PERA presented to the Legislative Audit Committee on July 27. The primary agenda was a review of PERA’s financial returns. PERA staff and outside analysts were on hand to present and answer questions from committee members.
Financial Audit
Every year, an independent auditor hired by the Office of the State Auditor conducts a review of PERA’s financial status and fiscal controls. CliftonLarsonAllen LLP, which has been auditing PERA’s annual statements since 2015, audited the 2019 Comprehensive Annual Financial Report. The auditors gave the 2019 CAFR a clean audit, and committee members heard an overview of results from the annual report.
Signal Light Reporting
In 2014, the Legislative Audit Committee directed the Office of the State Auditor to contract with an actuarial firm to develop a methodology to simplify the understanding of PERA’s financial status. The result was the development of a tool called Signal Light Reporting, which PERA submits annually to the committee. This report summarizes the funded status of each PERA Division by using a color scale. The scale resembles a stop light, from green, indicating that PERA is projected to be on track to fully funded status, all the way to red. PERA submitted and shared the latest report, which shows that all divisions are on track to reach fully funded status by 2048 (green).
Ongoing Oversight at the Capitol
PERA reports to numerous committees at the State Capitol, including the Legislative Audit Committee, Joint Budget Committee, Joint Finance Committee, Pension Review Subcommittee, and Pension Review Commission. These regular check-ins provide lawmakers the chance to learn more about PERA and ask questions to PERA management. They also provide additional forums in which PERA members can learn more about how PERA works. For those not able to listen to the live broadcast, a recording can be found on the Colorado General Assembly’s website.
This is the second installment of a two-part story.
Incorporating a View from Outside
After changes for the next year have been discussed and approved, the legwork begins, usually in late fall. This means welcoming into the mix a group of external auditors. PERA has internal auditors, but bringing in a truly outside perspective helps ensure the information in the CAFR is rigorously checked and, consequently, accurate to a high degree of certainty.
The word “audit” might conjure up IRS dread for some, but auditors are a routine presence in accounting departments in organizations like PERA. “In the fall, the auditors do what they call walkthroughs,” Maninger said. “They do deep dives into our processes, meeting with the Investments, Benefits, and other departments to see how they do their work. For example, they might follow the contracting and funding of a new private equity investment through every step until the wire goes out the door.”
In addition to analyzing the ways in which work gets done, they do a significant amount of statistical analysis of the mountains of data PERA keeps, looking for any anomalies. Say the auditors analyze monthly benefit payments. PERA sends out more than 100,000 checks of varied amounts every month. You’d expect the last digit of each check amount to be evenly distributed—about the same number of checks ending in a twos (e.g. $975.72) as eights (e.g. $1,000.68). However, if thirty percent of all checks ended in a two instead of the expected ten percent, the auditors would likely flag this as an anomaly and look into it further.
An anomaly doesn’t indicate that something is wrong, just that something could be. After investigating, they might discover an error or a process that needs improvement. “Our goal is to make the CAFR as accurate and as complete as we can possibly make it,” Maninger said. “We have a lot of information to share with members, and this information affects lives.”
Putting it All Together
The structure for the CAFR is usually in place by the end of the year. When January 1 rolls around, final returns start rolling in. Some of these returns are available immediately. Global equity and fixed income, for example, have prices that are readily available on any given day. Anyone can track the prices of PERA’s top holdings in global equity at the end of 2019—Apple, Microsoft, and Amazon—on a daily basis.
But returns in other asset classes may take until early April to receive and record. PERA owns companies that aren’t publicly traded in its private equity asset class. Determining the value of these companies takes a much longer time, as it requires a detailed financial analysis to come up with an informed price as opposed to watching for a stock ticker run across the screen on CNBC. This is one reason the CAFR isn’t released until June.
Another reason is that actuaries assess PERA’s demographic information—how many people are starting jobs and leaving them, beginning retirement and passing away, along with an array of other data points. This information is critical as PERA must chart the course for decades into the future.
Once these pieces are finalized and everyone, including the external auditors, signs off, the CAFR is sent to the Board of Trustees. They review it and, with a vote, they approve and release the report to the public.
Where to Start
The CAFR is unlikely to be a choice for a book club or a beach anytime soon. But, like the view from a window several stories up, it contains the best perspective on all things PERA. Reading only a few pages can help lead to a much better understanding of how PERA works and where it’s going.
“If someone is going to read anything at all in the CAFR, they should read the Letter of Transmittal,” Maninger said. “Ron [Baker, PERA’s Executive Director] works hard to communicate the most important parts of the CAFR in that letter.” The letter in the 2019 CAFR is found on page 3.
“If you’re interested in any changes or updates from past year, the section called Management’s Discussion and Analysis (page 29) will explain variances from one year to another,” she added
For those interested in PERA’s investments, Neugebauer said the Schedule of Investment Results (page 127) is the best place to see how PERA’s investments have done recently compared to their benchmarks.
Shelton said page 136 should be of interest to those who are saving and investing for retirement. “We have a number of options available for those who participate in 401k, 457, and DC plans, from investing in specific asset classes or using one of the Target Retirement Date Funds,” she said. “From my perspective, page 136 is important because it highlights the variety of options participants have and what the returns were for the most recent year. If they want to read more, descriptions of the investment options are on page 134.”
Meant to be Used
If you’re looking for a book to check out at your library, one method might be to look for the book that has tattered pages, dog-ears, and coffee stains. A book’s battered paper doubles as a public record of the value it’s brought to others.
That’s how Maninger, Neugebauer, and Shelton, view the CAFR. It’s not a yearbook, meant to commemorate a year that was: It’s a useful publication, meant to be picked up. “I have a copy at home,” Neugebauer said. “And in my office at work I have every copy going back to 1980.”
But the importance of the CAFR is perhaps best illustrated by a small action Shelton took months ago: “When we found out that we were starting to work remotely in March, I thought we were just going to be offsite for a week or two. But just in case, I grabbed my CAFR as I was going out the door.”
A standard sheet of office paper weighs 4.5 grams. So, if you were to download and print the 2019Comprehensive Annual Financial Report, you’d find yourself with 1.358 pounds of information about PERA—about the same weight as a bottle of Coke (though a much shorter digital version is also available).
Books known for their size—a dictionary, a telephone book—are often the authoritative text on their subject. The CAFR is just that; the go-to source for PERA’s financial situation, demographic information, funded status, and more. For a book with so many answers, however, there are often as many questions asked about it. Why is the 2019 report released halfway through 2020? How can any non-accountant possibly glean anything from the tables of information?
The best place to find answers to those types of questions isn’t in the CAFR, but with the people who help make it. About 40 people at PERA are actively involved in the production of the CAFR, about half of them accountants. Most of them work on a portion of the CAFR in addition to other roles. A smaller team of five—the “CAFR team”—spends much of their time throughout the year preparing it. Understanding the work that goes into creating the CAFR can unlock a better understanding of what’s inside.
361 On, 4 Off
If you just glance through a few of the 19 different CAFRs archived online, they might appear to be identical, with the exception of the numbers in the tables. But changes and improvements take place every year.
Some changes are technical and more formal, made in order to comply with updated guidelines from the Governmental Accounting Standards Board (GASB). But other changes are the result of people like Catherine Maninger, PERA’s Controller and a member of the CAFR team, who go through the latest CAFR every summer, days after it was released, to see what could be done better, much like an NFL quarterback might stay up late Sunday night going over film from a game earlier that day.
Simplification and elimination of duplication were the themes for changes to the 2019 CAFR. Prior to this CAFR, a change to any of the actuarial assumptions PERA uses was described in written form. This year, that text was transformed into charts, allowing a person to visually grasp the changes quickly. Also, the section devoted to discussion and analysis by PERA management has been pruned back compared to past years, contributing, in part, to the 2019 CAFR being 20 pages shorter than last year’s.
Now that 2019’s version has been released, the CAFR team is setting their sights on next year. The team didn’t have long to rest after the 2019CAFR was released on Friday, June 19. The kickoff meeting for the 2020CAFR took place on June 24.
Seeing the Big Picture
The Accounting department is on the seventh floor of PERA’s building, southeast of downtown Denver. Most of the windows on this floor face east. From here, you can see the landscape of the city, as tall apartment buildings and dense neighborhoods nearer downtown give way to single-family homes miles away. On the horizon, you can make out where buildings dwindle altogether, replaced by open land.
It takes being seven stories up to get a perspective like this, allowing a person to take in vast swathes of information at once. It helps you see the forest among the trees. It’s hard to visualize that view with its many details while standing on the sidewalk below.
Gaining a broad perspective on the CAFR is a crucial part of its creation. Instead of traveling up an elevator to get it, however, the circle of those involved in its creation is expanded.
Any proposed changes to the following year’s CAFR are reviewed by PERA executives and the PERA Board of Trustees in the fall. “We have a very active Board Audit Committee,” Maninger said. “They take their fiduciary duty seriously and are really involved in reviewing the CAFR before it is published.” As an example, she said the committee posed more than 150 questions to PERA staff about the 2019 CAFR during their review this spring.
Rebecca Shelton and Joshua Neugebauer work in PERA’s Investment Division and also play a major role in the CAFR’s creation. “Investments and accounting work at things through different lenses,” Shelton said. “The CAFR needs to make sense from both an accounting standpoint and an investment standpoint.” These differing points of view are used to make the CAFR better.
Neugebauer said that evidence of one such collaboration can be seen in the 2019 CAFR. “We reviewed several CAFRs from other states last fall, and we noticed that a few other plans highlighted internal management costs”, he said. “Because that is such a compelling story—how we’ve structured the investment program—we thought we’d highlight that a bit more in this year’s CAFR.”
It’s a straightforward idea, but it required a lot of legwork. Determining how costs are assigned to investing activities ended up requiring a lot of work between multiple divisions. The end result—a chart on page 124—might not immediately stand out to the average reader and probably won’t grab any headlines. It wasn’t required by any regulatory agency or accounting rule. But this small change represents something much bigger: an ongoing internal commitment to finding new and better ways of sharing how PERA works.
Transparency is not a one-time event. A single, dramatic display of transparency can be indicative of a long overdue need for it. On the flip side, a culture of transparency is built by focusing on making incremental improvements, year after year. Over time, it adds up.
This is the first installment of a two-part story. Read the second installment for more information.
Nearly 27,000 Texans moved to Colorado in 2018—that’s more than the population of Golden or Durango. In addition to sending their residents, Texas is sending dollars to Colorado.
Greg Chicota, a Senior Real Estate Portfolio Manager at PERA, said Texas is home to “one of our longest running, largest, and most successful real estate investments.”
This story, which is 25 years in the making, is an example of how PERA’s investment professionals deliver value over the long term and take seriously their role as stewards of member dollars.
An Opportunity Comes to PERA
Dallas is a sprawling city, with nearly twice the population of Denver living on more than twice the land area. All that space, combined with a southern climate that hovers around 60 degrees in January, means that one thing is certain: lots of golf. More than two dozen courses dot the flat Texas landscape.
In the 1960s, a developer bought a defunct course, about three miles north of city center. But instead of drilling 18 new holes into the ground, they decided to build up. They would transform the more than 300 acres of greens and fairways into dozens of apartment buildings that housed thousands of people.
The development was so big it garnered its own ZIP code. With apartments nestled among trails and fields (its golf course heritage made these amenities an easy add) and organized activities for residents, this development would soon become a town within a city. Life was more like an idyllic college experience than it was a traditional apartment complex a few blocks away from a freeway.
For a few decades, the development was buzzing with activity and gained a glitzy reputation. Scenes from the TV show Dallas were filmed there. It ran an ad in Playboy.
But by the mid 1990s, the property was looking tired, and the owners needed financial assistance. An advisor contacted Colorado PERA to see if there was interest in becoming a partner.
Real Estate’s Place at PERA
Real estate is one of five asset classes that PERA manages. Real estate is often is the cornerstone of an individual’s financial life in the form of home ownership, but what makes real estate special for a pension?
CH Meili, PERA’s Director of Real Estate, said it has similar characteristics to fixed income: “We want real estate to be a real-time income generator to the portfolio. We look for investments that throw off monthly income.”
CH Meili, PERA’s Director of Real Estate
He said that while this monthly income doesn’t cover the $4.4 billion paid out annually in retiree benefits, the incoming cash every month provides the investment team with reliable flexibility it otherwise wouldn’t have. And, in addition to generating income, the value of property tends to increase over time. “It’s a long-term physical asset, a tangible thing we own, which is unlike most asset classes, where you own a piece of paper.”
How much does PERA have invested in real estate? PERA’s Board of Trustees sets the percentage of Total Fund dollars that can be allocated to each asset class. The long-term allocation to real estate is 8.5%, but it can drift as low as 4% and as high as 13%. At the end of 2019, PERA held more than $4.9 billion of real estate investments.
Compared to some public pensions, PERA devotes a higher percentage of investment dollars to real estate. Does this mean PERA believes real estate will perform better than other pensions expect? Not exactly. Meili said that PERA simply runs a more mature real estate investment portfolio.
PERA has been investing in real estate since the 1980s, internationally since the 1990s. That was relatively early compared to other pensions. With the early start came the chance to build up infrastructure.
“Twenty-five years ago, commercial real estate wasn’t a typical asset class,” Meili said. “Generally speaking, the rest of the pension and endowment world has caught up to that thesis. So are people invested less than we are? Yes. But do they want to increase that? Yes.”
Chicota said that PERA has found its own sweet spot in real estate investing: “There’s this niche of assets that are too small for the big guys and too big for the small guys. We’ve been very successful operating in that range.”
Greg Chicota, PERA Senior Real Estate Portfolio Manager
Another distinguishing feature of PERA’s real estate philosophy is the emphasis on direct ownership.
When investing in real estate, you can invest in a real estate fund, which is similar to investing in a mutual fund. You might receive dividends, and the value of your slice of ownership might grow over time. But, despite being an “owner,” you don’t make any day-to-day business decisions. That type of arrangement makes up about 65% of PERA’s real estate investments.
The other 35% consists of direct ownership. These projects can have multiple investors, but, as direct owner, PERA has control over business operations.
“We operate more like a private business than many pension funds,” Meili said. “Our team isn’t solely allocators of capital—we’re more hands on.”
PERA works with external account advisors who execute the directives set by PERA and perform managerial tasks like paying bills, and managing the local property managers.
This approach allows the real estate team to actively add value to PERA’s investments.
PERA Heads to Texas
When PERA’s investment team decided to become direct owners of the Dallas development, the original premise was to step in, fix up the units, and ultimately sell the property in two to five years.
“We generally don’t try to be rescue capital or ‘fix and flip,’” Meili said. “That’s not our emphasis. We really think about predictable income over long periods of time.” But Meili said that this property stuck out, especially as Dallas was experiencing “tremendous growth the late 1980s.”
The development’s sheer size turned out to be an attribute that made it attractive as a long-term investment. The development consists of 16 distinct communities, each with its own set of amenities and features.
“Since 1999, we have let the leases in one community expire, tried to relocate tenants, and redeveloped it into a more efficient project,” Meili said. Each improved community increases the long-term value of the property and increases the monthly income it generates. By the time the entire sequence of communities has been renovated, you can start the cycle again.
While Meili was not with PERA when the investment was initiated, his outlook mirrors the way in which it has unfolded since it began: “I have a really long view on what we’re trying to do at PERA.”
This is the first installment of a two-part story. Read the second partfor more information.
Editor’s note: PERA has chosen to not publish the name of this investment in accordance with Colorado law and PERA’s standard disclosure practices for these types of investments.
In the past two decades, several states have closed their defined benefit (DB) pension plans to state and local government employees and moved those workers to defined contribution (DC) plans like 401(k)s instead. But some of those states are now considering reversing course as they recognize the value of DB plans in recruiting and retaining qualified workers.
Alaska closed its DB plan to new state employees in 2006 over concerns about the plan’s unfunded liability. Since then, the state has struggled to hire and keep teachers, state troopers and other public employees. Those workers often receive their training and then leave for other states that offer better retirement benefits, according to officials. And that frequent turnover can have a high cost: It costs nearly $200,000 to recruit, train and certify a single state trooper, according to a report from the Alaska Department of Public Safety.
Alaska’s lawmakers are now considering legislation that would reopen the DB plan and thereby reduce the high costs associated with turnover and constantly hiring and training new employees.
It’s a similar situation in Oklahoma, which shifted some of its state employees to a DC plan in 2014. Its legislature is also considering reversing course and putting those workers back on a DB plan.
Pensions have long been seen as a valuable tool to help hire and keep teachers, state employees and other government workers, since most private employers do not offer DB plans and the reliable source of retirement income that comes with them. Research also shows that amid widespread concerns about retirement security, Americans from every generation value defined benefit pensions and believe every worker should have access to one.
States like Colorado provide strong evidence that defined benefit plans continue to help attract and retain teachers and other public employees. According to research from the National Institute on Retirement Security, 65 percent of teachers in Connecticut, Colorado, Georgia, Kentucky, Missouri and Texas — all of which offer DB plans — serve for at least 20 years.
Colorado’s commitment to PERA
Over the past decade-plus, Colorado lawmakers have indicated they remain committed to strengthening PERA so the state’s public workers can continue to rely on a defined benefit pension for retirement security.
In 2010, the Colorado General Assembly passed Senate Bill 10-001, which contained a number of reforms to improve PERA’s funded status and sustainability, with a focus on preserving the Defined Benefit Plan. Five years after SB10-001, the state commissioned a study to compare PERA with other plan types, such as defined contribution plans. That study concluded PERA’s hybrid defined benefit plan was the most cost-effective, efficient plan available, and provides more income at retirement than the alternative plan designs for all ages and career paths. Another package of reforms then followed in 2018 with Senate Bill 18-200.
Changes resulting from those two pieces of legislation include increased member and employer contributions, reductions in the Annual Increase paid to benefit recipients, introduction of the Automatic Adjustment Provision and a direct distribution from the State budget of $225 million, to be paid to PERA annually. While the legislature opted to forgo 2020’s payment due to unprecedented pandemic-related budget cuts, efforts are underway to make up that payment.
While the changes to member and employer contributions and Annual Increases haven’t been easy, they ensure that PERA’s Defined Benefit Plan will be able to continue providing reliable retirement income that retirees can’t outlive.
Ensuring that PERA is sustainable allows school districts, local governments, public safety departments and other government agencies to continue to attract highly qualified, skilled employees and retain their expertise for years to come.
October is National Retirement Security Month. The aim: to increase understanding and emphasize the importance of planning for retirement, particularly for public employees.
Learn about the history behind this campaign, details and resources available this year, and more below.
The National Association of Government Defined Contribution Administrators (NAGDCA) has been raising awareness of retirement preparedness since 2006. Originally conceived of as National Retirement Security Week, the campaign grew this year and now spans the entire month of October.
The United States Senate unanimously approved a resolution acknowledging National Retirement Security Month. The resolution comes “with the goal of increasing the retirement savings and personal financial literacy of all people in the United States and enhancing the retirement security of the people of the United States.”
Anyone can register for webinars covering a variety of retirement-planning topics. ICMA-RC, an organization founded in 1972 to help public sector employees build retirement security, is hosting.
In addition to webinars, ICMA-RC created some of the most visually interesting retirement calculators you’re likely to come across.
Retirement planning is a year-round activity at PERA, as these stats from 2019 show.
The number of times PERA members logged into their PERA account topped 1.6 million.
Members were busy projecting future income as they planned their retirement budget. They ran more than 323,000 calculations using the monthly retirement benefit calculator on copera.org.
More than 29,000 attended a presentation led by PERA’s Field Education team.
PERA’s benefit counsellors held 4,560 individual appointments with members, most of whom are nearing retirement.
The State of Colorado announced last week that all state employees who make more than $50,000 annually will face furlough days on a graduated scale—the higher the salary, the more furlough days they must take.
“Colorado is facing one of the most challenging economic crises in our history, and public agencies are facing difficult budget constraints,” Governor Jared Polis said in a press release. “Just as the private sector is tightening its belt, so too must the government.
That announcement, which affects more than 30,000 employees, only applies to state employees. But thousands of other public employees also face furlough days—school workers, local employees, and more.
Some PERA members have asked, “will furlough days affect my PERA benefit?”
Furlough days can affect a PERA member’s highest average salary and service credit. But for many members, this won’t be the case. Read on to learn more.
The Furlough Effect on PERA Highest Average Salary
PERA members build a retirement benefit based on their highest average salary (HAS). For most members, this amount is the average of their top three years of earnings. (Some members use a five-year HAS and others have a one-year HAS.)
A furlough day reduces an employee’s salary for that pay period. Because PERA contributions are a percentage of pay, a member on furlough would send a smaller sum to their PERA account that during pay period.
As a result, a member who checks their PERA account online in the month in which they were furloughed will see a lower salary recorded than they had in previous months.
Should PERA Members be Concerned?
Despite a lower salary in the month of the furlough day(s), most members won’t see an effect on their retirement benefit. Why? The HAS uses a member’s highest one, three, or five years of earnings. All other years of earnings do not come into play.
Members who expect to continue working for a number of years beyond 2020 still have those highest-earning years ahead of them. Any furlough-related salary reductions this year won’t end up as part of their final HAS.
Members who are in their highest years of earning, however, would see an impact. The size of the impact depends on the number of furlough days they face.
Furloughs and Service Credit
Although furloughs result in fewer work hours in a month, PERA service credit is not based on hours worked. Instead, it is a measure of contributions.
If a member makes PERA contributions on at least $580 of earnings in one month, they receive one month of service credit, regardless of how many days or hours they spent working. So, if a PERA member is on furlough for any number of days in one month but still earns and makes PERA contributions on at least $580, then he or she will still receive a full month of PERA service credit.
It’s possible that some PERA members who work part time earn just above $580 each month. In these cases, a furlough day could drop their paycheck below $580. They will still receive service credit—it will just be prorated. For example, if they earned $500 in a month, they would receive 0.862 months of service credit (500 divided by 580).
In other words furloughs won’t affect service credit, even for those in their final years of employment, unless monthly earnings are less than $580.
For the first time, PERA members have amassed $1 billion in savings in PERAPlus 457 accounts. The account plays a unique role in the world of retirement planning. For those in PERA’s DB plan, a 457 plan can serve as a source of flexible savings.
The 457’s Place in the Savings Universe
A 457 plan is a type of tax-advantaged retirement plan (like a 401(k), 403(b), etc.) that is primarily reserved for government employees. Jeffrey Cable, the Defined Contribution Manager at PERA, says changes in federal law over the last 15 years have minimized the number of differences among these types of accounts, which can make them seem indistinguishable. But one key difference remains, and it’s significant.
Whereas in most retirement accounts you must reach a certain age before making penalty-free withdrawals, the 457 allows a person to take penalty-free distributions immediately upon leaving the person’s job.
What a 457 Looks Like in Practice
Say a person starts a position at a PERA-covered employer at age 25 and saves $1,000 each year. That person is able to invest those dollars in the same PERAPlus funds available to participants of PERA’s 401(k).
Between savings and investment gains, imagine that person leaves employment at age 35 with $15,000 in their 457 ($1,000 annual savings x 10 years, plus $5,000 in gains from investments). That person is able to access these funds at age 35 without the tax penalty.
If those same funds were instead in a 401(k), distribution of the funds would be penalized by the IRS in the form of additional taxes until that person turned 59.5.
Taking Advantage of the 457
The lack of age restrictions can add flexibility to financial planning, Cable said. Although 457 savings are retirement savings, the ability to withdraw them before retirement can allow those funds to serve double duty–a backup emergency fund, for example. “It can be perfect for young people who may or may not have a full career in their current role,” he said.
PERAPlus 457 Facts and Figures
Administered by PERA since: 2009
Number of PERA participants as of December 31, 2019: 18,919
Available to: Every PERA employer can offer the 457 to employees, though not every employer has enrolled in the program.
Tax advantages: You make contributions to a 457 account on a pre-tax basis; then you pay taxes when you take distributions in the future. Some employers offer a Roth 457 option as well. In that case, you may choose to also make tax-paid contributions, and qualified distributions are tax free.
The maximum amount you can save in a 457 plan in calendar year 2020 is $19,500. This is not a coordinating limit—you may contribute the maximum to a 457 and a 401(k) this year. If you are 50 or older, you may contribute up to $26,000 in each plan—or, if you are in your last three years before retirement, you may be eligible to contribute even more.
However, few members hit that max. In fact, most PERA members with a 457 account contribute between $1 and $416 each month. Here’s the breakdown:
The year has gotten off to a rocky start in the stock market, as concerns about the economy, inflation, and the Russia-Ukraine conflict have led to a series of ups and downs in the major stock indexes.
PERA’s investment staff, led by Chief Investment Officer Amy C. McGarrity, manages a portfolio of more than $60 billion (as of Sept. 30, 2021) on behalf of PERA members and retirees. While staff monitor market activity and trends, PERA’s investment focus is on the long-term.
McGarrity recently participated in a discussion with other CIOs at the Council of Institutional Investors’ spring conference, where she and the other panelists spoke about the challenges of investing in today’s market environment and the importance of a strategic, diversified portfolio.
“We are in the business of providing retirement security, so we invest strategically,” McGarrity said. “We don’t try to predict what the markets will do from day-to-day, but instead we remain invested in our primary asset classes throughout the market cycle, with a focus on long-term returns.”
Strategic asset allocation
The PERA Board of Trustees sets PERA’s strategic asset allocation, which dictates how the fund’s portfolio should be split between various types of investments like stocks, bonds, and real estate. Those investments carry different levels of risk (potential for loss in value) and potential return (gain in value). For example, stocks can generate strong returns but often come with a higher level of risk, while bonds typically generate lower returns but also have a lower level of risk.
The result is a diverse mix of investments with varying levels of risk that can help protect the overall portfolio during times of market volatility.
While the stock market may go up or down in a given year, PERA’s strategic asset allocation was developed with the goal of ensuring PERA’s investments will generate value over the course of several decades, regardless of what happens in any one year.
Focusing on the long-term
Being invested for the long-term means being exposed to the ups and downs of market cycles. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns.
For example, in early 2020, global equity markets saw steep losses as COVID-19 spread around the world. By the end of the year, the markets had rebounded and even posted gains.
PERA’s assumed rate of return — one of the key numbers PERA uses to forecast how much money the fund will have on hand to pay benefits in the future — is 7.25 percent. While the actual return in a given year may be higher or lower than 7.25 percent, the goal is to meet the assumed rate of return over a period of 30 or more years. PERA’s annualized return over the past 10 years is 9.4 percent. By maintaining a well-diversified portfolio of assets and a focus on long-term returns, PERA is well-positioned to weather ups and downs in the markets and continue providing lifelong monthly benefits to current and future retirees.
Colorado PERA’s Board of Trustees met on Friday, September 11. In the meeting, the Board reviewed a report assessing its governance procedures and heard reports from staff, among other agenda items.
Staff Reports
PERA Executive Director Ron Baker noted the continuing ways in which PERA has adapted to a vastly changed environment. Baker shared with the Board up-to-date membership statistics:
PERA’s Chief Investment Officer, Amy C. McGarrity, updated the Board on market conditions and PERA’s portfolio. She noted that the quick recovery seen in public equities has been as much as a surprise as the onset of the global pandemic and swift market decline.
This recovery, however, has been uneven as a few companies account for a significant portion of the recovery while other economic indicators, like employment, still face serious challenges ahead.
She added that, while the investment team did reallocate funds within asset classes in the preceding months, these changes were made within the framework of the Board’s asset allocation policy rather than a tactical move.
Patrick Lane, PERA’s Chief Benefits Officer, shared a report outlining PERA’s service delivery so far this year. The number of retirements through July 31 is nearly identical to 2019. And, despite PERA’s physical buildings being closed to the public since March, PERA counselors have performed nearly as many individual counseling sessions as in 2019. However, PERA has processed nearly 15% more benefit estimates and 20% more applications to purchase service credit compared to last year.
Other details Lane shared include:
Member savings in PERAPlus 457 plans recently crested $1 billion for the first time.
The call center has answered 122,976 calls through July 31. The most frequent questions have been about health care, web access, and retirement planning.
The Field Education team quickly moved their curriculum to online-based webinars and have reached more than 15 times as many people through digital means compared to 2019.
Governance Review
The Board routinely has third parties assess its procedures and operations. Cortex Applied Research, the Board’s governance consultant, analyzed the Board’s governance framework and fiduciary best practices. Their findings included:
PERA’s Governance Manual “ranks very highly; it is consistent with the published standards in almost all respects and generally meets or exceeds the practices of the peer group.”
The Manual “is among the most detailed and comprehensive manuals in the Peer Group.”
“The code of conduct was also particularly strong.”
PERA’s Governance Manual is held up as an example in multiple industry publications.
