PERA’s telephone town hall is an annual event in which members can hear Colorado PERA Executive Director Ron Baker and Chief Investment Officer Amy C. McGarrity address their questions. This year’s telephone town hall took place on July 8.
The telephone town hall traditionally takes place soon after the release of PERA’s Comprehensive Annual Financial Report. This gives members the chance to ask questions about the report, which contains a detailed picture of PERA’s financial and demographic situation. As usual, PERA hosted one meeting for retirees in the morning and another in the evening with active members.
Below is a recap of the types of questions answered during the town halls. (You will also be able to listen to a recording of the entire event soon.)
How are PERA’s investments doing?
PERA had a very strong investment performance last year. At the end of 2019, PERA’s investments delivered an annualized return of 20.3% (net of fees) versus the benchmark return of 19.8%.
All of our asset classes had a positive return last year. The Fixed Income portfolio returned 9.2%. PERA has a vast majority of its portfolio in global public equities and that portfolio returned 29.5%. We were also able to make some gains in our private market asset classes. Our Private Equity portfolio returned 13.7 percent last year. Our Real Estate portfolio had a total return of 8.4 percent, and the Opportunity Fund closed the year up 6.4 percent.
The global pandemic not only has caused a significant disruption in investment markets: It has changed our everyday lives. PERA won’t have official data about this year until the 2020 CAFR is compiled and audited, about this time next year.
What is PERA’s funded status?
Recent changes to PERA, which include increased contributions and reduced annual increases, have been difficult for everyone, but they help build a secure, sustainable retirement benefit for Colorado’s public employees and equip PERA to adapt to the unexpected ups and downs the future will bring. It’s important to point out that PERA remains not only a secure benefit, but it also is very competitive and continues to offer employers an effective recruitment and retention tool for a highly qualified, modern workforce.
PERA’s funded ratio at the end of 2019 was 61.9%. Another way to look at that is the number of years it will take us to achieve full funding, which is the projected funding needed to cover projected liabilities based on actuarial estimates. We are projected to reach full funding in 24 years.
Will I get an annual increase this year?
Yes, all eligible benefit recipients will see a 1.25% increase with their July benefit checks later this month.
Where does my increased member contribution go?
Contribution rates increased for active members and their employers on July 1. Most of our members are now contributing 10% to their PERA member account, and most employers are contributing 20.9%. You can find your contribution rate, which is based on where you work, on the PERA website.
Member contributions – and the interest earned – only ever go to fund each individual member’s retirement account. Every dollar contributed by a member will be returned to that member either through a monthly lifetime benefit or a refund/rollover upon termination of employment.
What changes did the legislature make to PERA to help balance the state budget?
The most significant change affecting PERA was the one-year suspension of the Direct Distribution from the State of Colorado to PERA, which was implemented as part of the reforms in 2018. This payment to PERA goes to pay down the unfunded liability, and is in addition to the contributions the State makes to PERA as an employer. The PERA Board, as fiduciaries and pursuant to their funding policy, oppose any reductions in contributions to PERA as well as increases in benefits. However, we understand these unprecedented times require tough decisions in order to balance the state budget.
The end result of the legislation means we will not receive this year’s distribution, and any reduction in funding to PERA increases the likelihood of triggering the Automatic Adjustment Provision in future years. The CAFR we just released already reflects this change, and no adjustment is necessary next year.
What is PERA doing to protect the fund from market volatility during these uncertain times?
PERA is built to withstand ups and downs in the market and maintains a long-term outlook with its investment program. Just last year, the Board reviewed and updated PERA’s investment policies, including the asset allocation of its investments and the way PERA manages risk. We can’t predict the future, but our seasoned investment team is prepared to navigate these uncertain conditions. We have the mechanisms in place to keep our focus on providing financial security to our current and future retirees.
Bottom line, PERA plans for the long term and will continue to pay benefits and offer our members a secure retirement.
Automatic adjustment provisionAn automatic change to PERA contributions (employer, employee, state direct distribution) or the Annual Increase based on funding levels.VolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.Private equityEquity capital that is not quoted on a public exchange. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.Fixed incomeSecurities representing debt obligations and usually having fixed interest payments and maturities. Different types of fixed income securities include government and corporate bonds, mortgage-backed securities, asset-backed securities, and may also include money market instruments.BenchmarkThe performance objective or standard used to define the return against which another portfolio is to be evaluated.