Colorado PERA’s Board of Trustees met on January 17,
considering presentations on PERA investments, a briefing on legislative
issues, an update to PERA’s Signal Light Reporting, and more.
Investment update
2018 was a difficult year for global public asset classes.
The preliminary results for 2019 are more positive, although the returns have
yet to be finalized and audited.
Amy C. McGarrity, PERA’s Chief Investment Officer, recapped 2019 achievements and listed projects her division will undertake in 2020:
- PERA’s Board sets asset allocation guidelines for PERA’s investment division. A new asset allocation was approved at the November 2019 Board meeting, and McGarrity presented the resulting 2020 policy benchmark weights.
- In 2020, PERA’s Board will evaluate their existing Proxy Voting Policy and consider whether to implement enhancements beginning in 2021.
- In late 2019, PERA’s Board selected Callan as the investment consultant for PERA’s Defined Contribution Plan. With their assistance, PERA will undergo an evaluation of current and proposed options in this plan.
- In January 2020, PERA liquidated its BlackRock Fixed Income passive account and brought management of those assets in-house, a move expected to result in improved performance at a lower cost.
Expecting a relatively
quiet year at the Capitol
Colorado’s Legislative Session began January 8. Lawmakers
are already considering a few bills that affect PERA. As currently written, these
bills are narrow in scope, affecting only a small number of PERA members in
specific positions. Bills introduced so far include:
- SB 20-057, which would make firefighters who work in the Department of Public Safety in the Division of Fire Prevention and Control eligible for the same PERA benefits as Safety Officers.
- HB 20-1127, which would modify working-after-retirement rules for retirees who work in specific, hard-to-fill positions for boards of cooperative services (BOCES) that serve rural areas of the state.
You can track developments on these bills, and all PERA-related legislation, here.
A new rubric to gauge
PERA’s funded status
PERA’s funded status is a closely watched metric. Calculating this number is a complex process that requires projecting investment returns, demographic information, changes in employment and salary information, and other factors decades into the future. Interpreting these calculations can also be a challenge. Even with careful consideration and planning, a single outcome is not guaranteed. Instead, these models show a range of possible outcomes.
In 2014, the Legislative Audit Committee directed the Office of the State Auditor to develop a way to make PERA’s financial status easier to understand. The result of this directive was Signal Light Reporting, which translates risk into green, yellow, and red levels.
During the Board meeting, Segal Consulting previewed an enhanced version of this tool, called Signal Light 2.0.
Signal Light 2.0 measures plan risk in a more robust way,
and it is intended to more effectively communicate funding probabilities,
incorporating a variety of assumptions used in calculating PERA’s funding
status.
One significant improvement in Signal Light 2.0 is the use of stochastic modeling. The first version of Signal Light Reporting modeled possible outcomes if PERA’s investment returns achieved its assumed rate of return (7.25 percent) year after year. The assumed rate of return is the target over time, but stochastic modeling recognizes that one year might significantly underperform that rate while other years might significantly outperform. The sequence of these over- or underperforming returns can affect account balances over time—even if the average investment return is the same.
Signal Light 2.0 calculates 5,000 different possible scenarios,
considering PERA’s asset allocation, expected returns, risk levels, and more. The
analysis shows how many of these 5,000 different scenarios meet specified outcomes,
such as reaching fully funded status in 30, 40, and 50 years. In the end, this analysis
is distilled into a signal light color.
The next iteration of Signal Light 2.0 may look at
additional assumptions, such as demographic assumptions, or payroll growth.
Varying these assumptions using stochastic modeling should result in a more
complete picture of the probabilities associated with PERA’s funding.
This calculation is, by definition, an ongoing process. Each
signal light report is a snapshot of the outlook on a specific day in time. It
helps tell a story about funding risk, but that story changes every day. PERA
will continue to use this methodology to help capture the overall outlook amid
constantly changing circumstances.
Asset classesA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.Assumed rate of returnThe investment return a pension plan expects to achieve or beat over the long term. This rate is key to estimating how much money the plan will have on hand to pay future benefits.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.Fixed incomeA type of investment that pays investors a fixed rate of interest over a set period of time. Bonds are a common type of fixed income investment.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.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.
Why only men on board (depicted in photo)
Hi Alice. For more information about the composition of PERA’s Board, visit https://www.copera.org/about/board-trustees. The photo used in this story showed just one out of 16 PERA Trustees.
Just a note to let you know that as a recipient of PERA Benefits, my perception of PERA is that it has been taken over by politicians who are not concerned with the promises made by PERA employers to provide future benefits which are adequately adjusted for changes. Historically PERA investments generally and consistently exceeded comparable investment portfolio medians. Several years ago, liberal politicians decided that the established record of performance for investments was inadequate to achieve the politically changed rules for the PERA. Higher standards were established and PERA members were required to ‘bite the bullet’ to achieve the new standards. PERA Board composition was changed to negate member participation and increase political participation. Suddenly new rules concerning investments satisfying political interests were placed on fund managers. As a result, PERA performance began to drop below comparable medians. Rather than admit that their changes may have had a detrimental effect, the ‘board’ decided that once again the members must shore up the political shortcomings. The members again took it in the ‘shorts’ to forego cost of living adjustments because the board and the politicians have made poor investment decisions when economic conditions are at the highest point in history. My personal observation is that politicians at the local level are not qualified to run pension plans and they should be run by investment professionals who are truly committed to the people being served, and the people being served should have adequate input into whether are not their interests are being protected. You are not doing this.
Now you propose a ‘new rubic’ – a panacea which will be used to determine if members must once again be asked to ‘sacrifice for the good of the plan’ based upon a complicated system that can be manipulated to show whatever the designers want it to show – green, yellow, or red. Frankly, if the system is run by the politicians, it will always show red. They will skew the bell curve any way they want by creating new rules and laws to benefit political objectives, not the needs and desires of the recipients. I can foresee a time when the politicians decide that the plan has over-achieved its goal and decide to take money away from the plan to finance other politically biased needs – just pass another law like they did to create the current deficiencies. What I am saying is that I do not trust you to protect my interests.
Everything Gary Petersen said. PERA is not to be trusted, ever. That was made clear with their push to pass SB-001 in 2010, reducing (and in more recent years, eliminating) the annual benefit increase* permanently after a disastrous one-year market downturn. Even if there was a need for drastic permanent cuts, the brunt of that burden was put squarely on the backs of retirees who had worked for decades in public service and had made their required contributions into the PERA system, only to see that system fail them when it was needed most. Not just for a temporary period of recovery, but forever.
DO NOT rely on PERA to have your backs. They will not.
*Interesting that PERA has reverted to using the pre-2010 terminology “annual benefit increase” after calling it a “COLA” (Cost of Living Adjustment) during the time they were urging passage of the bill to suspend and reduce it. “COLA” had a more politically charged connotation, suggesting a benefit that lowly public servants should not be entitled to, no matter that all sides had contracted to it.
Very Appropriate Photo!
Executive Director and Board Chair with their backs to viewer, and otherwise just faceless suits in the background… We get the message!
Everything Gary Petersen said. PERA is not to be trusted, ever. That was made clear with their push to pass SB-001 in 2010, reducing (and in more recent years, eliminating) the annual benefit increase* permanently after a disastrous one-year market downturn. Even if there was a need for drastic permanent cuts, the brunt of that burden was put squarely on the backs of retirees who had worked for decades in public service and had made their required contributions into the PERA system, only to see that system fail them when it was needed most. Not just for a temporary period of recovery, but forever.
DO NOT rely on PERA to have your backs. They will not.
*Interesting that PERA has reverted to using the pre-2010 terminology “annual benefit increase” after calling it a “COLA” (Cost of Living Adjustment) during the time they were urging passage of the bill to suspend and reduce it. “COLA” had a more politically charged connotation, suggesting a benefit that lowly public servants should not be entitled to, no matter that all sides had contracted to it.
Is there any latest information regarding legislation to reverse the WEP provision? I’ve paid in tens of thousands of dollars into social security with little prospect of recovering those funds. Forget the interest, I’d be happy to settle for my principal.