Month: April 2022

States Consider Reviving Closed Pensions in Effort to Recruit, Retain Public Workers

Posted on by planeteria

In the past two decades, several states have closed their defined benefit (DB) pension plans to state and local government employees and moved those workers to defined contribution (DC) plans like 401(k)s instead. But some of those states are now considering reversing course as they recognize the value of DB plans in recruiting and retaining qualified workers.

Alaska closed its DB plan to new state employees in 2006 over concerns about the plan’s unfunded liability. Since then, the state has struggled to hire and keep teachers, state troopers and other public employees. Those workers often receive their training and then leave for other states that offer better retirement benefits, according to officials. And that frequent turnover can have a high cost: It costs nearly $200,000 to recruit, train and certify a single state trooper, according to a report from the Alaska Department of Public Safety.

Alaska’s lawmakers are now considering legislation that would reopen the DB plan and thereby reduce the high costs associated with turnover and constantly hiring and training new employees.

It’s a similar situation in Oklahoma, which shifted some of its state employees to a DC plan in 2014. Its legislature is also considering reversing course and putting those workers back on a DB plan.

Pensions have long been seen as a valuable tool to help hire and keep teachers, state employees and other government workers, since most private employers do not offer DB plans and the reliable source of retirement income that comes with them. Research also shows that amid widespread concerns about retirement security, Americans from every generation value defined benefit pensions and believe every worker should have access to one.

States like Colorado provide strong evidence that defined benefit plans continue to help attract and retain teachers and other public employees. According to research from the National Institute on Retirement Security, 65 percent of teachers in Connecticut, Colorado, Georgia, Kentucky, Missouri and Texas — all of which offer DB plans — serve for at least 20 years.

Colorado’s commitment to PERA

Over the past decade-plus, Colorado lawmakers have indicated they remain committed to strengthening PERA so the state’s public workers can continue to rely on a defined benefit pension for retirement security.

In 2010, the Colorado General Assembly passed Senate Bill 10-001, which contained a number of reforms to improve PERA’s funded status and sustainability, with a focus on preserving the Defined Benefit Plan. Five years after SB10-001, the state commissioned a study to compare PERA with other plan types, such as defined contribution plans. That study concluded PERA’s hybrid defined benefit plan was the most cost-effective, efficient plan available, and provides more income at retirement than the alternative plan designs for all ages and career paths. Another package of reforms then followed in 2018 with Senate Bill 18-200.

Changes resulting from those two pieces of legislation include increased member and employer contributions, reductions in the Annual Increase paid to benefit recipients, introduction of the Automatic Adjustment Provision and a direct distribution from the State budget of $225 million, to be paid to PERA annually. While the legislature opted to forgo 2020’s payment due to unprecedented pandemic-related budget cuts, efforts are underway to make up that payment.

While the changes to member and employer contributions and Annual Increases haven’t been easy, they ensure that PERA’s Defined Benefit Plan will be able to continue providing reliable retirement income that retirees can’t outlive.

Ensuring that PERA is sustainable allows school districts, local governments, public safety departments and other government agencies to continue to attract highly qualified, skilled employees and retain their expertise for years to come.

News You Should Know: New Factors in Colorado’s Ongoing Fight Against High Hospital Costs

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Why Colorado’s Ongoing Fight Against High Hospital Prices Is Now A Lot More Complicated | The Colorado Sun

A recently released report found Colorado is one of the most expensive states in the country for hospital care. The state is pushing for hospitals to lower costs, and hospitals say they’re making progress, but the COVID-19 pandemic has added another element to the conversation.

Are Rising Interest Rates Making Savings Accounts a Smart Option Again? | Yahoo! Finance

While rising interest rates can have negative effects on some aspects of consumer finances, one area that stands to benefit is saving accounts. Banks are likely to start offering higher interest rates on savings accounts, though it may take some time to see those changes take effect.

Which of the 3 Financial Phases Are You In? | Kiplinger

Your financial life can be divided into three distinct phases: build and grow, transition, and distribute and deploy. Which stage you’re in isn’t determined by just your age but also what your priorities and goals are.

Your Aging Parents Need Care: What Can You Do? | Forbes

Aging can be a difficult topic to discuss, especially with elderly parents who may be facing losing some of their independence. Here are some tips from an expert on when and how to start those tough conversations.

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

Bill to Make Up Missed $225M Payment to PERA Moving Through Legislature

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Update (May 11, 2022): This bill has passed. Click here for the latest

A bill that would make up the state’s missed 2020 payment of $225 million to PERA has begun making its way through the state legislature.

The Pension Review Commission, a legislative interim committee that is charged to study and develop proposed legislation concerning pension plans in the state, made a recommendation for this bill to be introduced in the 2022 legislative session. It was introduced early in the session, but did not move forward until the state budget had been finalized.

The House Finance Committee on Monday voted 9-1 to move the bill, HB22-1029, forward to the House Appropriations Committee for further consideration.

Lawmakers enacted legislation to forego the $225 million payment to PERA in 2020 during the early stages of the COVID-19 pandemic, when the General Assembly cut billions of dollars from the state budget. The state automatically resumed payments in 2021 — additional legislation would be required for the state to forego any future payments — but did not make up 2020’s payment.

HB22-1029 calls for the state to make a payment totaling $303.57 million — $225 million plus estimated investment gains, had the money been invested — on July 1, 2022.

The bill originally called for the payment to come from the state’s general fund until the actual funding source had been identified. The bill’s sponsors added an amendment to instead use money from a cash fund the state set up in 2021 solely for future payments to PERA. That fund currently has a balance of $380 million, which legislative staff has recommended distributing to PERA sooner rather than later.

The House Appropriations Committee is expected to consider HB22-1029 later this week and if approved, it will head to the House floor for discussion and vote before moving to the Senate. PERA On The Issues will continue to monitor legislative activity on this bill.

The $225 million direct distribution to PERA is part of a package of reforms enacted under Senate Bill 200 in 2018 and is meant to put PERA on a path to full funding. Also included in Senate Bill 200 was the Automatic Adjustment Provision, which will trigger increases in employee and employer contributions to PERA and reductions to annual increases for benefit recipients in July 2022.

Bill sponsor Rep. Shannon Bird referenced Senate Bill 200 and the state’s commitment to PERA when urging her fellow committee members to vote in favor of the bill.

“Our economy has rebounded and economic activity in Colorado is now exceeding even pre-pandemic levels,” Bird said. “In light of our greatly improved financial position, we now have the opportunity to make things right and hold ourselves accountable for our responsibilities under Senate Bill 200. Because when we suspended our payment in 2020, PERA lost $225 million and it also lost all investment returns those dollars would have brought in.”

The legislature has until May 11 to finish its work on any pending legislation and adjourn the current session.

For the latest on this and other PERA-related bills, click here.

Honoring the Important Work of Colorado’s Public Employees

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The first week of May is Public Service Recognition Week, a time to celebrate and honor the millions of local, state and federal employees who serve communities across the United States every day.

Supporting Colorado’s public employees is a daily mission for PERA, which provides retirement and other benefits to more than 620,000 current and former teachers, state troopers, corrections officers, snow plow drivers, and other public workers. PERA’s mission is to provide retirement security to its members while ensuring the stability of the fund.

PERA’s membership is split into five divisions, with most members participating in the Defined Benefit Plan (some state and local government employees have the option to choose between the Defined Benefit Plan and the Defined Contribution Plan). In the DB plan, each division has its own trust fund that pays benefits for that division. Member and employer contributions to each fund are pooled and invested to ensure that each division’s members — whether public school teachers, state employees, local government workers, or judges — can rely on regular, monthly income they won’t outlive in retirement.

While each PERA division encompasses a different range of careers, each provides vital services to keep Colorado communities thriving.

PERA’s membership is split into five divisions: State, School, Denver Public Schools, Local Government and Judicial.

School Division

The School Division is by far PERA’s largest, with more than 128,000 active members in 2022. That’s more than half of the total active membership. It’s also the division with the largest number of benefit recipients — more than 72,000.

School Division members include teachers, bus drivers, cafeteria workers, school administrators and other staff of public schools across Colorado, from Adams County to Yuma County. Public school employees carry out the important work of educating, transporting, feeding and supporting thousands of children every day, helping them learn and develop into contributing members of society.

Employees of Boards of Cooperative Education Services (BOCES), which provide various services to multiple districts, are also members of the School Division.

Denver Public Schools Division

Denver Public Schools, the state’s largest school district, had its own retirement system until 2010, when it merged with PERA. Because of the unique nature of merging the DPS plan into PERA, its members remain in a separate division from other school districts, with some differences in rules and regulations.

The DPS division includes more than 15,000 active members and more than 7,000 benefit recipients.

State Division

The second largest PERA division, the State Division, includes more than 54,000 active members from a wide variety of professions that provide important services in every corner of the state. This division includes lawmakers and legislative staff at the State Capitol, as well as employees of various state agencies, such as the departments of transportation, public safety, military and veterans affairs, and agriculture. The State Division also includes Colorado’s many institutions of higher education, from local community colleges to the state’s major research universities.

State troopers, snow plow drivers, park rangers, social workers, corrections officers, college professors and other State Division employees work every day to keep Colorado communities safe, healthy and vibrant places to live.

Local Government Division

Equally important as the state employees who keep Colorado running are the nearly 13,000 Local Government Division employees who power cities and towns across the state. That includes not only government staff but also employees of various utility and sanitation districts, housing authorities, libraries, health departments and fire protection districts.

Local government workers help build, maintain and protect the quality of life that so many of Colorado’s communities are known for.

Judicial Division

The Judicial Division is PERA’s smallest, with fewer than 400 active members. Most courthouse workers in Colorado fall under the State Division, so the Judicial Division covers only judges. The division includes judges who preside over county courtrooms, the Court of Appeals, the Colorado Supreme Court and the 1st through 22nd district courts.

Judicial Division judges have the important task of administering justice in Colorado by overseeing criminal trials, civil cases, probate proceedings, juvenile offenses and much more.

Whatever their division and employer, every PERA member provides an important public service that supports all of Colorado. And when they retire, PERA will be here to provide reliable income and other benefits to ensure every public employee can enter their golden years with peace of mind.

Follow PERA on Facebook, Instagram and Twitter for more on Public Service Recognition Week.

News You Should Know: House Passes SECURE Act 2.0

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House Passes ‘Secure Act 2.0.’ Here’s What That Means for Retirement Savings | CNBC

The U.S. House of Representatives has passed a major piece of legislation, dubbed SECURE Act 2.0. The bill would make a number of changes related to retirement planning, including raising the age at which retirees must begin taking required minimum distributions (RMDs) and increasing catch-up contribution limits.

Medicare Enrollees Can Now Get Free COVID-19 Tests at Drug Stores | CBS News

When the Biden administration issued a mandate in January that private insurers must cover the cost of at-home COVID tests, Medicare was notably absent from the directive. As of April 4, Medicare enrollees now can get up to eight free at-home COVID tests per month from participating pharmacies.

Fed Is Raising Interest Rates. How Do Retirees Benefit? | Kiplinger

The Federal Reserve announced in March that it would raise its key interest rate, and more rate hikes are coming in 2022. Fed rate increases can affect consumer finances in a number of ways, and those higher rates can be especially beneficial for anyone who buys an annuity.

Still Haven’t Received Your Tax Refund? Here’s What the Holdup Could Be | CNET

Monday, April 18 is the deadline for filing federal tax returns with the IRS. If you’ve already filed but are waiting on your tax refund, here are a few common reasons why refunds can be delayed.

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

PERAdvantage SRI Fund: A Sustainable Investing Option for 401(k), 457 and DC Plan Participants

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Recent polling by Gallup shows nearly half of U.S. investors are interested in sustainable funds that take into account environmental, social and governance (ESG) factors, but few have heard much about them or invested in them. Additionally, 70 percent of respondents said they would be likely to include ESG funds in their 401(k) portfolio, if their employer offered them.

Since 2011, PERA has offered the PERAdvantage Socially Responsible Investment (SRI) Fund to members interested in directing their PERAPlus 401(k), 457 or Defined Contribution (DC) Plan savings into sustainable investments.

While PERA invests Defined Benefit (DB) Plan funds on behalf of PERA members and retirees, the SRI Fund provides members the opportunity to invest their personal savings with a focus on socially responsible or ESG leadership. The fund is designed for long-term performance through investment in companies that demonstrate strong ESG practices — that is, companies that have shown an ability to manage risks and take advantage of opportunities associated with environmental, social and governance issues.

What makes the PERAdvantage SRI Fund “sustainable”

PERA offers a range of PERAdvantage fund options to 401(k), 457, and DC Plan participants, but the SRI Fund is the only one with a stated focus on environmental, social and governance factors. In 2019, PERA updated the SRI Fund, selecting new asset managers with portfolios offering better market coverage, lower costs and a stronger focus on ESG leadership.

The SRI Fund has two underlying portfolios: The BlackRock ACWI ESG Fund (stocks), which makes up approximately 60 percent of the fund, and the TIAA-CREF Core Impact Bond Fund (bonds), which makes up approximately 40 percent of the fund. Both portfolios include investments that are tilted toward positive ESG exposure. The bond fund also includes investments aimed at driving positive environmental and social impact.

For example, the BlackRock fund mirrors an index with more than 500 stock holdings, but companies with primary business in tobacco, controversial weapons, fossil fuel extraction and thermal coal power are not included. Holdings in the information technology sector make up nearly a quarter of the index, with some of the top holdings including companies like Apple, Microsoft and Tesla.

The TIAA-CREF bond fund includes investments in projects like affordable housing, renewable energy and land conservation. TIAA-CREF says the investments in the Core Impact Bond Fund resulted in the avoidance of nearly 275 million metric tons of emissions, energy savings of 7.7 billion kilowatt hours and the conservation of nearly 850,000 acres in 2020.

As with all PERAdvantage funds, the primary objective of the SRI Fund is to deliver financially sustainable risk-adjusted returns to participating members. In 2021, the SRI Fund provided a return of 10.2 percent for the year. The 10-year annualized return was 8.8 percent. As of the end of 2021, PERA members had more than $40 million invested in the fund.

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