This year’s annual assessment of the Social Security and Medicare trust funds found the programs could be forced to begin cutting benefits even sooner than previously expected, if the government doesn’t take action. Social Security is expected to deplete its trust funds one year sooner than last year’s estimate, while Medicare’s hospital insurance fund is expected to run out of cash three years earlier.
The Federal Reserve is cautiously keeping its key interest rate unchanged for the time being due to concerns over inflation ratcheting back up. Chair Jerome Powell said that while inflation has been low in recent months, it’s possible prices will rise as the full effects of tariffs are realized. However, experts say rate cuts later this year are still possible.
If you ask people if their generation has it harder than their parents’ generation, 8 times out of 10 they’ll say “yes,” according to a recent report by the Transamerica Center for Retirement Studies. The survey found that across generations, Americans say they’re struggling to meet their financial needs and save for retirement. The good news is employer-based retirement plans are a vital part of retirement success and more than three-quarters of Generation Z say they’re saving for retirement.
The Colorado Sun continues its series on aging in Colorado with an article that explores how the state’s seniors—the fastest-growing demographic group—are finding themselves dealing with the housing affordability crisis as they search for homes that meet their needs.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
With over $65 billion under management, our investment team plays a critical role in PERA’s long-term stability and our ability to pay members’ earned benefits throughout their retirement.
This highly skilled team manages a diverse portfolio designed to achieve long-term gains through investments that span decades. A thoughtful, strategic approach ensures we can continue to meet member needs for many years to come.
Strategic asset allocation
The structure of PERA’s investment program is determined by the PERA Board of Trustees. Every four or five years, they complete what’s known as an asset/liability study. This study considers expected market returns for the next 30 years and balances them against PERA’s future liabilities and cashflow needs to create a mix of investments that is expected to produce returns over the long term.
Determining this asset allocation is one of the most important decisions the PERA Board makes, and it is the greatest single factor in PERA’s long-term investment returns. Once the Board determines this strategic asset allocation, it is up to PERA staff to implement it.
It can be helpful to think of the various asset classes as blocks that build upon one another and work together to produce the expected rate of return in the long run. Each block has an important role to play in the portfolio.
Global Equities: The Global Equities asset class includes stock holdings in publicly traded companies. It’s the largest piece of the PERA portfolio and the primary driver of returns in the long run; if Global Equities are having a good year, there’s a high likelihood the overall PERA portfolio will have a good year, too.
The global equity portfolio is well-diversified across developed and emerging countries and all sectors and company sizes. It’s a large portfolio that holds over 7,000 individual stocks, including major companies such as Apple, Microsoft, and Amazon.
Fixed Income: The role of Fixed Income, our second-largest asset class, is to provide diversification and liquidity while reducing portfolio volatility. The Fixed Income portfolio includes investment-grade bonds in all the major sectors—Treasuries, mortgage-backed securities, and corporate bonds—as well as some smaller sectors like asset-backed securities, government-related securities, and commercial mortgage-backed securities.
Fixed income assets are generally less volatile than equities and provide a predictable source of income, which can reduce overall risk in the portfolio.
Private Equity: Private Equity involves investing in companies that are typically not listed on a public stock exchange and are therefore not available to smaller individual investors. That can include venture capital (funding early-stage companies like startups), growth capital (funding businesses that are at or near profitability), and buyouts (larger transactions involving more mature and proven businesses to fund a change in ownership, promote growth, and provide money for acquisitions).
PERA has been investing in Private Equity since the early 1980s and was one of the first state pension funds to invest in this asset class. Over the decades, PERA has invested in a variety of companies that members use every day, including social media and entertainment companies, software and technology companies, wineries, restaurants, and clothing companies.
Because of private equity’s illiquid and opaque nature and higher management fees, the role of Private Equity in the PERA portfolio is to earn returns above that of Global Equities.
Real Estate: The Real Estate portfolio invests in a wide range of commercial real estate, which can include data centers or distribution warehouses, apartments, office space, retail space, or hotels. It invests primarily in the United States but does have some holdings throughout the world.
The role of real estate is to be a source of alternative income, such as monthly rental payments, in addition to steadily growing in value over time and reducing the impact of potential losses in other asset classes.
Alternatives: The alternatives asset class is where we put attractive investments that don’t fit into other traditional asset classes. Those can include assets like timberland, river barges, music royalties, renewable energy, toll roads, and lending to privately owned companies. Because alternatives don’t move in tandem with traditional stocks and bonds, these investments help reduce overall volatility in the portfolio.
Cash: PERA does not have a strategic asset allocation to cash, but because we pay over $350 million a month in benefits, it’s important to make sure we have the cash on hand to make those payments and also fund investments.
PERA’s investments are managed by a staff of over 50 in-house investment experts. We’ve been managing assets internally since the 1970s and currently manage around 75% of the Global Equity asset class internally and 100% of the Fixed Income class. Not only does this give us significant control over these assets, but it also saves PERA members a great deal of money: Over the past five years, PERA saved at least $300 million using our in-house investment experts compared to having those assets externally managed.
We’re proud to be one of the most cost-effective public plans in the United States.
Investing for the long term
Regardless of internal or external management, all portfolios and asset classes are held to the same high standards. Those standards have served us well over the long term, as our 30-year annualized return is over 8% net-of-fees, and our 10-year net-of-fees return consistently ranks in the top 10% of our peer group universe.
Thanks to our Board and investment team’s strategic approach to asset allocation, Colorado PERA is well-positioned for long-term success, and our returns over our nearly 100-year history reflect that.
One of the PERA-related bills that lawmakers passed during the recently concluded legislative session uses a unique funding mechanism for the voter-approved Proposition 130, which creates a fund to support public safety in Colorado. Under the bill, the State will give PERA a lump sum of $500 million and then may reduce its annual payments to PERA in future years based on our investment earnings, until the public safety fund reaches a total of $350 million.
The Social Security Administration says it has processed the majority of retroactive payments due to beneficiaries who had previously been affected by the Windfall Elimination Provision (WEP) and/or Government Pension Offset (GPO). The agency said that while affected individuals should have received their retroactive payments by the end of March and their updated benefit amounts in April, more complicated cases that require manual processing will take more time.
The Centers for Medicare and Medicaid Services has begun its second round of price negotiations with prescription drug manufacturers. The agency is targeting 15 drugs for lower prices, including popular weight-loss medications Ozempic and Wegovy. Any lower prices would go into effect in 2027.
If you’re retired, you may be thinking more about withdrawals from your savings rather than stashing away extra cash, but experts say it’s important to keep saving. Unexpected expenses such as medical bills, home repairs, and other emergencies can wreak havoc on any budget and especially for someone on a fixed income.
News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.
The date is set for this year’s Town Halls with PERA executives—they will take place on Tuesday, July 1.
PERA holds Town Halls each year after the release of the Annual Comprehensive Financial Report (ACFR), which contains details on the Plan’s finances and membership for the previous calendar year. The PERA Board of Trustees will release the 2024 ACFR at its June 27 meeting.
There will be two Town Halls on July 1—one for retirees and one for active members—and both will be virtual with the option to participate online, on the phone, or on social media.
