Lawmakers in Washington, DC have introduced a number of different retirement-related proposals this year, pieces of which may end up in a larger “Secure Act 2.0” bill. Here are some of the key provisions under consideration.
Health care costs — and especially prescription drug prices — are a major expense for retirees, and many of those costs have been rising for years. Billionaire Mark Cuban is aiming to tackle the problem with his own online pharmacy, which offers over 100 generic medications at a discount.
Do you have enough money saved up to make it through a possible recession? The Federal Reserve puts banks through a stress test every year, and it’s a good idea to do the same for your personal finances. If you’re approaching retirement age, here are some tips for making sure you’re in good shape.
A recent survey by the Employee Benefit Research Institute asked retirees about their financial planning, priorities, concerns and reflections. One of the main takeaways? A large majority of retirees say they regret not starting to save for retirement earlier.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
Every month, Colorado PERA distributes millions of dollars in retirement benefits to more than 110,000 retirees living in Colorado. Those retirees spend their retirement income in their communities, contributing to the local and regional economies and supporting thousands of jobs.
The economic effects of PERA retiree spending are the focus of a recently released report, Colorado PERA’s Economic and Fiscal Impacts, prepared by Boulder-based Pacey Economics.
In 2021, PERA paid $4.35 billion in retirement benefits to more than 110,000 Colorado retirees, resulting in $6.8 billion in total economic output and supporting 31,449 jobs statewide, according to the report. In addition, retirees paid $382.2 million in state and local taxes on those PERA benefits.
The multiplier effect
Every dollar a retiree receives from PERA is a dollar they can spend on goods and services in their community — at the grocery store, restaurants, retail stores and other businesses. That spending sets off a multiplier effect as businesses then spend money to stock more inventory and hire more staff. The result is that original PERA dollar continues to be invested in the local community as businesses and their employees also purchase goods and services.
This cycle of spending illustrates the economic measure of “value-added,” which counts only the additional production of goods and services resulting from PERA distributions rather than total output.
Pacey Economics estimates a PERA retiree’s economic output multiplier at 1.56, meaning an extra 56 cents are generated in the economy for every dollar a retiree spends. In total, PERA retiree spending resulted in $3.16 billion in added economic value statewide last year.
PERA benefits as a stabilizing force
PERA distributions are a source of regular, reliable income for the thousands of Colorado retirees who receive them. That consistent flow of income is especially helpful to local and regional economies during times of uncertainty and downturn.
“Retiree and beneficiary spending is a vital part of Colorado’s economy,” said PERA Executive Director Ron Baker. “The stabilizing effect of that spending has been evident amid the economic uncertainty we’ve experienced in recent years.”
While the Denver metropolitan area has the largest number of benefit recipients, the impact of PERA benefits is especially large in rural areas of Colorado, where there may be lower economic activity. In rural parts of the state, PERA distributions are higher per capita and they make up a larger portion of county payroll.
For example, in Custer County, PERA retirees received more than $7 million in retirement distributions in 2021, representing more than 37 percent of payroll. In Denver County, $383,118,000 in PERA distributions amounted to just over 1 percent of payroll. Statewide, PERA benefits make up 2.9 percent of payroll.
On Thursday, July 7, PERA held two virtual town halls with Executive Director Ron Baker and Chief Investment Officer/Chief Operating Officer Amy C. McGarrity.
More than 3,400 PERA members and retirees joined the town halls live on the web, on the phone and on social media to ask questions. Topics of discussion included PERA’s recently released 2021 Annual Comprehensive Financial Report, as well as current economic conditions, PERA-related legislation, and other topics of interest to members and retirees.
Below are summaries and video clips of some of the topics covered during this year’s town halls. To view full recordings of each event, visit copera.org/townhall.
How did PERA do financially in 2021?
For the year that ended Dec. 31, 2021, PERA’s investment portfolio earned a return of 16.1% net of fees, surpassing its benchmark of 13.7%. Over the past 10 years, the fund has earned an annualized return of 10.9% versus its benchmark of 10.1%.
The value of the total fund increased to $65.6 billion in 2021, up from $58.3 billion at the end of 2020. PERA’s funded status at the end of the year was 67.8%.
What is the impact of current market conditions on PERA’s investments?
PERA’s portfolio is strategically designed to perform over long periods of time — not just several years but several decades, McGarrity said. PERA is invested in public and private markets and so our portfolio is experiencing volatility in the short term. Downturns can and do happen in a given year, but the Board’s strategic diversification of the portfolio is meant to ensure the Fund continues to earn returns over the long term.
Why isn’t the annual increase paid to retirees keeping up with inflation?
The amount of PERA’s annual increase is set in statute and is not tied directly to inflation. It can adjust up or down based on PERA’s funding progress, along with member and employer contributions. PERA staff and the PERA Board cannot change the amount of the annual increase, Baker said, only the General Assembly can.
“In terms of what PERA can do as an organization, is trying to do, especially for our retired members, is we are working hard for those of you in PERACare to continue to reduce cost to the extent that we can, knowing that healthcare is a large component of retirees’ [financial] situation in retirement,” Baker said.
How did the 2022 legislative session affect PERA?
The Colorado General Assembly passed several PERA-related bills in 2022. One of those bills directed the state to make up the state’s missed 2020 direct distribution payment of $225 million to PERA. Under HB22-1029, PERA received $380 million from the state on July 1.
That amounts to a restoration of the missed $225 million direct distribution plus a prepayment of a portion of future direct distributions to PERA.
“I am excited about the fact that the bill was passed on a strong bipartisan basis,” Baker said. “Which means Republicans and Democrats felt it was important to backfill the promise to Colorado PERA.”
Lawmakers also passed HB22-1057 and HB22-1101, which expand the ability of PERA retirees to work after retirement without a reduction in benefits.
HB22-1057 temporarily waives working after retirement limits for qualified service retirees working as substitute teachers in any school district while there are critical substitute teacher shortages. HB22-1101 expands provisions that had been scheduled to repeal on July 1, 2023 that allow PERA service retirees to work full-time in certain roles, without a reduction in benefits, for a rural school district that has determined there is a critical shortage of qualified individuals for these positions.
What’s the latest on the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?
Several pieces of legislation have been introduced in Washington, DC to modify or repeal the WEP and GPO, which can reduce Social Security benefits for PERA benefit recipients. While similar legislation is introduced each session and PERA engages with Colorado’s congressional delegation to educate them on how the WEP and GPO affect PERA members, Congress has not taken any action, citing the cost.
“The federal government has not come up with a compromise as to where those additional dollars to pay for giving more of a Social Security benefit would come from,” Baker said.
Is PERA divesting from fossil fuels?
“The Board has a philosophy statement surrounding divestment that we will execute divestment as mandated by the state or federal governments, but otherwise choose not to divest,” McGarrity said. “The reason for that is we believe allowing the investors, either internal or external, the broadest possible universe from which to choose investments enables us to outperform for the long term.”
Learn more about the PERA Board’s stance on divestment here.
Is PERA still financially sound?
“Yes, PERA is financially sound,” Baker said. “We do need to keep monitoring the fact that we’re not 100% funded. We need to stay steady in the course of paying down that unfunded liability. Certainly there is not any alarm in which we would not be able to pay benefits in any given year based on current circumstances. This is something we always need to monitor…and ensure that the folks who are receiving benefits continue to receive those benefits.”
How will Colorado PERA change in the next few years and into the future?
“From the benefit plan perspective, I think the benefits we provide will stay the same; they’re set by the General Assembly,” Baker said. “Colorado PERA as an organization…we have been an institution since 1931 and we need to continue to move forward with the times. Do we have a mobile app? Can we allow people to transact in a way that meets them where they are? Are we providing content to people that is on-demand, where they need it to be? That is what I see PERA morphing into in terms of how we deliver services. We need to continue to move forward as an organization and ensure members who are part of this program receive absolutely top-quality customer service and have the same level of interaction with us that you would with any high-end financial institution.”
PERA’s annual town halls are an important opportunity to hear directly from members and retirees and we’re grateful to all who participated. Visit copera.org/townhall for more.
The federal government has given its approval to Colorado’s plan to offer standardized lower-cost health care plans in the state. Colorado Option plans will be available to those who shop for insurance on their own and will be required to offer premiums that are lower than what insurance companies charge for other plans.
Recent research finds many retirees may be underestimating the biggest risk they face in retirement: living longer than they plan for. The survey, which took place prior to 2022’s market losses, found retirees rank market volatility as their top risk, followed by longevity and the cost of health care, while the research suggests longevity should take top billing, followed by health and then market risk.
As of this month, anyone experiencing a mental health crisis can dial 988 for help. The new three-digit number replaces the former 10-digit hotline and connects callers to a network of local call centers around the country. The federal government is investing hundreds of millions of dollars to support the service.
We’re halfway through 2022, and it’s a good time to check in on your finances to see if you’re on track to meet your goals. Here are some key questions to ask yourself when assessing your financial situation.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
