC as fiduciary counsel going forward.

Market and investments update

PERA Chief Investment Officer Amy C. McGarrity provided the Board with an update on economic conditions and market volatility so far this year, as well as other topics involving PERA’s investments, including Russia-based assets.

On Feb. 24, Colorado Gov. Jared Polis made a request to the PERA Board that is consistent with what has been included in the federal mandates pertaining to sanctions on Russian-owned assets. U.S. sanctions remain fluid and include a combination of freezing assets, divesting of assets and not investing additional funds in Russian assets. PERA is reviewing and preparing to implement the federal mandates within the required time specifications. As of Feb. 24, PERA had $8 million in total invested in Sberbank, OGK-2, Gazprom, Mosenergo, and Rosneft Oil. As of Mar. 18, PERA’s portfolio (preliminary and unaudited) is $60,992,000,000.

McGarrity also provided an update on PERA’s implementation of HB16-1284 (Divest From Companies With Prohibitions Against Israel).

In 2021, Ben & Jerry’s issued a statement that it would withdraw its products from the Israeli-occupied West Bank because the occupation was inconsistent with company values. To comply with HB16-1284, PERA will be assessing its investments in Unilever (as the parent company of Ben & Jerry’s) and engaging further with the company.

As of Feb. 28, 2022, PERA has $42 million invested in Unilever equities and bonds.

The PERA Board voted unanimously to add Unilever to its Restricted Companies List. PERA will begin a 180-day process to engage with Unilever in accordance with the Board’s decision. Upon completion of the engagement, and as applicable, PERA will divest of its Unilever holdings within 12 months if not satisfied with the responses to the assessment.

PERA Joins Other Public Plans Urging Action on Drug Prices

Posted on March 29, 2022July 8, 2024 by planeteria

Prices for many prescription drugs have been rising for years. According to a 2021 report from AARP, many of those prices have been rising faster than inflation, and that can be particularly challenging for retirees living on fixed incomes.

Colorado PERA, which offers pre-Medicare and Medicare coverage to public sector benefit recipients and their families, is joining other public plan administrators across the United States in urging Congress to take action and address the rising costs of prescription drugs.

The Public Sector HealthCare Roundtable, a nonprofit, nonpartisan group of which PERA is a member, sent a letter to congressional leadership in mid-March requesting lawmakers support a number of drug pricing recommendations put forth by the Senate Finance Committee.

Those recommendations include:

Allowing Medicare to negotiate Part B and Part D drug prices: Under current federal law, Medicare is not allowed to negotiate prices directly with drug manufacturers, so the government has to pay whatever price manufacturers set. By allowing direct negotiation, Medicare could secure lower prices for many expensive, name-brand medications.
Penalizing drug manufacturers when a medication’s price rises faster than inflation: This proposal would require pharmaceutical companies to pay a rebate to Medicare when the price of a drug rises faster than the Consumer Price Index, a widely used measure of inflation.
Capping out-of-pocket expenses for Part D prescription coverage: There is currently no hard cap on out-of-pocket drug spending in Medicare Part D plans, so retirees can end up spending thousands of dollars a year. This proposal would set the out-of-pocket maximum at $2,000 a year.

PERA Director of Insurance Jessica Linart said prescription drug prices are among the fastest-rising costs associated with health care, and changes are needed to ensure programs like PERACare can continue offering coverage that’s within an affordable range.

“We often hear from PERACare enrollees who say the cost of medication is one of their biggest challenges in retirement,” Linart said. “We’re urging Congress to take up this issue and pass these much-needed reforms as soon as possible.”

Learn more about PERACare coverage here.

News You Should Know: What Rising Interest Rates Could Mean For You

Posted on March 16, 2022July 3, 2024 by planeteria

Here’s a Breakdown of How the Fed’s Expected Rate Hike Will Impact Your Wallet | CNBC

The Federal Reserve announced it will raise its key interest rate as it tries to get a handle on inflation. Here’s what higher interest rates could mean for your personal finances.

Will the US Have a Cryptocurrency? What to Know About Biden’s Bid for a Digital Dollar | CNET

The U.S. government has had limited involvement in the cryptocurrency boom so far, but that could be changing. President Joe Biden signed an executive order that directs federal agencies to look into the creation of a government-controlled digital currency as well as the potential risks and policy implications.

You Can Still Max Out Your IRAs for 2021, But Only Until April 15. Here’s How to Do It | NextAdvisor

The deadline for filing 2021 tax returns is approaching, and with it comes the deadline for making 2021 contributions to an individual retirement account (IRA). You may be able to use those contributions to increase your tax refund in addition to boosting your retirement savings.

Meet a 74-Year-Old Who Became a Model in Retirement: ‘You Don’t Have to Fade Into the Background’ | Acorns Grow

When Carolyn Doelling retired from her career in business at age 70, she felt dissatisfied with what her retired status meant for her identity and place in the world. She embraced fashion and quickly made a splash, signing with a New York-based modeling agency.

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

What’s the Latest on Federal WEP/GPO Legislation?

Posted on March 2, 2022July 8, 2024 by planeteria

Editor’s note: This bill was reintroduced in January 2023. Read more here.

In the decades since the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) went into effect, lawmakers in Washington, DC have repeatedly introduced legislation to modify or repeal the two provisions.

The WEP and GPO, which are part of federal law, can reduce Social Security benefits for recipients of public pensions like Colorado PERA. It’s important to note that a person’s PERA benefit is never reduced due to Social Security or other benefits.

Read more on copera.org: PERA and Social Security

Despite bipartisan support and even President Joe Biden expressing his support for WEP repeal, lawmakers have not made any changes to either provision since their inception. Legislators often cite the cost of administering additional Social Security benefits as a barrier to changing the law.

Nonetheless, there are currently several bills before Congress that would either change how the WEP and/or GPO affect Social Security, or eliminate them entirely.

H.R. 82, titled the “Social Security Fairness Act,” was introduced in the House of Representatives in January 2021. It aims to eliminate both the WEP and GPO. Since the bill was introduced last year, lawmakers have referred it to the Subcommittee on Social Security, but Congress hasn’t taken any further action.

In February, the bill’s lead sponsors, Reps. Abigail Spanberger (D-VA-7) and Rodney Davis (R-IL-13) wrote a letter to House leadership urging a floor vote on the bill, arguing that it has more bipartisan support than most of the other 7,700+ bills introduced in the current session.

That bill has more than 250 cosponsors, including representatives Jason Crow (D-CO-6), Diana DeGette (D-CO-1), Joe Neguse (D-CO-2) and Ed Perlmutter (D-CO-7) of Colorado.

A bill with the same title was introduced in the U.S. Senate, with senators Michael Bennet (D) and John Hickenlooper (D) as cosponsors. That bill, S. 1302, was referred to the Committee on Finance in April 2021, and Congress hasn’t taken any further action on the bill.

H.R. 2337: Public Servants Protection and Fairness Act of 2021

While the two bills above aim to eliminate the WEP and GPO, H.R. 2337, the “Public Servants Protection and Fairness Act of 2021,” seeks to instead modify the WEP with an alternate formula for calculating a person’s Social Security benefit. Advocates have sometimes argued that changing the law to reduce its impact on retirees is a more politically realistic goal than full repeal.

Representatives Crow, DeGette, Neguse and Perlmutter are also cosponsors of this bill, which was introduced in the House in April 2021. Like the above bills, Congress has not taken any action to move the bill further along in the legislative process.

Having your voice heard

Colorado PERA, along with other public pension plans across the country, retiree organizations and other groups continually meet with members of Congress to educate them on this issue of great importance to retired public employees.

In addition to those efforts, one of the most effective forms of advocacy is for PERA members and retirees to contact their senators and representatives in Congress to let them know how the WEP and GPO affect them.

For updates on these bills and other important pieces of legislation affecting Colorado’s public employees, subscribe to the biweekly PERA On The Issues newsletter.

More PERA On The Issues coverage of this issue: