Month: May 2022

Pensions a Valuable Tool in Efforts to Solve Teacher Shortages

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Two years into the COVID-19 pandemic, school districts across the country are facing serious shortages of qualified teachers and other staff, and those shortages have led to widespread concern.

In a recent survey from the National Institute on Retirement Security (NIRS), 84 percent of people surveyed said they’re worried about shortages of teachers and school staff, and 81 percent said they’re worried about people leaving the profession.

The educator shortage was the topic of a recent forum held by the Public Education and Business Coalition (PEBC), a Denver-based organization that works with school districts, teachers and business leaders across the country to improve public education. Colorado PERA was a sponsor of PEBC’s Colorado Education Workforce Forum.

At the forum, state education officials, district superintendents and business leaders came together to discuss the sobering reality of Colorado’s educator shortage and brainstorm solutions.

Image credit: Public Education and Business Coalition

In the 2020-2021 school year, there were nearly 7,000 teaching positions to fill in Colorado, but only about 3,000 graduates from teaching programs, according to PEBC. In addition, school districts across the state are dealing with a 16 percent turnover rate and per-student funding that’s well below the national average.

Teacher pay is a major factor in discussions about shortages, and so are benefits — particularly retirement benefits. In the NIRS survey, 90 percent of respondents agreed that teachers and school staff should have access to a pension for retirement security, and 94 percent agreed that elected officials should ensure those pensions are adequately funded.

The role of Colorado PERA in attracting and retaining teachers

Decades ago, it was common for many workers to receive a defined benefit (DB) retirement plan — also known as a pension — from their employer. Today, public employees like teachers and other school employees are among the few who still have access to DB plans. Most other workers have to rely on defined contribution (DC) plans like 401(k)s to save for retirement.

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

PERA’s hybrid defined benefit plan is a particularly strong recruitment and retention tool because of the value it offers to employees regardless of the length of their career. PERA’s plan design has evolved to serve both long-service employees as well as those who only work for a short time in public employment. For example, every dollar a PERA member contributes to their account is theirs, and they can take those funds with them when they leave PERA-covered employment. This plan design benefits Colorado’s public employees, their employers and the valuable services delivered to Colorado taxpayers.

In the 2022 legislative session that just wrapped up in May, Colorado lawmakers tackled the issue of educator shortages with a number of bills to increase public school funding. They also passed two bills that allow some PERA retirees to return to work in school districts dealing with critical shortages.

Solving the teacher shortage in Colorado and elsewhere will require creativity and commitment, and Colorado PERA remains a valuable tool for school districts looking to hire and keep qualified educators.

Explaining the Role of Actuaries in Retirement Plans like PERA

Posted on by planeteria

This year, as part of its regular review process, the Colorado PERA Board of Trustees will enlist an outside firm to conduct an audit of the methods and assumptions PERA’s actuaries use in their calculations.

But what is an actuary and what do they do?

Actuaries are highly skilled mathematicians who help pension plans, insurance companies, and other financial organizations plan for the future based on historical and anticipated demographic, trend, and financial data. In short, actuaries aim to predict the future as accurately as possible.

What does an actuary do for a retirement system like PERA?

PERA Senior Actuary Koren Holden

A retirement system could not function without actuaries. At Colorado PERA, Senior Actuary Koren Holden works with third party actuaries to make sure the Board and PERA leadership have an accurate understanding of PERA’s financial health.

“I act as a liaison between the PERA Board and Executive Team and the Board’s external actuarial service provider,” Holden said. “I am responsible for completion and timely delivery of all the requested actuarial work (i.e., actuarial valuations, special calculations, periodic actuarial studies, etc.) and also responsible for the initial review of all actuarial work to ensure completeness and reasonability.”

In order to pay benefits to retirees for decades to come, retirement plans like PERA need to make predictions about various factors that will determine how much money the plan needs to have on hand to pay those benefits. Actuaries develop those predictions — called actuarial assumptions — and calculate the effects they may have on the plan’s finances.

Actuarial assumptions

Pension plan assumptions fall into two categories: demographic and economic assumptions. Demographic assumptions attempt to accurately anticipate events that occur over the lifetime of plan participants, which can influence the amount and timing of benefits. They include:

  • Life expectancy (how long will plan participants live?)
  • Rates of retirement (when will plan participants retire?)
  • Mortality trends (how many participants will die before/after receiving a benefit?)
  • Salary growth (how quickly and by how much will salaries change for different groups of employees?)

Economic assumptions attempt to anticipate financial factors that can impact the cost of future benefits and the rate at which they are funded, such as:

  • Inflation (what will be the rate of consumer inflation in the future?)
  • Investment rate of return (how much investment income will the fund earn?)

Per Colorado statute, all actuarial assumptions recommended by the actuary are subject to approval by the PERA Board. Actuaries make recommendations to the Board, and the Board adopts them or requests further analysis and revised recommendations to be considered later.

Annual actuarial valuations

Actuaries conduct comprehensive studies known as annual actuarial valuations to evaluate funding progress and the impact of year-to-year changes on a pension plan’s finances. A valuation provides a summary of the plan’s funded status, funding period and recommended contribution rates, and often includes accounting information as required under the Governmental Accounting Standards Board (GASB) statements for public pension plans. In order to perform the valuation and provide this information, the actuary takes into consideration contributions, investment returns, demographic changes, retirements, withdrawals, economic factors, deaths, hires, and other system data.

The annual actuarial valuation is the backbone of the Annual Comprehensive Financial Report, a pension plan’s required public report of financial health.

Click here to read the latest Colorado PERA actuarial valuation and Annual Comprehensive Financial Report.

Experience analysis

An experience study compares the actual experience of the plan to the predictions made by the actuarial assumptions, including rates of death, retirement, separation from service, disability and salary increases. The comparison of actual results to predicted results demonstrates to actuaries which assumptions need to be revised to more accurately reflect true demographic and economic conditions. The experience analysis is the foundation for the annual actuarial valuation in that it determines the appropriate assumptions to be applied within the annual actuarial valuation.

PERA last conducted an experience study in 2020, and the Board adopted several new assumptions as a result. This process will take place again in 2024.

Other analyses

In addition to the pension plan’s annual actuarial valuation and periodic experience analyses, an actuary also performs special studies as needed and/or required by law. For instance, if proposed state legislation will be making changes to benefit provisions, an actuarial analysis of the proposed change would be necessary to determine the financial effect of the change.

Actuaries provide invaluable expertise to retirement systems like Colorado PERA, ensuring the Board and stakeholders have an accurate picture of the organization’s financial health and the road ahead.

“I love numbers, but my main passion for the work I perform here at PERA is being part of a dedicated team that serves my community as well as the entire state of Colorado,” Holden said. “I like the feeling that all of us at PERA are helping ensure a stable and dignified retirement for the teachers and many other public servants by promoting, promulgating, and defending a strong defined benefit retirement program (not to mention health care access), as the best means to deliver this vision.”

News You Should Know: Colorado Senator Part of Bipartisan Group Crafting Retirement Legislation

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Bipartisan Group Crafting Retirement Security Legislation | Pensions & Investments

Senator John Hickenlooper of Colorado is part of a bipartisan group of lawmakers who say they’re forming a working group to write legislation that improves retirement security for Americans. The announcement comes as a major retirement bill, dubbed SECURE Act 2.0, works its way through Congress.

You Can’t Put Money in a Health Savings Account Once You’re on Medicare. A House Bill to Change That Comes With Tradeoffs | CNBC

Under current law, retirees enrolled in Medicare cannot contribute to a health savings account (HSAs). A proposed bill would change that, but it would also alter some of the other rules for HSAs. Those changes could include removing the ability to use an HSA to pay Medicare premiums and eliminating penalty-free withdrawals for people aged 65 and older.

The 10 Most Common Mistakes Retirees Make on Their Taxes | Forbes

One of the challenges of managing finances in retirement is navigating the various tax implications that take effect when you’re no longer working. A retirement planner outlines some of the common mistakes retirees make on their taxes, and how to avoid them.

The Financial Penalty of Losing Your Spouse | AARP

Losing a loved one can be a huge shock, but the loss of a spouse can also have serious financial implications. But advance planning and careful consideration can help alleviate some of the headache of dealing with finances amid heartbreak.

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

Colorado Lawmakers Pass Bill Making Up $225M Payment to PERA

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Editor’s note: Gov. Jared Polis signed this bill into law on June 7, 2022.

With just hours left in the legislative session, Colorado lawmakers gave final approval to a bill that will make up the state’s missed 2020 payment of $225 million to PERA.

The bill, HB22-1029, now heads to Gov. Jared Polis for his signature.

Lawmakers enacted legislation to forego the $225 million direct distribution 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.

Pending the governor’s signature on the bill, PERA will receive $380 million from the state. That amounts to a restoration of the missed $225 million direct distribution plus a prepayment of a portion of future direct distributions to PERA.

PERA will also receive 2022’s direct distribution of $225 million on July 1.

The $380 million will come from a cash fund the legislature set up in 2021 solely for future payments to PERA.

The bill was one of four PERA-related bills that lawmakers passed this session. For details on the other bills, click here.

News You Should Know: Federal Reserve Hikes Interest Rates Again

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Fed Issues Biggest Rate Hike in 22 Years | CNN

The Federal Reserve announced another interest rate increase aimed at reining in inflation – this time a half-percentage point hike. That’s the largest single increase since 2000, and they’re not done yet. Fed Chairman Jerome Powell said additional half-point increases are possible later this year.

Older People Fret Less About Aging in Place: AP-NORC Poll | The Associated Press

A recent poll found that a large majority of older Americans want to age in place – either at home or with family or friends. But the poll also found differences in preparedness to do so, with people 65 years and older being more likely to feel prepared to age in place.

A Reduction in Medicare Part B Premiums Remains in Play. Here’s Where Things Stand | CNBC

Earlier this year, officials said the Centers for Medicare and Medicaid Services would be reexamining its Medicare Part B premium hike, and potentially reducing it, after Medicare announced changes to its coverage of an expensive Alzheimer’s drug. There’s a chance that reduction could come in 2023 instead of this year, if it happens.

Moving in Retirement? Here’s How to Keep Costs Down and Maintain Flexibility. | Barron’s

Most retirees opt to stay put when they’re done with their working years, but many choose to move, either to a favorite vacation spot or somewhere with a more affordable cost of living. Here are some factors to consider before moving, as well as some tips for a successful relocation.

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