Key points from this story:
- The PERA Board selected Empower Retirement as the new recordkeeper for PERA’s defined contribution (DC) plans
- Nothing will change for PERA members right away
- New actuarial assumptions mean it will take longer for PERA to reach full funding
- An automatic adjustment will likely be announced with PERA’s annual report in June
PERA’s Board of Trustees convened virtually for its regularly scheduled meeting on March 19. The Board heard updates from PERA staff on a number of aspects of PERA’s operations, and also took action on some items, including selecting a new recordkeeper for PERA’s defined contribution (DC) plans.
The Board also discussed how changes to PERA’s actuarial assumptions — estimates for inflation, rate of hiring and how long people will live, for example — will affect how long it takes for PERA to reach full funding.
Defined contribution plans recordkeeper
PERA members who participate in the PERAChoice DC plan or PERAPlus 401(k)/457 plans know Voya Financial as the company that has been the recordkeeper for those plans since 2011. But recordkeeping needs change over time, so, last year, PERA began the process of reviewing its recordkeeping needs and selecting a recordkeeper who could deliver the best value for members.
Five companies responded to PERA’s request for proposals. At the March 19 meeting, the Board weighed the pros and cons of each company and voted to move forward with Empower.
What that means for PERA members
Nothing will change right away. At some point in the future, all accounts with Voya will be transferred over to Empower. After that happens, participants will be able to access their accounts directly through Empower, either by logging on to Empower’s website or by calling Empower on the phone.
Some of the advantages Empower brings to the table include:
- Significant experience with large public plans like PERA
- Expanded call center hours
- Enhanced digital and mobile tools
- Simplified account access
PERA staff will begin contract negotiations with Empower to finalize the details of the partnership and the transition from Voya to Empower.
PERA will be sure to communicate any changes to members before they happen.
What new actuarial assumptions mean for PERA
Every four years, PERA conducts what is called an experience study. The Board uses this study as it reviews actuarial assumptions actuarial assumptions are projections about factors, including inflation and life span, that have an effect on PERA’s unfunded liability calculation, among other things.
An experience study compares the projections PERA had been using to the last few years of recorded data, known as “experience.” The Board can then adjust the actuarial assumptions PERA will use for the next four years. This rigorous review process keeps projections as accurate as possible.
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.
The last experience study took place in 2020. The Board updated its assumptions in November. The changes included revisions to the inflation, payroll growth, and active member growth assumptions, among others. Read more about those changes here.
What the new assumptions mean for PERA
At the March meeting, representatives from PERA’s actuarial consultant, Segal, provided further information to the Board on how specific assumptions will affect PERA’s calculations.
PERA’s liability — the cost of paying benefits to current and future retirees — changes when actuarial assumptions change. Some of those assumptions have a bigger impact than others. Positive investment returns, for example, can help reduce PERA’s unfunded liability, but lower-than-expected payroll growth and retirees living longer, and therefore receiving benefits longer, can have a bigger effect in the long term and add to PERA’s liability.
In this case, the newly adopted mortality and payroll growth projections will extend the estimated amount of time it will take PERA to achieve full funding. This doesn’t mean PERA is running out of money; rather that it will take longer than expected to reach its funding goals. One result of these changes is that an automatic adjustment, established in Senate Bill 18-200, will likely be announced when PERA releases its annual financial report in June, but the changes would not take effect until July 2022. These adjustments help keep PERA a secure benefit for current and future retirees. Read more about how PERA’s Automatic Adjustment Provision works here.
PERA’s Board is committed to maintaining this routine and rigorous review to ensure PERA is able to plan for the future and provide a secure retirement for all its members.
The Board’s next meeting is scheduled for June 18.
Automatic adjustment provisionA provision of Colorado law that automatically changes PERA contributions (from employers, employees, and the state) and annual benefit increases based on PERA’s funding progress.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.Unfunded liabilityThe difference between the projected amount of money needed to pay benefits earned to date and the amount of money currently available to pay those benefits.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.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.