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The Colorado PERA Board of Trustees has wrapped up work on an important periodic study that helps ensure better accuracy of PERA’s financial calculations.



Known as an actuarial experience study, the analysis gives retirement plans like PERA a periodic refinement or more accurate picture of their financial health and future obligations.



<h2 style="color:#000000;" class="wp-block-heading has-black-color has-text-color has-medium-font-size">Planning for the future</h2>



PERA is in the business of providing retirement benefits for as long as a person lives, and that presents a unique challenge: Making sure we have an accurate sense of how much it will cost to pay those benefits over several decades and beyond.



Because a retiree’s benefit in the PERA Defined Benefit Plan is based on their age, years of service, and salary history, we need to be able to predict how certain factors will change over time, such as:



<ul class="wp-block-list">
<li>Expected lifespan of the retiree population</li>



<li>Expected pay increase patterns over the career of active members</li>



<li>Typical ages at which active members retire</li>



<li>Expected annual investment return, in the long-term</li>



<li>Expected change in the value of a dollar (rate of inflation)</li>
</ul>







Those factors are referred to as actuarial assumptions, and they’re grouped into either economic assumptions (inflation and investment returns) or demographic assumptions (rates of mortality and retirement). Together, the assumptions play a key role in the calculations PERA conducts every year as reported in its actuarial valuations and <a href="https://copera.org/annual-report" target="_blank" rel="noreferrer noopener">Annual Comprehensive Financial Report</a>.



RELATED: <a href="https://www.copera.org/pera-on-the-issues/explaining-the-role-of-actuaries-in-retirement-plans-like-pera" target="_blank" rel="noreferrer noopener">Explaining the Role of Actuaries in Retirement Plans Like PERA</a>



The process of reviewing and refining actuarial assumptions is known as an experience study, so called because it involves comparing the assumptions with what actually happened over a set period of time. For example, if wage growth is much different than expected during the period of study, some adjustments to that assumption are likely needed going forward.



PERA typically conducts an actuarial experience study every four years. This year’s experience study offered additional challenges because the period studied, from January 1, 2020, to December 31, 2023, encompassed effects of the COVID-19 pandemic. Special consideration was needed to ensure the higher mortality and greater number of unreduced retirements were not inappropriately reflected within the revised assumptions.



<h2 style="color:#000000;" class="wp-block-heading has-black-color has-text-color has-medium-font-size">Experience study results</h2>



The PERA Board’s actuarial consultant, Segal, conducted the experience study and provided the Board with recommendations for adjustments to various assumptions as a result.



Segal recommended the following adjustments to demographic assumptions:



<ul class="wp-block-list">
<li>Salary scale assumptions were altered to better reflect actual recent experience.</li>



<li>Assumed rates of termination, retirement, and disability were revised to more closely reflect actual experience.</li>



<li>Mortality base tables were retained with revised adjustments for credibility and gender, where applicable, and the applied generational projection scale was updated for all groups.</li>



<li>Administrative expense load was increased from 0.40% to 0.45%, as a percentage of covered payroll.</li>



<li>Assumed annual membership growth (for projection purposes only) was decreased for the School, Local Government, and DPS Divisions.</li>



<li>Assumed rates of PERACare participation for both Health Care Trust Funds were reduced to better reflect actual recent experience.</li>
</ul>







Segal recommended retention of the current economic assumptions, including the long-term expected rate of return (7.25%), price inflation (2.3%), and wage inflation (3.0%).



The Board voted unanimously to adopt all recommendations for the five Division Trust Funds and the two Health Care Trust Funds.



<h2 style="color:#000000;" class="wp-block-heading has-black-color has-text-color has-medium-font-size">What the changes mean</h2>



First and foremost, changes in PERA’s actuarial assumptions do not affect the payment of retirement benefits. If you’re a PERA retiree, you’ll continue to receive your monthly benefit payments as expected, and working members can count on PERA providing benefits when they retire.



The main impact of the experience study is on PERA’s current and projected liabilities—which help determine how much money PERA will need to have on hand to pay benefits for its members.



The recent experience review noted over the period studied, that certain assumptions resulted in liability gains while others resulted in liability losses. However, the net result was an actuarial loss overall—meaning, the revised assumptions will likely result in a negative effect on PERA’s funding status.



The exact impact of the updated assumptions won’t be clear until the release of the Annual Comprehensive Financial Report (ACFR), as that will be the first time the revised assumptions are incorporated into PERA’s annual valuation process—assessing plan liabilities and other important actuarial metrics.



The 2024 ACFR will be available following the PERA Board’s June 27, 2025, meeting.

Two people looking and pointing at various financial documents.

Actuarial Experience Study: Refining the Financial View of the Future