
<p>Retirement insights from a Colorado PERA perspective</p>



<p></p>


A distant view shows a mountainous landscape with sloping peaks, green trees in the foreground, and a cloudy sky above.


<p>PERA’s executive team hosted two virtual Town Hall meetings on Wednesday, June 26 to provide updates on PERA and answer questions from members and retirees.</p>



<p>Chief Executive Officer/Executive Director was joined by Chief Investment Officer/Chief Operating Officer Amy C. McGarrity, Chief Benefits Officer Patrick Lane, and Chief Operating Officer Jeremy Hill.</p>



<p>We’ve included clips of some of the executives’ answers below, and full recordings of each Town Hall are available at <a href="https://copera.org/about/pera-town-hall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>



<h5 class="wp-block-heading"><strong>How did PERA’s investments perform last year and what is PERA’s financial status?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/amy-investments-2024.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/amy-investments.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/amy-investments-2024.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>McGarrity began by highlighting PERA’s financial results from 2023, as reported in the recently released 2023 <em>Annual Comprehensive Financial Report</em>.</p>



<p>“For the year ended December 31, 2023, PERA’s investment portfolio earned a positive return of 13.4% net-of-fees,” McGarrity said. “The value of the total PERA Defined Benefit Plan was $61.5 billion at the end of the year, and PERA’s funded status was 69.6%.”</p>



<p>PERA remains on track to meet its funding goals, and as such, there will be no automatic adjustments to member and employer contributions or annual benefit increases. Retirees and beneficiaries will receive a 1% Annual Increase in July 2024 and another 1% in 2025.</p>



<p>Explore PERA’s financial results in an interactive format at <a href="https://copera.org/snapshot" target="_blank" rel="noreferrer noopener">copera.org/snapshot</a>.</p>



<h5 class="wp-block-heading"><strong>As PERA’s new CEO, do you anticipate making any major changes, such as implementing a larger annual benefit increase for retirees?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/24-andrew-increase.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/andrew-ai.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/24-andrew-increase.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>Roth reiterated that staff and the Board understand the challenge inflation has posed in recent years as the <a href="https://www.copera.org/retirees/benefit-basics-for-retirees/annual-benefit-increases" target="_blank" rel="noreferrer noopener">Annual Increase</a>—which is set in statute and can only adjust up or down based on PERA’s funding progress, has not kept pace.</p>



<p>“I, as Executive Director, do not have the power or authority to make changes to the Annual Increase,” Roth said. “We understand and are doing everything we can to address financial security for our retirees, as is central to our mission.”</p>



<h5 class="wp-block-heading"><strong>Has PERA been planning for the possibility of a recession, and what could that mean for the portfolio?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/24-amy-recession.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/amy-recession.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/24-amy-recession.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>McGarrity discussed PERA’s strategic asset allocation—which is set by Board—and its focus on long-term performance. In addition, the Board is currently conducting a study of its investment strategy known as an <a href="https://www.copera.org/pera-on-the-issues/asset-liability-study-a-guide-to-building-a-strategic-portfolio" target="_blank" rel="noreferrer noopener">asset/liability study</a>, and that process includes modeling many different scenarios.</p>



<p>“In that 30-year capital market assumption set, they have a variety of market scenarios, there are recessions, there are bull markets,” McGarrity said. “So as it relates to shorter term or medium term economic events…they’re incorporated into those long-term assumptions.”</p>



<h5 class="wp-block-heading"><strong>PERACare premiums have largely held steady over the past few years; will they remain the same next year?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/24-patrick-peracare.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/patrick-peracare.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/24-patrick-peracare.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>“I’ll be very direct and say, ‘No.’ PERACare premiums will be going up for the 2025 plan year,” Lane said. “Our Medicare Advantage participants have been protected from premium increases for the last three years because of the rate we were able to get guaranteed when we renewed three years ago. Unfortunately, that rate guarantee is expiring this plan year.”</p>



<p>Lane added that regulatory changes have also prompted insurance carriers to raise their rates for the coming plan year. PERA is still working out the details with carriers and expects to provide 2025 plan information in the fall.</p>



<h5 class="wp-block-heading"><strong>What is PERA doing about Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/24-patrick-wep-gpo.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/patrick-wep-gpo.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/24-patrick-wep-gpo.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>Lane said that since the WEP and GPO are provisions of federal law, any changes would have to come from Congress. And while legislators have introduced various bills related to the issue over the years, lawmakers haven’t come to an agreement on a path forward.</p>



<p>“What would happen if the WEP/GPO were to be repealed, that would mean more money coming out of the Social Security trust fund, and that is really where legislation has failed in the past,” Lane said. “I think there are a lot of members of Congress who are interested in the subject and are open to the conversation, but they have yet to reach an agreement on how to actually fund that additional money that would be coming out of the trust fund.”</p>



<p>We follow this issue closely and will provide any updates on federal WEP/GPO legislation when we can.</p>



<h5 class="wp-block-heading"><strong>Where do you see PERA headed in the future and how can I be sure I will receive my full benefit when I retire?</strong></h5>



<div class="wp-block-advgb-video advgb-video-block full-width" data-video="https://content.copera.org/wp-content/uploads/2024/07/24-andrew-pera-future.mp4" data-source="local" data-video-attr="controls,playsinline" data-video-preload="metadata"><div class="advgb-video-wrapper full-width no-lightbox"><video class="full-width" height="450" poster="https://content.copera.org/wp-content/uploads/2024/07/andrew-pera-future.png" controls preload="metadata" playsinline><source src="https://content.copera.org/wp-content/uploads/2024/07/24-andrew-pera-future.mp4"/>Your browser does not support HTML5 video.</video></div></div>



<p>“We have been delivering benefits for almost a century, and we are focused on doing the exact same thing for the next century; your benefits will be here,” Roth said. “Colorado PERA is here for its members and we look forward to serving you as we move into the future together.”</p>



<p>For full recordings of both Town Halls, visit <a href="https://copera.org/about/pera-town-hall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>


CEO Andrew Roth, Executives Answer Questions in PERA Town Halls


<p>PERA leaders hosted two live Town Halls on Wednesday, July 12 to provide an update on PERA and answer questions from members and retirees.</p>



<p>Interim Executive Director and Chief Investment Officer Amy C. McGarrity was joined by Chief Benefits Officer Patrick Lane and Chief Administrative Officer Jeremy Hill for both meetings.</p>



<p>They answered questions on a number of important topics, including annual benefit increases, Social Security, and PERA’s investment portfolio. Responses to some of those questions are summarized below, and full recordings of each Town Hall are available at <a href="https://copera.org/townhall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>



<h4 class="wp-block-heading"><strong>Why was the previous executive director’s employment contract terminated?</strong></h4>



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<p>“The decision was at the discretion of the PERA Board,” McGarrity said. “To reiterate, there was no criminal wrongdoing and no impact to retiree benefits. We are in the process of selecting an executive director. The first step is to select an executive search firm to assist with the recruitment of that next leader for PERA, and the Board has formed an ad hoc committee. Those ad hoc committee meetings are posted on <a href="https://copera.org/about/board-and-leadership" target="_blank" rel="noreferrer noopener">copera.org</a> and they’re streamed live for anyone who wishes to follow the process.”</p>



<h4 class="wp-block-heading"><strong>Why aren’t annual benefit increases for retirees keeping up with inflation?</strong></h4>



<figure class="wp-block-video"><video controls poster="" src="https://peraontheissues.com/wp-content/uploads/2023/07/2023-th-annual-increase.mp4"></video></figure>



<p>“We recognize the challenges that this inflationary environment presents. We feel it as consumers but we know it is particularly important to our retired members,” Lane said. “As you know, the Annual Increase percentage is set in statute and it is not within the purview of the PERA Board or staff to make changes to the Annual Increase…the only way that could change is if the state legislature decided to change the law, which would in effect extend PERA’s 30-year window to full funding.”</p>



<h4 class="wp-block-heading"><strong>Are PERA benefits in danger due to 2022’s negative investment returns?</strong></h4>



<figure class="wp-block-video"><video controls src="https://peraontheissues.com/wp-content/uploads/2023/07/2023-th-investment-losses.mp4"></video></figure>



<p>No, PERA benefits are not in danger. The investment portfolio is well-diversified and contains a wide array of assets so the portfolio can withstand different market environments, McGarrity said. While we were subject to the market downturn in 2022, we are also subject to positive market swings and have been able to take advantage of those markets in prior years and so far in 2023, McGarrity said.</p>



<p>In 2022, PERA paid $5.2 billion in retirement benefits to retirees and benefit recipients, so you can continue to count on PERA to provide retirement income throughout your life.</p>



<h4 class="wp-block-heading"><strong>What is PERA doing about Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?</strong></h4>



<figure class="wp-block-video"><video controls src="https://peraontheissues.com/wp-content/uploads/2023/07/2023-th-wep-gpo.mp4"></video></figure>



<p>“Social Security’s WEP and GPO are provisions within federal law and are therefore outside the scope of the PERA Board and staff to influence,” Lane said. “We encourage you to contact your members of the U.S. House and Senate to be heard on this issue.”</p>



<p>Bills to modify or repeal WEP and GPO are frequently introduced in Congress, and <em>PERA On The Issues </em>monitors and reports on those activities throughout the year. <a href="https://peraontheissues.com/an-update-on-2023-wep-gpo-legislation/" target="_blank" rel="noreferrer noopener">Click here</a> for our latest article on WEP/GPO reform efforts.</p>



<h4 class="wp-block-heading"><strong>What is PERA doing to improve wait times to talk to Customer Service on the phone?</strong></h4>



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<p>“We have made a number of recent changes that have cut down on wait times in the call center,” Lane said. “We implemented a new caller verification process that makes the security process faster and shortens the length of calls. And we just migrated to a new phone system just within the last few weeks that allows us to better forecast call volumes throughout the day, throughout the month and throughout the year.”</p>



<p>He added: “We have seen service levels increase in recent months and we look forward to providing better service going forward.”</p>



<h4 class="wp-block-heading"><strong>Does PERA inform its investments by accounting for social goals, such as diversity, equity and inclusion? If so, what does that look like?</strong></h4>



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<p>McGarrity explained that PERA’s primary goal is achieving the best risk-adjusted returns for PERA members and therefore PERA does not have any mandates related to environmental, social, or governance (ESG) or diversity, equity, and inclusion (DEI) outcomes. However, PERA staff will consider any financially relevant factors when making investment decisions.</p>



<p>“To the extent that a company’s long-term expected return may be influenced somehow by one of those factors in a financially material way, certainly we will consider it in our underlying due diligence of that investment and/or underwriting of that investment,” McGarrity said. “However, unless they are financially material factors or drivers of the expectations for long-term returns, they are not rising to the top of our considerations. So we are really focused on the factors that have an influence on long-term shareholder returns.”</p>



<h4 class="wp-block-heading"><strong>How can members be sure PERA will be there for them when they retire?</strong></h4>



<figure class="wp-block-video"><video controls src="https://peraontheissues.com/wp-content/uploads/2023/07/2023-th-will-pera-be-there.mp4"></video></figure>



<p>“I think the legislature has shown its commitment through the years to keeping PERA strong and enacting reforms several times in the past decade to ensure we are on a financially sustainable path. Most recently, Senate Bill 200 (enacted in 2018) puts us on a path to full funding by 2048,” McGarrity said. “The reforms are working and we’re committed to providing reliable income in retirement that our members cannot outlive.”</p>



<h4 class="wp-block-heading"><strong>PERA mobile app</strong></h4>



<p>Hill also mentioned <a href="https://content.copera.org/pera-leaders-answer-member-questions-at-2023-town-halls/" target="_blank" rel="noreferrer noopener">PERA’s new mobile app</a>, which is now available in the App Store for iOS devices and Google Play Store for Android devices. The app is part of PERA’s long-term goal of modernizing and improving the way it serves its membership, and it makes it easy for members and retirees to access and manage their accounts wherever they are.</p>



<p>These annual town halls are an important opportunity to speak directly with Colorado’s current and former public employees and we’re grateful to all who participated.</p>



<p>To watch full recordings of each Town Hall, visit <a href="https://copera.org/townhall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>


PERA Leaders Answer Member Questions at 2023 Town Halls


<p><em>In this story:</em></p>



<ul>
<li><em>More than 3,000 PERA members and retirees took part in two town hall meetings</em></li>



<li><em>Topics of discussion included PERA’s financials, state funding, investments, and Social Security</em></li>



<li><em>Read summaries of questions/answers and view clips from the events</em></li>
</ul>



<hr class="wp-block-separator has-css-opacity"/>



<p>This year’s town hall meetings with PERA Executive Director Ron Baker and Chief Investment Officer Amy C. McGarrity, which featured new ways for members and retirees to connect, drew more than 3,000 live participants across the web, phone, and social media. Many more have since watched the events online.</p>



<p>The conversation centered on PERA’s recently released <em>2020 Annual Report</em> but also touched on topics such as state funding, green energy investments, and Social Security.</p>



<p>Below is a summary of some of the questions and answers from the events. For full recordings of the town halls, visit <a href="https://www.copera.org/about/pera-town-hall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>



<h5 class="wp-block-heading"><strong>How are PERA’s investments doing?</strong></h5>



<p>While 2020 was turbulent for investors, it ultimately was a strong year in the markets. PERA’s total fund return for the year was 17.4%. The 10-year annualized return is 9.4%. PERA’s funded ratio at the end of 2020 was 62.8%.</p>



<p>More information is available in PERA’s <a href="https://content.copera.org/how-its-made-peras-financial-report/" target="_blank" rel="noreferrer noopener">Annual Report</a>.</p>



<h5 class="wp-block-heading"><strong>What is PERA doing about the Windfall Elimination Provision and reductions in Social Security benefits?</strong></h5>



<p>Executive Director Ron Baker discussed PERA’s efforts to work with Colorado’s congressional delegation on this issue and the challenges with changing the WEP at the federal level. Watch the clip below for more:</p>



<figure class="wp-block-video"><video controls poster="" src="https://peraontheissues.com/wp-content/uploads/2021/07/WEP.mp4"><track src="https://peraontheissues.com/wp-content/uploads/2021/07/WEP.en_US.vtt" label="WEPvtt" srclang="en"/></video></figure>



<p></p>



<h5 class="wp-block-heading"><strong>Will member contributions be going up again?</strong></h5>



<p>Member contribution rates increased by 0.5% on July 1 for all members except those in the Local Government Division due to the scheduled increases established in 2018’s Senate Bill 200. This is the third and final year of the three-year phase-in of the 2% rate increase for member contributions.</p>



<p>In addition, because of changes to PERA’s liabilities (<a href="https://www.copera.org/what-to-know-about-peraplus-401k-457-dc-plans-in-2022" target="_blank" rel="noreferrer noopener" class="broken_link">learn more about this here</a>), the <a href="https://content.copera.org/thousands-participate-in-peras-interactive-town-hall-meetings/" target="_blank" rel="noreferrer noopener">Automatic Adjustment Provision</a> will go into effect next year. That means member contributions will increase by 0.5%, and the annual increase for benefit recipients will decrease by 0.25%, in July 2022.</p>


<div class="wp-block-image">
<figure class="alignright size-large"><a href="https://content.copera.org/wp-content/uploads/2021/07/AAP-slide.jpg"><img decoding="async" loading="lazy" width="1024" height="576" src="https://content.copera.org/wp-content/uploads/2021/07/AAP-slide-1024x576.jpg" alt="" class="wp-image-44048" srcset="https://content.copera.org/wp-content/uploads/2021/07/AAP-slide-1024x576.jpg 1024w, https://content.copera.org/wp-content/uploads/2021/07/AAP-slide-300x169.jpg 300w, https://content.copera.org/wp-content/uploads/2021/07/AAP-slide-768x432.jpg 768w, https://content.copera.org/wp-content/uploads/2021/07/AAP-slide.jpg 1280w" sizes="(max-width: 1024px) 100vw, 1024px" /></a><figcaption class="wp-element-caption">Click image to enlargen</figcaption></figure></div>


<p>“We understand how difficult that is to hear,” Baker said. “For our active members, that is more money out of your pocket, and for our benefit recipients, that is less money in your pocket in increases. The reason we need to do this is so we continue to have a strongly funded system.”</p>



<h5 class="wp-block-heading"><strong>Will retirees receive an annual increase this year?</strong></h5>



<p>Yes, the <a href="https://www.copera.org/retirees/annual-benefit-increases" target="_blank" rel="noreferrer noopener">Annual Increase</a> (AI) paid in July 2021 will be 1.25% for most retirees. The AI amount for eligible PERA benefit structure retirees hired on or after January 1, 2007 will be 1.2%.</p>



<h5 class="wp-block-heading"><strong>Did the state make its $225 million direct payment to PERA this year?</strong></h5>



<p>The state paid its $225 million direct distribution to PERA on July 1, 2021. While the direct distribution from 2020 will not be paid, the Legislature underscored its commitment to PERA and the retirement security of hundreds of thousands of Coloradans by creating a cash fund to pay for future contributions to PERA.</p>



<h5 class="wp-block-heading"><strong>Why doesn’t PERA divest from fossil fuels and invest in green energy instead?</strong></h5>



<p>PERA invests in a wide variety of asset types with the goal of securing the best possible risk-adjusted returns for its members. Hear more from Chief Investment Officer Amy C. McGarrity in the clip below:</p>



<figure class="wp-block-video"><video controls src="https://content.copera.org/wp-content/uploads/2021/07/investments-video-cover.png"><track src="https://peraontheissues.com/wp-content/uploads/2021/07/Divestment.en_US.vtt" label="DivestmentCaptions" srclang="en"/></video></figure>



<p></p>



<h5 class="wp-block-heading"><strong>I’m counting on PERA for my retirement income; do you have my back?</strong></h5>



<figure class="wp-block-video"><video controls poster="" src="https://peraontheissues.com/wp-content/uploads/2021/07/Stability.mp4"><track src="https://peraontheissues.com/wp-content/uploads/2021/07/Having-your-back.en_US.vtt" label="HaveMyBackCaptions" srclang="en"/></video></figure>



<p>“This organization, and I think more importantly, the General Assembly, has your back,” Baker said. “The PERA Board absolutely has your back; they are members and also governor appointees. All of us in this organization work very diligently to ensure that we’ll be here for the long term as well.”</p>



<p>To watch the town hall events in full, visit <a href="https://www.copera.org/about/pera-town-hall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.</p>


Thousands participate in PERA’s interactive town hall meetings


<p><em>Key points from this story:</em></p>



<ul><li><em>PERA prepares a SB 10-001 report every five years</em></li><li><em>The report must show two things: how the annual increase compares to inflation and what progress has been made toward eliminating the unfunded liability</em></li><li><em>The 2020 report shows that inflation has risen an average of 1.5<em>%</em> per year since 2010 while the annual increase has risen an average of 1.4%</em></li></ul>



<hr class="wp-block-separator"/>



<p>Although the annual increase retirees receive has decreased in recent years, it is generally keeping pace with inflation over the long term — one of the key findings in a report PERA delivered to the General Assembly this month.</p>



<h5 class="wp-block-heading"><strong>Background of the Report</strong></h5>



<p>In 2010, the General Assembly passed Senate Bill 10-001, which made structural changes to PERA. In addition to these changes, the bill required PERA to prepare and submit a report to lawmakers every five years. </p>



<p>The <a href="https://content.copera.org/new-report-compares-inflation-to-annual-increase/" target="_blank" rel="noreferrer noopener">report</a> is required to show two things: the progress made toward eliminating unfunded liabilities and an analysis of how the annual increase retirees receive compares to inflation.</p>



<p>PERA prepared the first such <a href="https://www.copera.org/new-report-compares-inflation-to-annual-increase" target="_blank" rel="noreferrer noopener" class="broken_link">report</a> for the General Assembly in 2015. On January 1, 2021, PERA submitted a report that updates the original report with data from 2015-2020.</p>



<h5 class="wp-block-heading"><strong>The Annual Increase and Inflation</strong></h5>



<p>The annual increase in 2020 was 1.25%. In 2021, the annual increase will also be 1.25%. This amount has changed many times throughout PERA’s history. The <a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" target="_blank" rel="noreferrer noopener" class="broken_link">formula</a> used to determine the annual increase amount changed most recently with the passage of SB 10-001 and again with SB 18-200.</p>



<p>The annual increase helps retirees keep pace with inflation throughout retirement. That does not mean that the annual increase will <em>equal</em> inflation in any given year, however. In 2017, for example, the annual increase was higher than inflation (2.0% vs 1.0%) while, in 2019, inflation was higher (2.5% vs 0.0%).</p>



<p>As part of this report, PERA is required to compare how the annual increase, over time, compares to inflation. The 2020 report showed that inflation rose an average of 1.5% per year since 2010 while the PERA annual increase rose 1.4% per year since 2010. Between 2010 and 2019, inflation rose a total of 16.2% while the annual increase rose 14.9%.</p>



<h5 class="wp-block-heading"><strong>Measuring Inflation</strong></h5>



<p>It’s also important to note that inflation is measured using a specific measure, called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) (learn more about the CPI-W <a href="https://www.copera.org/new-report-compares-inflation-to-annual-increase" target="_blank" rel="noreferrer noopener" class="broken_link">here</a>).</p>



<p>The CPI-W accurately captures broad changes to the cost of food, energy, housing, and more. This is useful as PERA has retirees that live throughout  the United States.</p>



<p>However individuals don’t experience inflation at a national level — you experience the inflation of the area in which you live. For example, in any given year a person living in Grand Junction might experience inflation at a rate higher than the national average while someone living in Alamosa might experience a lower rate of inflation. Or vice versa. Additionally, the cost of health care has been rising faster than inflation for years. </p>



<p>Managing these changes can be difficult. However, a secure lifetime benefit with an annual increase that compounds annually remains a valuable tool to have in retirement over the long term.</p>



<p><strong>Progress Toward Eliminating PERA’s Unfunded Liability</strong></p>



<p>The report also included an update on PERA’s progress toward the goal of eliminating all unfunded liabilities (this information is also provided publicly every year in PERA’s <a href="https://content.copera.org/2016-legislative-session-wrap-up/" target="_blank" rel="noreferrer noopener">Comprehensive Annual Financial Reports</a>).</p>



<p>The report states that the changes in SB 10-001 led to an immediate reduction in $8.9 billion of liabilities and the SB 18-200 changes reduced liabilities by another $3.9 billion.</p>



<p>PERA’s liabilities aren’t a static figure, however, and are updated every year. For example, strong investment returns in 2019 led to PERA making faster-than-expected progress.</p>



<p>Demographic changes are another factor that can affect PERA’s liabilities. PERA undergoes an experience study every four years to ensure that the projections it uses for inflation, retiree lifespans, the ages at which members retire, and more are as accurate as possible (the experience study is covered in-depth <a href="https://peraontheissues.com/2020-experience-study-preparing-for-a-secure-future/" target="_blank" rel="noreferrer noopener">here</a>).</p>



<p>The most recent experience study showed that, among other things, the trend of retirees living longer than originally projected continues. This trend adds liabilities to PERA, as longer lifespans mean a larger lifetime benefit will be owed to retirees on average.</p>



<p>A likely result of these adjustments is that the automatic adjustment provision (<a href="https://content.copera.org/peras-automatic-adjustment-provision-a-case-study-for-pension-risk-sharing/" target="_blank" rel="noreferrer noopener">AAP</a>) will go into effect after the release of the next CAFR, in June 2021 (the final determination regarding the AAP is part of the CAFR process and is released with the release of the CAFR). If this happens, the changes would go into effect in July 2022. </p>



<p>While changes like these can be difficult, they have resulted in a more secure and resilient plan members can rely on in the future.</p>


New Report Compares  Inflation to Annual Increase


<p>By now, Colorado PERA members are well aware that their annual increase (AI), or cost-of-living adjustment (COLA), has undergone some belt-tightening changes with the passage of <a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" target="_blank" rel="noreferrer noopener" class="broken_link">Senate Bill 200</a> last year. What members and retirees may not know is that this action followed a broader trend for public pension plans throughout the U.S. In the past decade, pension funds in 18 states, including Colorado, <a href="https://www.nasra.org/files/Issue%20Briefs/NASRACOLA%20Brief.pdf">have enacted reforms</a> that <a href="https://content.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments/">changed COLAs</a> for existing retirees. Seven states have adjusted COLAs for current employees and new hires, and another six have changed them for new hires only.</p>



<p>While there are many types and variations of annual increases and COLAs (ad hoc, fixed, simple, compounding), essentially the adjustments to retirement benefits are meant to counterbalance inflation, which reduces the purchasing power of a fixed income. These adjustments are of additional importance to states such as Colorado, where a majority of public employees do not participate in Social Security. But unlike Social Security, defined benefit plans, including PERA, typically pre-fund COLAs via employee and employer contributions over the course of employees’ careers.</p>



<p>The structure of pension plans varies widely, so it’s only natural that COLAs do, too. PERA’s COLA is automatic, or predetermined by a set formula; and it’s compounded, meaning that annual benefit increases are calculated based on the original benefit plus any prior benefit increases. PERA’s annual COLA changes are influenced by the financial performance of the fund. For some PERA retirees, the COLA is based on factors such as the rate of inflation and the health of the Annual Increase Reserve for each membership division.</p>



<p>The COLA may also be affected by a person’s age, date of hire, or years of service and the length of time in retirement. If all of this seems complex, it is – because it varies for different PERA members. For a full explanation of how PERA’s COLA calculations work in practice, refer to the <a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" target="_blank" rel="noreferrer noopener" class="broken_link">Annual Increase (AI) fact sheet</a>.</p>



<p>The primary reason so many states have targeted COLAs in their pension reform efforts is cost, along with the U.S. economy’s recent track record of historically low inflation. The <a href="https://www.nasra.org/files/Issue%20Briefs/NASRACOLA%20Brief.pdf" target="_blank" rel="noreferrer noopener">NASRA research</a> (on page 3) notes that a compounded automatic COLA of 1.5 percent will add 11 percent to the lifetime cost of a retirement benefit, and a 3 percent COLA adds 26 percent to that cost.</p>



<p>The changes to PERA’s pension fund were enacted by the State Legislature, as is often — though not always — the case with pension alterations around the country. One key component of the Colorado General Assembly’s efforts in 2018 was the addition of an <a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" target="_blank" rel="noreferrer noopener" class="broken_link">automatic adjustment provision</a>, which could enable COLAs to decrease or increase depending on PERA’s progress toward reaching full funding within a closed 30-year time frame. The upshot for PERA members and retirees: The recent changes to the pension plan are not without pain and angst, but they’re part of a national trend toward protecting the long-term viability of public pension funds as well as stabilizing the funded status of the PERA plan which benefits all stakeholders.</p>


Trend: States make adjustments to retiree cost-of-living payments


<p>Both Governor Hickenlooper’s plan and the <a href="https://www.copera.org/2018-pera-on-the-issues-legislative-preview" target="_blank" rel="noreferrer noopener" class="broken_link">PERA Board’s recommendation</a> to return PERA to long-term sustainability have received attention <a href="https://www.denverpost.com/2017/11/01/colorado-budget-pera-fix/" target="_blank" rel="noreferrer noopener">in the news</a> recently, even though legislation has not been introduced yet this year at the Colorado General Assembly.</p>



<p>While there are differences between the Governor’s proposal and that of the Board, the two plans share the goal of achieving full funding within a 30-year period. However, each proposal achieves that goal using different funding and savings mechanisms.</p>



<ul>
<li>Both proposals would increase contributions. The Board’s proposal includes contribution increases from current members and working retirees, new and future members, and employers. The Governor’s proposal does not increase contributions from employers.</li>



<li>Both proposals would limit annual increases. The Board’s proposal would lower annual increases to a cap of 1.5 percent, while the Governor’s proposal would lower the cap to 1.25 percent. Both proposals would also increase future hires’ age and service requirements for retirement benefits.</li>



<li>Both proposals would also improve the alignment of contributions with benefits and include automatic adjustment provisions to keep PERA on a path to full funding within 30 years.</li>
</ul>



<p>Review a <a href="https://peraontheissues.com/wp-content/uploads/2018/01/ProposalComparison-WORK-1.pdf" target="_blank" rel="noreferrer noopener">comparison chart</a> of the two proposals.</p>



<p>Since the Board’s legislative recommendation was released in September 2017, PERA has received a number of questions about the necessity of a proposal, given the strength of the U.S. stock market. During the Board’s most recent assessment of the economic and demographic conditions that influence the plan’s funded status (performed in November 2016), the Board heard from investment and actuarial experts and subsequently lowered the rate of return assumption due to a less optimistic view of the future. This change to an important economic assumption, alongside the adoption of new mortality tables, extended the timeframe in which the trusts were projected to reach full funding beyond the 30-year goal set forth in the <a href="https://www.copera.org/despite-changes-in-accounting-standards-pera-remains-on-track" target="_blank" rel="noreferrer noopener" class="broken_link">Board’s funding policy</a> adopted in March 2015 and revised January 19, 2018.</p>



<p>We will continue to monitor the legislative landscape at the State Capitol and inform <em>PERA on the Issues</em> readers of any PERA-related legislation that is introduced.</p>


Tag Archives:

CEO Andrew Roth, Executives Answer Questions in PERA Town Halls

PERA Leaders Answer Member Questions at 2023 Town Halls

Thousands participate in PERA’s interactive town hall meetings

New Report Compares Inflation to Annual Increase

Trend: States make adjustments to retiree cost-of-living payments

Comparing current PERA legislative proposals

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