Month: August 2022

News You Should Know: Lifestyle Factors Such as Social Life May Protect Against Alzheimer’s

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Education, Job, and Social Life May Help Protect Brain from Cognitive Decline | ScienceDaily

New research on Alzheimer’s finds that staying active — not just physically but also socially and intellectually — may help build up a so-called “cognitive reserve” that can provide protection against the disease. Researchers say the study highlights the importance of activities we often consider “leisure,” such as reading and socializing, in lifelong learning.

Student Loan Forgiveness Could Help More Than 40 Million | The Associated Press

President Joe Biden announced plans to forgive up to $20,000 in federal student loan debt. Officials say more than 40 million people could be eligible for forgiveness and 20 million could see their student debt eliminated entirely.

Colorado’s State Employee Health Insurance Plan Aims for Reform | The Colorado Sun

The State of Colorado is teaming up with the Colorado Purchasing Alliance to offer cost-saving options to enrollees in the state’s Cigna health insurance plans. Those workers — about 19,000 of them — will have access to lower negotiated rates and a tool for comparing providers on price and quality ratings.

For the First Time in 20 Years, Teachers Can Deduct More for School Supplies | NPR

Since 2002, teachers have been able to deduct up to $250 in out-of-pocket classroom expenses from their taxes. For the 2022 tax year, that amount increases to $300. The deduction will continue to increase in future years to account for inflation.

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

PERA’s Investment Stewardship Report Turns Five Years Old

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2022 marks the fifth year Colorado PERA has published its Investment Stewardship Report, which highlights how PERA manages and invests the funds that provide retirement benefits for nearly 650,000 members.

Released each year following PERA’s annual report, the Stewardship Report provides insight and transparency into PERA’s investment program and its focus on financial sustainability.

PERA invests with one goal — to pay current and future benefits to members and retirees. For five years, the Stewardship Report has detailed how PERA staff serve as good stewards of assets to ensure the plan can continue to do so.

Five years of the Stewardship Report

“We manage approximately $60 billion in assets on behalf of our members; that’s a big responsibility and it’s one we take seriously,” said Tara Stacy, PERA’s Director of Investment Stewardship. “The Investment Stewardship Report provides a great deal of helpful information on how we serve as stewards of funds, and we hope the report has become even more useful to those with questions about how and why we invest on their behalf.”

Over the years, the Stewardship Report has expanded and adapted as PERA’s investment staff have engaged with various stakeholders interested in how the organization makes investment decisions.

PERA often hears from various groups that would like to see PERA divest — or sell — certain types of investments, as well as groups that would like to see more money invested in certain industries or sectors. PERA’s approach to investment stewardship is straightforward: Seek out investments that are expected to provide the best risk-adjusted returns to PERA’s portfolio over the long term.  

“A key takeaway we hope readers get from the Report is that our approach prioritizes financial value, rather than personal values, and supports PERA’s mission to provide retirement benefits while ensuring the financial sustainability of the Fund,” Stacy said.

Highlights from this year’s report

Click to enlarge

New in 2022, the Stewardship Report release includes an online digital snapshot, which provides an interactive overview of the report’s highlights and key data points.

The 2022 report also includes additional case studies, charts and graphs that help explain various investment philosophies and practices.

The report includes expanded disclosures about how the PERA Board and staff consider climate-related and other environmental, social, and governance (ESG) themes in the management of the portfolio. PERA does not manage the portfolio to target any specific ESG metric or outcome, but staff do take into consideration any financially relevant factors when making investment decisions.

The Stewardship Report now includes more information on how PERA integrates various financially material factors into its investment decisions, and why PERA chooses to engage with companies through proxy voting and other strategies rather than divesting.

The PERA Board updated its proxy voting policy in 2021, and the Stewardship Report provides insight into some of PERA’s proxy voting activities, as well as other ways staff engage with companies in which PERA invests.

For learn more about the Investment Stewardship Report and PERA’s approach to stewardship, visit copera.org/investment-stewardship.

More stewardship coverage over the years:

PERA Receives Clean Audit at Legislative Audit Committee Hearing

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While Colorado’s 2022 legislative ended in May, PERA executives, staff, and consultants continue to meet with lawmakers and various legislative oversight committees in the interim.

The meetings are part of the regular review and oversight of PERA that takes place every year.

An important part of that oversight process is the Legislative Audit Committee, which met on August 9. At that meeting, PERA executives joined representatives from PERA’s actuarial consultant, Segal, and an outside auditor to discuss PERA’s financial status and answer questions from committee members.

An audio recording of the meeting is available online here.

Results of outside audit

Every year, the state hires an independent auditor to audit PERA’s financial data and internal controls. CliftonLarsonAllen, which has been auditing PERA’s financial reports since 2015, presented its audit of the 2021 Annual Comprehensive Financial Report. The auditors gave the report a clean audit with no significant issues.

A summary of the 2021 Annual Comprehensive Financial Report is available here.

Ongoing oversight at the Capitol

In recent weeks, PERA has also appeared before the Pension Review Subcommittee and Pension Review Commission, which are responsible for overseeing PERA operations and recommending legislation that affects PERA.

The Pension Review Subcommittee and Pension Review Commission will continue to meet throughout the summer and fall, and PERA On The Issues will keep track of any potential new legislation that arises from those meetings.

PERA also reports to the Joint Budget Committee and the Joint Finance Committee.

These regular meetings allow policymakers to learn more about PERA’s financial footing and ask questions of PERA management, ensuring robust oversight and transparency.

News You Should Know: Congress Passes Bill Giving Medicare Power to Negotiate Drug Prices

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Drug prices: Passage of Inflation Reduction Act Gives Medicare Historic New Powers | CNBC 

Medicare will soon be able to negotiate directly with drug manufacturers on the prices of some name-brand medications, leading to savings for retirees and the federal government. The recently passed Inflation Reduction Act will also limit out-of-pocket spending to $2,000 for participants in Medicare’s Part D prescription drug plan.

FDA Finalizes Rule to Make Hearing Aids Available Over the Counter | The Hill

The Federal Drug Administration has finalized a rule that will allow some hearing aids to be sold over the counter. The rule applies to hearing aids for people with mild to moderate hearing loss, and products could appear on store shelves as soon as this fall.

Americans Are Saving the Least Money Since 2009 | The Motley Fool

During the early days of the COVID-19 pandemic, many Americans reduced their spending and ramped up their savings, but that trend has since reversed. New data from the Federal Reserve Bank of New York show the personal savings rate in the United States has dropped to its lowest level since 2009. Americans have also racked up record debt, with total U.S. household debt surpassing $16 trillion for the first time ever this year.

Finances Keeping You Up at Night? You’re Not Alone | Yahoo! Finance  

It turns out having a financial plan is good for more than just your wallet — it’s also good for your overall health. A recent study from Northwestern Mutual found that people who make financial plans and work with an advisor are happier and get better sleep than those who don’t.

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

News You Should Know: Federal Reserve Makes Another Big Rate Hike

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Another Big Fed Rate Hike to Battle Inflation. Economy Hangs in Balance | NPR

The Federal Reserve issued another .75% increase for its benchmark interest rate. It’s the fourth time the Fed has raised rates this year, marking some of the most aggressive action the Fed has taken to fight inflation in decades. The question is whether the moves will be able to rein in inflation without hurting the economy.

FBI Warns of Fake Crypto Investment Apps Spoofing Financial Institutions | ThinkAdvisor

Cybercriminals appear to be trying to capitalize on the cryptocurrency trend. The FBI warned recently that scammers are posing as legitimate financial institutions, creating fake websites and apps to steal victims’ money. The FBI has so far identified 244 victims who have lost approximately $42.7 million.

Wearable Activity Trackers Encourage Us to Walk Up to 40 Minutes More Each Day — ScienceDaily

New research shows wearable activity trackers — such as FitBit devices or Apple Watches — can have measurable effects on people’s fitness habits. The review of several hundred studies found activity trackers encourage people to walk an average of 40 minutes more per day. That’s encouraging news in the fight against conditions for which a lack of activity can be a contributing factor, such as heart disease and type 2 diabetes.

Planning to Retire in the Next 3-5 Years? What to Consider Today | Kiplinger

If you’re within a few years of retirement age, it’s time to start thinking more seriously about what that transition is going to look like. Here are some key factors to consider as you make final preparations and adjustments to your retirement plan.

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

How Retirement Systems Like PERA Plan for the Biggest Financial Risks Retirees Face

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When planning for retirement, it’s important to have a good sense of one’s income sources, expenses, and the various risks to one’s finances over the course of retirement, which could last for two or three decades.

Researchers have identified five major financial risks retirees face: Longevity risk (living longer than expected and running out of savings), market risk (ups and downs in the market affecting account balances), health risk (unexpected health care costs), family risk (financially supporting relatives), and policy risk (potential changes to benefits like Social Security).

Recent research from the Center for Retirement Research at Boston College finds many retirees have an inaccurate sense of which risks pose the biggest threats, which could leave them unprepared. In a survey of about 20,000 people over the age of 50, retirees routinely underestimated their life expectancy and health care costs, while overestimating the effects of the stock market on their finances.

Survey respondents ranked market risk as the biggest risk they face, followed by longevity and health. In what the study author calls an “objective” ranking, longevity risk tops the list, followed by health and market risks.

As people increasingly rely on defined contribution plans like 401(k)s and IRAs for retirement savings, having an inaccurate understanding of these risks can have serious implications for a retiree’s finances.

Defined benefit retirement plans like the one offered by Colorado PERA use strategies that address these risks, particularly longevity risk, to provide retirement security throughout a member’s retired years.

Longevity risk and PERA

PERA’s defined benefit plan provides a retirement benefit that a retiree cannot outlive. That means when a member retires, PERA will continue to provide monthly income until the retiree dies, regardless of how long they live.

Defined benefit plans accomplish this by pooling funds and thereby sharing risk. All contributions, interest, investment gains and other dollars are held in a trust fund that is used to make benefit payments for members. Because all retirees are drawing income from the same source, they share longevity and market risk. For example, a retiree who lives longer than expected will draw more income from the fund while a retiree who dies sooner than expected will draw less – essentially balancing each other out.

To fund each member’s retirement, defined benefit plans like PERA only have to plan for the average life expectancy of the group, not each individual’s expected lifespan.

Ensuring the defined benefit trust funds have enough money to pay retirement benefits for decades to come means making sure PERA has an accurate picture of its membership and potential changes in the future. PERA must be able to estimate how long members will live, how much of a benefit they’ll earn, and other factors.

That’s where actuaries come in. These highly skilled mathematicians have the important task of calculating the plan’s liabilities (how much money is owed to benefit recipients) and determining how much money the plan will need on hand to meet those liabilities.

Read more: Explaining the Role of Actuaries in Retirement Plans like PERA

Among PERA retirees, the average age at which members retired in 2021 was 59, and the average age of death was 83, so PERA may have to pay a retiree benefits for more than 20 years, on average.

Those numbers won’t always be the same, however. Factors such as life expectancy change over time, so it’s important for plans like PERA to periodically review and adjust. PERA embarks on this process every four years with what is known as an experience study, which compares what actually happened in a given time frame against what PERA projected would happen.

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

In addition to longevity risk, PERA can help members plan for other types of financial risk, as well. The PERAPlus 401(k) and 457 plans provide low-cost options to set aside extra money for retirement. This can help with large or unexpected expenses, such as health care or rising costs of goods and services.

By pooling assets and regularly monitoring and adjusting as needed, PERA can help alleviate the stress associated with retirees’ biggest financial risk and continue to provide reliable monthly income they can’t outlive.