Good governance is standard practice for Colorado PERA

Good governance practices don’t always draw headlines. But staying
out of the news may be a reflection of a retirement system that is running
smoothly and adhering to standards that protect the best interests of its members
and retirees as well as employers and taxpayers.

The National
Conference on Public Employee Retirement Systems (NCPERS)
recently issued guidelines for governance best practice for public retirement
systems. The guidelines serve as a checklist, of sorts, for policies,
procedures, and practices of public retirement systems such as Colorado PERA
that help ensure stakeholder needs are effectively met.

According to NCPERS, there is a strong link between retirement
systems that follow best practices and their performance. Research shows that
effective governance may improve long-term investment returns by up to 2.4
percent, annually. And, along with effectively implementing best practices, the
need for retirement systems to communicate about how they work to benefit their
stakeholders has never been greater.

The NCPERS
Best Governance Practices for Public Retirement Systems includes the
following categories of best practice, each of which PERA works to achieve.

Governance Manual

According to NCPERS, “a fund should adopt a governance manual that serves as a central repository for the fund’s primary governance documents.” PERA’s Governance Manual, first developed in 2001 and updated on a regular basis as standards change, provides a framework and starting point for our oversight and governance functions, including:

• Summaries of statutes, regulations,
  and Board practices;
• PERA’s Mission and Vision;
• Board policies, including the Board Performance
  Evaluation Policy.

Board Practices

Board practices
can have a proven impact on performance and risk oversight. The PERA Board of
Trustees engages in best practices to ensure strong oversight and plan
performance. A few practices are:

• Development of a strategic plan, updated for 2019-2023;
• Undertaking Board evaluations, as
  referenced in the Governance Manual;
• Conducting actuarial valuations to inform the Board of the fund’s
  future financial needs;
• Using asset allocation studies to
  identify asset mixes for meeting future financial needs;
• Voting its proxies.

Board Policies

The PERA Board
has adopted several policies designed to guide the retirement system to its
stated goals, such as:

• Standards of conduct, ethics and conflict
  of interest rules, such as those included in the Governance Manual;
• A Board Communications Policy that
  facilitates effective communications and outlines standards and procedures for
  trustees and executives, included in the Governance Manual;
• An Investment Policy that includes goals, monitoring
  procedures, and Board risk tolerances.

Risk Oversight

PERA’s risk
management includes policies and assessments that provide accountability:

• Risk assessments (e.g. audits) that test controls and potential
  outcomes of risk events;
• Early adoption of sensitivity analyses,
  some of which is included in the CAFR;
• Key measures, such as signal light reporting, that assess risk exposure.

Strategic Planning

Strategic
planning is a hallmark of successful organizations. PERA’s Strategic Plan, newly updated in 2019, includes several
components. A few examples consist of:

• Goals and performance measures for key
  functions;
• Review of long-term investment goals,
  investment risk tolerances, and diversification objectives;
• Succession and leadership development
  plans and refreshed Board policy.

Reporting: Key Performance and Risk Measures

PERA issues a
number of performance and risk reports, many of which are compiled within the
annual CAFR.
A few highlights:

• The funded ratio as measured by the
  ratio of fund assets to fund liabilities;
• Net annualized investment returns
  relative to the return assumption and benchmarks;
• Future benefits owed to members as
  measured by the actuarial accrued liability;
• Net assets available for benefits.

PERA also reports on the results of its effectiveness with members through the
annual CEM Benchmarking review of service and cost, incorporating:

• Timeliness and accuracy of
  distributions paid to members and beneficiaries;
• Member satisfaction with fund services
  as measured by surveys and correspondence.

Stakeholder Communications

PERA regularly
communicates with members and other stakeholders through the website, publications, PERA
on the Issues, and other resources. A few of these include:

• A mission
  statement that describes
  the fund’s purpose to members and the public;
• Surveys that measure participant
  satisfaction, while providing a basis for improvements;
• Updates, letters, annual reports on fund operations and forms for
  member beneficiaries.

At PERA, we strive to exceed expectations and to provide
transparency into complex operations. These policies and practices establish a
foundation to ensure that PERA operates as an efficient, trustworthy partner in
providing retirement and other benefits to more than 600,000 current and former
Colorado public employees.

Actuarial valuationAn annual assessment of a pension plan’s finances and membership. This forms the backbone of the plan’s annual financial report.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.BenchmarkA tool used to measure performance. For example, an investor can use a stock index as a benchmark to measure his/her own investment performance compared to the market as a whole.BenchmarkA tool used to measure performance. For example, an investor can use a stock index as a benchmark to measure his/her own investment performance compared to the market as a whole.