Retirement insights from a Colorado PERA perspective

Legislation & Governance

2020 Experience Study: Preparing for a Secure Future

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Photo credit: Artur Marciniec – 167454627 – iStockThinkstock

Key points from the story:

  • PERA plans for the long term by projecting how income, assets, and costs will change over time.
  • The Board sets actuarial assumptions, which are the underlying factors that affect these projections.
  • Every four years, the Board reviews the actuarial assumptions it uses with something called an experience study.
  • The Board completed this work in November.

Imagine you were asked to make a budget. Not just for this year but for the next 30. You know your income today, but you’d need to estimate how much you’ll be making one, two, three decades from now. You’d need to estimate the price of groceries and gas will change. You’d need to project how what you spend your money on changes over time—maybe childcare expenses go down but medical expenses go up.

PERA is in the business of thinking about the long term, too. A 35-year-old PERA member trusts that the contributions sent to PERA today are building a secure retirement 30 years down the line. So how does PERA go about planning for 2050?

Budgeting for the Future at PERA

PERA isn’t exactly creating a household budget, but the analogy is a good place to start.

Instead of income, PERA must project how contributions change over time as staffing levels and salaries fluctuate. It must consider what investment returns to expect over the long term and the many ways in which the long-term interest rate has an impact.

And instead of expenses like gas and groceries, PERA must project the amount retirees—both current and future—will receive during their retirements.

This might seem like a straightforward task, but it’s not. Because members and cobeneficiaries can’t outlive their pension, the amount they receive is tied to their lifespan. So PERA must project how long retirees live. Because the amount a member receives depends on length of service, salary, and age, PERA must project how these factors will change as well.

The cost of paying these benefits to current and future retirees is called PERA’s liability. It isn’t all due at once—that 35-year-old still has a few decades before collecting a pension—but it still counts as a liability today.

Calculating these figures far into the future is the first step in sound financial planning.

The Language of the Future

PERA plans for these future changes and conditions using something called actuarial assumptions

Actuarial assumptions are grouped into two categories—economic and demographic. Economic assumptions include information like inflation, salary increases, and the projected growth in the number of employees hired by PERA employers. Demographic assumptions include information like the ages at which PERA members retire and how long people tend to live.

While most assumptions deal with factors outside PERA’s control, understanding them is essential.

Comparing Assumptions to Experience

Setting actuarial assumptions is not a one-time event. PERA’s Board regularly reviews actuarial assumptions using something called an experience study.

“The Board’s responsibility to set the actuarial assumptions of the plan is a task that’s very important,” said Ron Baker, PERA’s Executive Director. “This is a critical step to make sure PERA is accurately measuring and reporting on our financial status, and that’s a responsibility the PERA Board takes very seriously.”

An experience study compares what actually happened over the last few years against what PERA projected would happen. The Board can then adjust the assumptions PERA will use for the next four years. This rigorous review process keeps projections as accurate as possible. This process is an industry best practice for all pension systems.

PERA’s liability changes when an actuarial assumption changes. It’s as if the person making a household budget for the next 30 years determined that health care would likely cost a different amount in 2050 than originally planned and adjusted his or her retirement plan accordingly. Although those aren’t bills that need to be paid today, having a clearer goal of what those bills will be in the future makes it easier to prepare for when they do come due.

2020 Experience Study

At its November meeting, the Board reviewed the 2020 experience study conducted by their actuarial consultant (Segal) and voted to adopt the recommendations made by Segal on the assumptions PERA will use going forward.

Changes to assumptions include:

  • Lowering the inflation assumption from 2.4% to 2.3%
  • Lowering the payroll growth rate assumption from 3.50% to 3.00%
  • Lowering the active member growth assumption for each division. Current growth assumptions range from 1.00% to 1.25%. Recommended growth assumptions range from 0.25% to 1.00%.
  • A number of changes to the mortality assumptions.

Assumptions that didn’t change include:

  • Maintaining the investment return assumption of 7.25%
  • Maintaining the administrative expenses assumption of 0.40% of payroll
Using New Assumptions

The actuarial assumptions adopted have an effect on a number of calculations performed by PERA. For example, the calculations for reduced (early) retirement and the cost of purchasing service credit use these assumptions. Those calculations use factors, like longevity, that change when assumptions change.

The benefit checks that current retirees receive are not an actuarial assumption Retirees won’t see any change to their monthly benefit because of the experience study.

These assumptions will also be used in the 2020 Comprehensive Annual Financial Report, which will be released in June 2021. This report contains a calculation of PERA’s liabilities using the actuarial assumptions adopted by the Board.

The ultimate goal of the experience study is to provide the most accurate portrait of the future possible. The routine and rigorous examination of this portrait enables PERA to prepare for the future and to provide retirement security for all of its members.

Actuarial assumptionData such as demographics, mortality rates, and investment returns that retirement plans use to calculate future assets and liabilities.Actuarial assumptionData such as demographics, mortality rates, and investment returns that retirement plans use to calculate future assets and liabilities.Actuarial assumptionData such as demographics, mortality rates, and investment returns that retirement plans use to calculate future assets and liabilities.Actuarial assumptionData such as demographics, mortality rates, and investment returns that retirement plans use to calculate future assets and liabilities.Actuarial assumptionData such as demographics, mortality rates, and investment returns that retirement plans use to calculate future assets and liabilities.


  1. Tom Fox says:

    Did the assumption of how long a person will be retired, or how long their spouse might live to collect benefits, get changed, and to what? I think your average investment return at 7.25% is too high. What has PERA’s actual return been over the past 5-10 years?

    • Rich says:
      • Tom Fox says:

        Thanks, Rich, for replying. I understand PERA was using old mortality tables but a few years ago they were updated (by the insurance industry) and people are living a few years longer now (hence life insurance costs went down)? Did PERA adopt the new tables? Increasing longevity would be a negative for PERA’s finances…

        • PERA On The Issues says:

          Hi Tom. Updating the mortality tables PERA uses is an important piece of the experience study. The mortality tables PERA uses are not borrowed from anywhere else–rather, they are developed based on data specifically about PERA members and retirees in order to accurately reflect that population. And you are correct about your last point–increased longevity means more money in the pockets of retirees, which PERA must account for.

    • Steve says:

      Tom – Only answering the 2nd question.
      PERA returns are 9% over the past 10 years, according to their investment page… found at:
      Under the heading –> What does PERA do when market returns are negative?

    • PERA On The Issues says:

      Hi Tom,
      To answer your first question: yes, the assumptions about how long a person will be retired and assumptions about cobeneficiaries are both reflected in mortality table assumptions. There is not a single number for this. Instead, actuaries break down the population into many segments to get the most accurate picture possible. For example, the assumption for a 62-year-old male retiree from the school division has a different assumption than a 59-year-old female retiree from the state division.

      Other commenters have already shared links to information about PERA’s returns.

  2. Ryan Christy, CFA says:

    If administrative expenses can grow with salaries, what governs salaries? That .40% could be any dollar number if salaries go up, right? Can numbers come down?


    Ryan Christy, CFA

  3. Ken says:

    Active member growth is predicted to decrease? Does that translate into fewer people employed by PERA eligible employers? Could you please explain the active member growth variable. Thanks

    • Ryan Christy, CFA says:

      Good question, Ken. You hit on a huge part of the equation. I look forward to a solid response.

      • Mike - MBA, JD says:

        Don’t hold your breath for a solid response…

        Curious if the lowered growth assumptions were based on only what’s happened since CDE’s 2017 teacher shortage report:
        …including what is likely to be exacerbated (e.g. teachers burnt out from stress; earlier than expected retirements; scared to come back to teach; etc.) due to Covid’s negative impact on teacher’s mental/physical health in 2020.
        I’d love to know the impact, in actual dollars, behind the lowered growth assumptions (together with the article’s other stated assumptions) as it relates to the estimated number of years before PERA’s unfunded liability is no more. Oh, and lets not forget Polis’ one-year waiver this year of the $225 million STATUTORILY required contribution to PERA by the State of Colorado.

        • PERA On The Issues says:

          Hi Mike.

          Thanks for your questions. Hopefully these answers help:
          -This experience study took into account data from 1/1/2016 through 6/30/2019.
          -PERA updates liability figures every year in the Comprehensive Annual Financial Report. These will take into account the new actuarial assumptions. The CAFR is released in June.
          -Finally, just wanted to clarify that the one-year suspension of the direct distribution was the result of a bill passed by the state legislature. The governor does not have the power to waive this contribution.

        • Mike says:

          Verbatim from PERA’s own Legislative Update, July 2020:

          “Current law provides for an annual direct distribution to PERA from the State, currently set at $225 million, until PERA is fully funded. This bill suspends that direct distribution for the 2020–21 fiscal year.

          Status: Signed into law by Governor Polis on June 29, 2020.”

    • PERA On The Issues says:

      Hi Ken. Active member growth is still projected to increase, but it’s projected to grow at a lower rate compared to prior actuarial assumptions.

      One factor taken into consideration is actual numbers from previous years. For example, in 2009: the state division had 54,333 active members; the school division had 119,390; and the local government division had 16,166. In 2019, those numbers were 55,252; 128,938; and 13,086, respectively.

  4. Jeffrey Esbenshade says:

    The rate of return assumption 7.25% is to high. State of Fla lowered their
    rate 1 year ago to 7.2% and this Oct. to 7%. PERA will not receive the extra
    $220 million from State of Colo this year. This adds to the unfunded liabilities, with 30 year US Treasury’s yields 1.5% I don’t think 7.25% yield
    is a good number.

    • Mark Hardy says:

      Scroll-up to see an answer to your question on returns. PERA doesn’t focus on low return investments. All of their investment portfolio details are available on their website and summarized in the annual report.

  5. Justin Hamel says:

    Would the PERA Board like to add more organizations to the PERA family of partners? Are there non-PERA municipalities, counties and/or special districts in Colorado that would like to turn their pension systems over to PERA for administration that PERA itself feels would have at least a neutral and possibly a positive impact on PERA in the long run? Is Colorado’s General Assembly interested in expanding PERA? I’m sure that new legislation would have to be adopted to legally facilitate any level of expansion. We sure don’t want to take on any new entity’s pension problems, only its strengths and/or strategic opportunities.

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