Author: Kurt Sevits

Why the State is Commissioning a Study on PERA’s Plan Design

Posted on by Kurt Sevits

Since 1931, Colorado PERA has been providing retirement and other benefits to the public employees who keep our state running. As the workforce and retirement landscape have changed, PERA also has adapted and grown; Colorado’s largest public retirement plan now covers nearly 700,000 current and former public workers.

PERA benefits, including the hybrid defined benefit plan and the option for some members to choose a defined contribution plan, have been valuable in helping public agencies recruit and retain employees for decades. Critics of defined benefit pensions, however, argue that today’s workers would be better served by other types of plans. An upcoming study will help shed light on that debate.

Purpose and scope

During the 2024 legislative session, state lawmakers passed House Bill 1427, which calls for the State Auditor, in cooperation with PERA, to enlist an independent actuarial firm experienced with public pensions to conduct a comprehensive study comparing the cost and effectiveness of the PERA Defined Benefit (DB) Plan to alternative plan designs, as well as providing an analysis of certain aspects of PERA’s current defined benefit and defined contribution plans.

The study will be similar in scope and purpose to a study that took place following similar legislation in 2014. That study compared various facets of the PERA DB Plan—such as cost per member, contribution rates, income replacement ratio, and portability—to other public and private sector plan types, including Social Security. The study is available online here.

Why refresh the study after a decade? In part, things have changed, and state leaders see value in having updated data. Since the last study, Colorado has seen tremendous growth, the public workforce has changed, and various reforms have put PERA on a path to full funding. This new study will incorporate all those changes to provide a more accurate assessment of PERA’s value to employers and the state as a whole.

While a lot has changed in the past 10 years, one thing that hasn’t is PERA’s commitment to providing retirement security to our members. The previous study concluded that PERA’s plan provides a better benefit at a lower cost than other plans, making it the best option for providing retirement benefits to the state’s public employees. We believe an updated study will show the same results.

What’s next?

The State Auditor and PERA have until the end of October to select an actuarial firm to conduct the study. Once a firm is selected, the study is likely to take several months to complete.

When the study is complete, PERA and the State Auditor will provide a report of the study’s findings to the governor, the Joint Budget Committee, the Legislative Audit Committee, and the House and Senate Finance Committees.

We’ll also provide a summary of the study’s findings here on PERA On The Issues. Make sure you’re subscribed to our biweekly newsletter to receive all the latest updates.

News You Should Know: Lawmakers Push for Floor Vote on WEP/GPO Bill

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Spanberger, Graves File Discharge Petition for Social Security Fairness Act, Push to Force U.S. House Vote on Bipartisan Bill to Eliminate WEP & GPO | Rep. Abigail Spanberger

Congress is back from recess, and the two main sponsors of a bill that would repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) say they’re going to attempt to force a floor vote on the bill. Representatives Abigail Spanberger (D-VA) and Garret Graves (R-LA) filed a discharge petition, which will need 218 signatures to force a vote. The bill, The Social Security Fairness Act, has received the support of more than 300 members of Congress but has stalled since it was introduced in early 2023.

Employee Retirement Income Security Act Turns 50: Protecting Your Plans | Kiplinger

It’s been 50 years since the Employee Retirement Income Security Act of 1974 (ERISA) was enacted into law, adding new protections for workers and changing the way many people save for retirement. While ERISA doesn’t govern public pension plans like Colorado PERA, it’s been a consequential piece of legislation in the private sector and paved the way for today’s employer-based retirement plans like 401(k)s.

New Drug May Improve Memory in Older Adults, Treat Alzheimer’s | Colorado State University

Researchers at Colorado State University say they’ve been testing a drug that shows promise in treating memory loss associated with aging and neurological conditions like Alzheimer’s disease. The researchers teamed up with a local biotech company to test the drug, which targets two specific proteins in the brain. The team hopes to get approval for human trials soon.

Colorado Department of Revenue to Help 100,000 Residents File Their Taxes | The Colorado Sun

State officials are working to implement a new law that will help many Coloradans claim tax credits they may know they qualify for. Under the law, the Colorado Department of Revenue will help up to 100,000 households file or amend their tax returns to claim state and/or federal earned income tax credits and child tax credits, which could help many lower income families in the state.

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

News You Should Know: Income Inequality Rises with Decrease in Pension Access, Study Finds

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The Hidden Costs of Pension Reforms: Rising Income Inequality, Lagging Economic Growth | National Conference on Public Employee Retirement Systems

Changes to the defined benefit pension landscape—including the shift from pensions to defined contribution plans like 401(k)s in the private sector—have contributed to worsening income equality among retirees over the years, according to new research. The study, from the National Conference on Public Employee Retirement Systems, also concluded that income inequality has an overall negative effect on the economy by limiting growth.

Jerome Powell Says Fed to Soon Begin Reducing Interest Rates | AP News

Federal Reserve Chairman Jerome Powell confirmed he’s ready to start lowering interest rates. At the Fed’s annual conference in Wyoming, Powell said it’s time for policy to adjust as inflation has eased and the job market has cooled. Though Powell didn’t specify when the central bank will start to lower rates, many experts expect the first cut to come when the Federal Open Market Committee meets in September.

Colorado Hopes to Raise Awareness of Dementia, Start Conversations, With New Campaign | Colorado Public Radio

The Colorado Department of Public Health and Environment is launching a new campaign called “Talk About Dementia.” The campaign aims to raise awareness about dementia, including Alzheimer’s disease, which can often go undiagnosed. Since early detection can be important for treatment, officials hope the campaign can help lessen dementia’s impact in the state.

Long-Term Care Costs Emerge as a Top Issue for Older Americans | ThinkAdvisor

Paying for health care is one of the top concerns for retirees and those who are preparing for retirement. A new survey of Americans aged 50 and older found people are especially concerned about the cost of home care, assisted living, and nursing home care. The cost of acute medical care was the second-highest concern, followed by the cost of prescription medications.

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

What to Expect for Medicare Advantage in 2025

Posted on by Kurt Sevits

Recent changes to Medicare Advantage (MA) and Medicare Part D prescription drug coverage will affect the cost of PERACare health benefits in 2025.

What’s changing

The Centers for Medicare & Medicaid Services (CMS) pays MA insurers a base payment for every enrollee in their plan, as well as additional money for enrollees that have more health issues. CMS will be reducing the base payment amount for 2025. In addition, in 2024 CMS started phasing in changes to how it calculates the additional health status payments. These actions are expected to reduce the amount CMS reimburses insurers.

For 2025, the Inflation Reduction Act adds an out-of-pocket maximum of $2,000 to costs MA enrollees pay for their Part D prescriptions. This means after that first $2,000, enrollees will not have to pay anything for their prescriptions. While this is a positive change for those who take multiple medications, this means more costs for the insurance companies.

While final rates and plan benefits for 2025 are not yet available, MA and Part D carriers have already noted that in response to these changes they are likely to increase MA premiums more significantly than in recent years and may also make benefit reductions. This will impact individual Medicare Advantage plans, individual Medicare Part D plans, and the Medicare plans offered by PERACare.

Other factors affecting cost

PERA’s insurance team uses a competitive bid process to identify carriers and plans that provide valuable health benefits to PERA retirees, and we negotiate the best rates we can. PERACare was able to negotiate a rate guarantee keeping MA premiums unchanged for several years, but that guarantee is now expiring.

PERACare plans offer generous benefits and broad networks of providers across the United States. The plans also cover only retirees, who tend to have more medical needs and use more services than the general population, resulting in higher plan costs. PERA offers a subsidy, based on years of service, to help offset some of the cost of PERACare premiums.

Everyone’s health care needs are different, and we encourage retirees to take a look at all their health insurance options to choose a plan that best fits their budget and needs.

What to know about open enrollment

PERACare staff are working to finalize plans and premiums for 2025, and we’ll be mailing information out in the coming months.

Here are some important dates to keep in mind:

  • October 1: 2025 PERACare information available online
  • Mid-October: PERACare open enrollment materials mailed to current PERACare enrollees
  • October 21 to November 21: PERACare open enrollment
  • October 15 to December 7: Medicare open enrollment
  • December 15: Last day for PERA to receive cancellation requests for January 1

For more information, visit copera.org/peracare.

News You Should Know: Medicare Wraps Up Drug Price Negotiations

Posted on by Kurt Sevits

Medicare Negotiated Drug Prices for the First Time. Here’s What It Got. | NPR

Medicare has revealed the results of its first-ever negotiated drug prices. Officials have been negotiating with pharmaceutical companies for months, and that process just wrapped up, resulting in discounts on popular drugs for diabetes, cancer, arthritis, and other ailments. The new lower prices for the first batch of 10 prescription medications will take effect in 2026.

Colorado Governor Calls Special Session on Property Taxes to Avoid Ballot Measure Fight in November

Gov. Jared Polis called for a special legislative session to tackle the issue of property taxes in Colorado. Various advocacy groups had been calling on the legislature to take action and pass a bill to lower taxes rather than allow two tax-related initiatives to appear on the November ballot.

Fed Rate Cuts Loom Large as US Job Market Slows Sharply | Reuters

Prior to early August’s monthly jobs report, many analysts said the Federal Reserve would be likely to start lowering interest rates in September. That jobs report showed a noticeable increase in unemployment, signaling a weakening job market and all but guaranteeing a rate cut in the very near future.

Milliman Reveals Health Care Costs for 65-Year-Olds Retiring in 2024 | PLANSPONSOR

A new report highlights the rising cost of retiree health care. According to the Milliman Retiree Health Cost Index, the amount of savings needed to cover health care costs for a couple retiring in 2024 has increased by $7,000 in the past year if that couple is enrolled in original Medicare with supplemental coverage. On the other hand, retirees with Medicare Advantage plans need less money saved up in order to pay for care.

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

Investment Stewardship Report Highlights How PERA Manages Plan Assets

Posted on by Kurt Sevits

We often receive questions from our members, lawmakers, and the general public who want to know: What does PERA invest in and how do staff manage the portfolio?

Every year since 2018, we’ve published the Investment Stewardship Report to answer those questions and provide transparency into why and how PERA invests on behalf of nearly 700,000 members.

PERA’s approach to stewardship is guided by four main practices:

  • We protect our members’ interests through cost-conscious investment management.
  • We integrate financially relevant factors into our investment decisions.
  • We advocate for robust capital markets and business practices.
  • We evaluate various exposures within our portfolios on an ongoing basis.

Protect

Each person on PERA’s investment staff is an expert committed to serving our members’ financial longevity. We leverage that expertise to reduce the need to use outside investment managers, which saves money while adding value for our members.

As of Dec. 31, 2023, we managed approximately 60% of PERA’s Defined Benefit Plan assets in-house at a cost of about 0.05% of those assets. In the same year, internal management saved an estimated $65 million compared to the cost of externally managing those assets.

The PERA Board and staff also work to lower fees in the PERAPlus 401(k)/457 and PERA Defined Contribution Plans. For example, since 2011, we’ve been able to reduce the all-in costs for members to participate in the 401(k) plan by 82%. Lower fees mean participating members can save more money toward their individual retirement goals.

RELATED: Asset Classes Explained

Integrate

We invest for one purpose: To provide retirement income for our members. To that end, we consider various economic and business factors in our investment decisions with a focus on long-term financial results.

PERA’s integrative approach considers many aspects of businesses and markets that can have a financial impact on our investments. Those aspects may include factors that can be labeled as environmental, social, or governance-related (ESG). However, PERA does not have any ESG-themed mandates, nor do we screen our investments on specific ESG criteria when deciding whether to include them in the portfolio.

In 2023, the Colorado General Assembly passed Senate Bill 016, which requires PERA to publicly report on how we consider climate-related risks in our investments and operations. In response, we’ve augmented the 2024 Investment Stewardship Report with new insights into how we consider both risks and opportunities related to climate change.

RELATED: ESG: Making Sense of Alphabet Soup

Advocate

We promote fair and transparent markets by contributing our expertise to regulators and financial industry advisory boards in advocacy of best practices that serve long-term investor interests.

By engaging with portfolio management partners, public companies, and policymakers, we can encourage practices that are expected to be profitable over the long run, and with more transparency in the market, we can make better investment decisions on behalf of our members.

Evaluate

The PERA Board and staff monitor the investment portfolio on an ongoing basis. Our priority remains financial performance and seeking the best long-term, risk-adjusted returns so we can provide retirement income for our members in perpetuity.

As of Dec. 31, 2023, the PERA Defined Benefit Plan portfolio earned a one-year return of 13.4%, and over the past 10 years, the portfolio has earned an annualized return of 7.8%. In the past three decades, the investments we have made on behalf of the PERA membership have earned $82 billion, strengthening the longevity of the Fund.

RELATED: How PERA Prioritizes Financial Value Over Personal or Political Values

Chief Executive Officer/Executive Director Andrew Roth underscored the importance of investment stewardship in fulfilling PERA’s purpose: “By maintaining our commitment to sensible investment practices and long-term performance, we continue to work toward our mission of providing retirement security for our members while ensuring the financial sustainability of the fund,” Roth said.

Explore the Investment Stewardship Report Digital Snapshot or download the Investment Stewardship Report to learn more.

PERA Receives Results of 2023 Financial Audit

Posted on by Kurt Sevits

Colorado PERA once again received a clean audit at its annual hearing with the Legislative Audit Committee.

Results of outside audit

Every year, the State hires an independent auditor to examine PERA’s financial reports, compliance, and internal controls. Since 2015, the State has enlisted CliftonLarsonAllen, a nationally recognized financial services firm, to conduct that work. CliftonLarsonAllen presented the results of this year’s audit at the Legislative Audit Committee’s Aug. 5 meeting.

As in years past, the audit did not find any issues with PERA’s recently released 2023 Annual Comprehensive Financial Report and did not find any deficiencies or weaknesses in PERA’s internal controls.

RELATED: PERA Board Releases 2023 Annual Report

Additional interim committee activity

In addition to the Legislative Audit Committee, PERA staff and consultants meet with other legislative panels throughout the summer, including the Pension Review Subcommittee and Pension Review Commission. The Pension Review Subcommittee is tasked with making recommendations to the PERA Board and the Pension Review Commission. The Commission may then draft legislation that lawmakers may introduce in the next legislative session in January.

We’ll be monitoring the ongoing legislative activity at the State Capitol throughout the interim period and will post updates here on PERA On The Issues when we have them.

The Latest on Federal WEP/GPO Legislation

Posted on by Kurt Sevits

We often hear from Colorado PERA members who want to know if legislators have made any progress in their efforts to change two provisions of federal law that can reduce retirees’ Social Security benefits.

Because most PERA members do not participate in Social Security while working for a PERA employer, any Social Security benefit they earned from private-sector work may be affected by the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO).

Those provisions have been part of federal law since the 1980s, but lawmakers in recent years have repeatedly sought to modify or repeal them without success.

Why WEP and GPO exist

Social Security benefits are designed to replace only some of a worker’s pre-retirement earnings, and lower-paid workers receive a larger replacement percentage than higher-paid workers. Prior to the WEP being enacted in 1983, non-Social Security government workers like PERA members would receive a larger-than-intended Social Security benefit because of those years in their earning record when they weren’t contributing to Social Security. The WEP was meant to remove that advantage.

The GPO applies to PERA retirees who also receive a Social Security spousal or widow(er) benefit and reduces the Social Security benefit by two-thirds of the PERA benefit. That’s because spousal and widow(er) benefits are considered “dependent” benefits and were meant to help spouses who stayed at home and depended on their working partner for financial support. According to the Social Security Administration, now that it is common for both spouses to work, the GPO requires the “dependent” benefit to be offset by the dollar amount of their own retirement benefit.

It’s important to note that a retiree’s PERA benefit will never be reduced to Social Security or other benefits. Learn more about PERA and Social Security.

Where things stand

While federal lawmakers have introduced about a half-dozen bills this Congress that touch on the WEP and GPO issue, the one that has received the most attention and support is H.R. 82, the Social Security Fairness Act of 2023. Its counterpart in the Senate is S. 597. Both bills were introduced in early 2023.

Other bills that seek to modify or repeal WEP and/or GPO include H.R. 4583 and S. 2280—both known as the Social Security 2100 Act—which propose a number of changes to Social Security, including temporarily eliminating WEP and GPO. Those bills were introduced in July 2023.

In April 2024, the House Ways and Means Committee convened for an informational hearing on the topic of WEP and GPO. The meeting didn’t result in any action on the above bills, but lawmakers heard from a panel of experts on the effects the two provisions have on retired public employees and the potential impacts of any changes to Social Security. Testimony largely centered around the fact that the Social Security Administration now has better worker data and WEP/GPO formulas could potentially be updated, but the cost to make any changes would amount to billions of dollars over the next decade.

Neither Social Security Fairness Act bill has made forward progress in Congress, but they continue to gather support—H.R. 82 in particular has gained more than 300 cosponsors in the House. And in May, the bipartisan Problem Solvers Caucus threw its support behind the Social Security Fairness Act with its 62 members endorsing the legislation.

What’s next?

We can expect congressional lawmakers to continue discussing this issue. Even if none of the above bills see any meaningful action before the current Congress ends, legislators are likely to introduce new bills in the next Congress.

As we’ve seen repeatedly over the years, bills that seek to modify or repeal WEP and/or GPO face a steep uphill battle, with lawmakers often citing the cost of increased Social Security benefits as a significant hurdle to overcome. That’s especially true in the face of pessimistic forecasts of Social Security’s finances.

While the most recent projections are somewhat better than expected, Social Security’s cash reserves are still expected to be depleted in about a decade. If that happens and Congress hasn’t taken any action, Social Security will be forced to begin reducing benefits, but experts expect lawmakers will take action to shore up the system’s finances before any benefit reductions are necessary. It’s possible that a package of reforms for Social Security could also include some changes to the WEP and GPO, but only time will tell.

One of the most effective forms of advocacy is for PERA members and retirees to contact their senators and representatives in Congress to let them know how the WEP and GPO affect them, as this issue is will be decided at the federal level.

We’ll continue to monitor this issue and post any updates on PERA On The Issues when we can. To stay in the loop, be sure to subscribe to our biweekly newsletter.

News You Should Know: U.S. Releases Federal Framework on Aging

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U.S. Finally Has a Plan on Aging: Will We Use It? | Next Avenue

A collection of federal agencies known as The Interagency Coordinating Committee on Healthy Aging and Age-Friendly Communities has taken its first step toward developing a nationwide plan for supporting aging adults. The report focuses on four key areas: age-friendly communities, housing, long-term care, and health and well-being. Officials expect to release a more detailed action plan after listening to feedback from the public.

New IRS Inherited IRA Rules: Annual RMDs Required for Many Beneficiaries | Kiplinger

The IRS issued final rules that clarify the requirements for people who inherit an individual retirement account (IRA) from the original account holder. Beginning in 2025, most non-spouse beneficiaries will have to take required minimum distributions (RMDs) and deplete the account within 10 years.

Second Court Blocks All Aspects of DOL’s Fiduciary Rule | InvestmentNews

Two district court judges have halted implementation of the Department of Labor’s new fiduciary rule. That rule, which had been set to go into effect in September, aims to increase protections for retirement savers by expanding the definition of who in the financial services sector is considered a fiduciary and is therefore required to act in their clients’ best interests. Insurance companies had sued the government to try to prevent the rule from taking effect.

Why People Resist Retirement | Harvard Business Review

Making the decision to retire is a complex and personal process, and it usually involves financial and health factors. But for some, transitioning into retirement is a challenge for various psychological reasons. New research from Harvard found three main obstacles prospective retirees face that aren’t financial: changes in identity, purpose, and relationships.

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

News You Should Know: Dozens of Drugs to Be Discounted Under Medicare

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HHS Lowers Prescription Drug Prices Under IRA Medicare Rebates | Fierce Healthcare

The federal government released the latest list of prescription medications that will be discounted under Medicare because their prices rose faster than inflation. The list includes 64 drugs that will be available for lower coinsurance percentages as of July 1.

Reagan-Era Social Security Fixes Won’t Work This Time | Marketplace

There have been plenty of headlines about Social Security’s dwindling cash reserves—the latest projections show the program is likely to run out of cash in about a decade. But the question of what, if anything, lawmakers intend to do about it remains. While past reforms may provide some insight, lawmakers will likely have to come up with some new solutions this time around.

US Banks Suffer Steeper Losses, But Retain Large Cushions in Annual Fed Health Check | Reuters

Every year, the Federal Reserve conducts a “stress test” to assess the financial resilience of the country’s biggest banks. This year’s test found the banks would be able to withstand severe market volatility and other economic factors while still keeping enough money on hand to lend.

Stories About What Retirement Really Means | The New York Times

The New York Times asked its readers to send in their perspectives, experiences, and advice on retirement. Almost 1,500 people responded, and their views on retirement show a wide breadth of sentiments—positive, negative, and in between.

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