July 2019 Telephone Town Hall FAQs

On Tuesday, July 9,
Colorado PERA conducted telephone town halls for members and retirees. These
town halls gave members and retirees a chance to ask questions and talk to PERA
leadership about the investment performance in 2018, PERA’s funded status, and
the impact of recent legislation. If you missed the calls, recordings are
posted here.

A summary of the most asked questions and responses is below. Questions about
individual retirement benefits may be answered by contacting PERA Customer
Service at 1-800-759-7372.

What was PERA’s investment return in 2018? My investments did better in 2018.

For the year ending December 31, 2018, PERA’s investment portfolio returned a negative 3.5 percent. While last year’s return was disappointing, PERA is a long-term investor and the investment program is designed to perform over the long term. PERA’s investment program has returned 8.8 percent over 10 years. 

For most investors, 2018 was a
difficult year. Global equities, as measured by the MSCI ACWI, declined 9.4
percent in 2018, while the Bloomberg Barclays U.S. Aggregate Bond index was
flat for the year. When comparing investment performance, it’s important to
keep the time period in mind. Different time frames will lead to differences in
investment performance because the market can fluctuate from one period to the
next.

What is PERA’s funded status after 2018?
Why did the funded status decline?

The funded status
for the PERA defined benefit trusts at the end of 2018 was 59.8 percent,
compared to 61.3 percent at the end of 2017.The investment return is just one piece of what goes into the
plan’s funded status. We also make assumptions about factors such as salaries,
head count growth, the number of retirements, among others. Last year, many of
our demographic assumptions didn’t play out favorably. For instance, payroll
growth was stronger than we expected, and the School Division, PERA’s largest,
had more early retirements. These factors also impact the funded status.

How is last year’s legislation working?

In 2018, the Colorado General Assembly passed Senate Bill 200 which included provisions to help PERA adapt to changes in demographics or the market. The legislation is designed to help ensure the fund’s stability over time and put PERA on a path to full funding by 2047. The bill made changes to the plan that included increases in contributions and modifications to benefits.

On July 1, active members, except
those who work in the Local Government Division, saw an increase in
contributions, and most members are now contributing 8.75 percent of their pay
toward their PERA benefit. PERA retirees are experiencing the second year of
the suspension of the annual increase (AI).

The legislation also included a
provision, called the automatic adjustment that is triggered when PERA falls
ahead of or behind schedule to reach full funding. These changes are not easy
on PERA members or retirees. They are, however, designed to make sure PERA
stays on the path that ensures retirement security today and tomorrow.

When will retirees get an annual increase?

Legislation in 2018 (SB 200)
suspended the annual increase for 2018 and 2019. The legislation also contained
“guard rails” (called the automatic adjustment) to keep PERA on the path to
full funding by 2047. The negative investment year in 2018 and other demographic
shifts affected PERA’s funded status, and the automatic adjustment will go into
effect in July 2020. This means that when the annual increase is restored in
July 2020, it will be 1.25 percent.

How does the automatic adjustment work, and how long will it take for
the AI to go back up and contributions to go down?

Last year’s investment losses
coupled with demographic shifts mean that PERA has fallen behind on its funding
goal, which has triggered the automatic adjustment. That means that the three
rates: member contributions, employer contributions, and the AI paid to
retirees, will all change beginning July 1, 2020.In July 2020, the AI paid to retirees will be set at a maximum of
1.25 percent.

SB 200 contained scheduled
increases for members (except for members in the Local Government Division) of
0.75 percent in July 2019, 0.75 percent in July 2020, and 0.5 percent in 2021. Due
to the automatic adjustment, member contributions will increase by an
additional 0.5 percent, on top of the scheduled increases, in July 2020. That
means in 2020, most members will contribute a total of 10 percent to PERA from
each paycheck.

The amount all employers contribute
to PERA will also increase by one half of one percent in July 2020. Total
employer contributions will range from 14.2 percent to 23.6 percent, depending
on the Division.

While it’s challenging to predict
exactly when the AI will go up and member and employer contribution rates will
go down, it may take a decade for these changes to go back to current levels.

Are PERA employees participating in cuts like we are?

The 300 PERA employees are also
PERA members and they began contributing more on July 1. They will also have to
wait three years before becoming eligible for a reduced AI in retirement.

Can investment fees be reduced to fund the annual increase?

PERA takes seriously our responsibility to be good stewards of the resources we manage on behalf of our members. The cost to invest $48 billion is competitive and low – 37 basis points, or 0.37 percent of assets. Administrative costs are also low when PERA is compared to our public pension peers across the country.

About 60
percent of PERA’s assets are invested internally, by PERA employees. By
managing these investments in-house, PERA saves about $45 million a year.

Does PERA invest with a focus on environmental sustainability?

While PERA
recognizes the important role of all financially material factors, including
those that may pertain to sustainability, PERA does not make investment
decisions to suit personal beliefs of any person or group.

An investment strategy
based on personal value systems may be impossible to implement in a way that
reflects all our members’ individual beliefs. As a fiduciary, our highest
priority must remain the stability of the fund for all our members.

The PERA Board has adopted a Statement
that outlines PERA’s policy on divestment. PERA does not have the authority
to determine social, environmental, or economic policy, and exists to invest
for one purpose – to ensure the retirement security of Colorado’s current and
retired public employees.

Is PERA still a valuable benefit?

Yes,
absolutely. The PERA defined benefit plan is well-designed to meet the goal of
giving members the best replacement income in retirement. In other words, PERA
does a better job of replacing a member’s working income than any other
retirement plan on the market – including Social Security and 401(k) style
plans. When PERA defined benefit members retire, they continue to get a steady
PERA paycheck for the rest of their lives—even if, like some of our members,
they live into their hundreds. This is why PERA is a benefit you can’t outlive.
With a 401(k), once that account is depleted, the benefit is done.

Also, it’s
important to remember that PERA members have benefits even when the unexpected
happens. For example, PERA members get survivor and disability benefits. And
they have access to a low-cost, world-class 401(k) and/or 457 plan. What’s more
is that PERA benefits are portable. You can move from one PERA employer to
another and your retirement plan will stay the same, meaning you have
flexibility in where you work throughout your career while continuing to grow
your retirement benefit.

What is PERA doing to eliminate the WEP?

PERA staff is meeting with members
of the Colorado Congressional delegation to educate and heighten awareness of
how this federal law impacts PERA members who may work for a PERA employer and
also work for an employer that participates in Social Security. There have been
efforts recently to change the calculation or eliminate the Windfall
Elimination Provision. Currently, U.S. Congressional Representatives Crow,
Tipton, and Perlmutter have signed on as co-sponsors of H.R. 141. You can find
more information on the status of WEP and federal legislation here.
We encourage members to contact their congressional representative to let them
know how the WEP impacts them.

Is PERA going to increase the PERACare subsidy for retirees under 65
who aren’t yet eligible for Medicare?

We know the cost of pre-Medicare
health care coverage has increased significantly. We’ve been able to offer
lower cost plans to our retirees who have Medicare, but the pre-Medicare
coverage market remains a challenge for us, and this is true for most Americans.
We have been encouraged by efforts at the state level to explore ways to reduce
health care costs for Coloradans. But, increasing the subsidy for pre-Medicare
PERACare enrollees would negatively impact the financial status of the health
care trusts and also require legislation, and we don’t anticipate the Board
seeking or supporting legislation that would negatively impact the financial
health of the trusts.

FiduciaryA person who manages money on someone else’s behalf and who has a sworn responsibility to manage those funds in the best interest of the client. DivestmentThe act of selling one’s investments in a particular company or sector, often for philosophical or political reasons.DivestmentThe act of selling one’s investments in a particular company or sector, often for philosophical or political reasons.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Basis pointOne hundredth of one percent. 100 basis points = 1%.