Retirement insights from a Colorado PERA perspective

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

<a href="https://www.ai-cio.com/" target="_blank" rel="noreferrer noopener">Chief Investment Officer</a> has named Colorado PERA Chief Investment Officer Amy McGarrity as a finalist for its <a href="https://www.ai-cio.com/news/cio-announces-innovation-awards-finalists-dec-13-gala/" target="_blank" rel="noreferrer noopener">2018 Industry Innovation Awards</a>. The nominees, who are recommended by their peers, are recognized as “the brightest and most forward-looking” investment leaders of public and corporate pensions, foundations, endowments, and other large institutional investors.



McGarrity has been PERA’s Chief Investment Officer (CIO) since March 2017. Previously, she was CIO of the Denver Public Schools Retirement System (DPSRS) and joined PERA in 2010 when the systems merged. She left PERA in 2016 to work for a private investment firm and returned in 2017 to oversee PERA’s $49 billion <a href="https://www.copera.org/investments" target="_blank" rel="noreferrer noopener">investment program</a>.



“I’m delighted to learn of this nomination and honored to be named with investment colleagues around the country who I consider to be innovative leaders in the field,” McGarrity said.



Winners will be chosen and announced in December by the CIO editorial team in conjunction with an advisory board of former and current chief investment officers.



Public Defined Benefit Plan $15 Billion to $100 Billion Finalists



Amy McGarrity, Colorado Public Employees’ Retirement Association



Scott Davis, <a href="https://www.in.gov/inprs/leadership.htm" target="_blank" rel="noreferrer noopener">Indiana Public Retirement System</a>



Johnathan Grabel, <a href="https://www.copera.org/colorado-pera-chief-investment-officer-amy-mcgarrity-honored" target="_blank" rel="noreferrer noopener" class="broken_link">Los Angeles County Employees Retirement Association</a>



Robert Maynard, <a href="https://www.copera.org/colorado-pera-chief-investment-officer-amy-mcgarrity-honored" target="_blank" rel="noreferrer noopener" class="broken_link">Public Employees’ Retirement System of Idaho</a>



John Skjervem, <a href="https://content.copera.org/colorado-pera-chief-investment-officer-amy-mcgarrity-honored/" target="_blank" rel="noreferrer noopener">Oregon State Treasury</a>



Tom Tull, <a href="https://ers.texas.gov/About-ERS/ERS-Investments-overview/Investments-Division" target="_blank" rel="noreferrer noopener">Employees Retirement System of Texas</a>



Congratulations and good luck, Amy!

Colorado PERA Chief Investment Officer Amy McGarrity Honored

A digest of timely information and insight about finance, investing, and retirement.



<a href="https://hbr.org/2018/03/americans-havent-saved-enough-for-retirement-what-are-we-going-to-do-about-it">Americans haven’t saved enough for retirement. What are we going to do about it?</a>&nbsp;|&nbsp;<a href="https://hbr.org">Harvard Business Review</a> Ultimately, the shift from defined benefit pension plans to employee-directed defined contribution 401(k)s <a href="http://crr.bc.edu/wp-content/uploads/2015/06/wp_2015-17.pdf">is the major driver of the impending retirement crisis</a>. Beginning in the 1980s, this move helped companies reduce their retirement liabilities and better meet their quarterly financial targets, but put an unmanageable burden on employees. For 401(k)s to be effective, for example, contributions must be made consistently throughout a worker’s career. In practice, people tend to make contributions sporadically. They also struggle in choosing contribution levels and investment options, and avoiding the temptation of using their savings for other needs.



<a href="https://content.copera.org/retirement-roundup-what-can-be-done-about-the-impending-retirement-crisis/">Ohio lawmakers kill bill to cut PERS benefits</a> |<a href="http://www.dispatch.com">The Columbus Dispatch </a>Republican House leaders shut down hearings on legislation to reduce benefits for Ohio’s largest public retirement system after running into fierce opposition from retirees. The measure would implement recommendations by the Ohio Public Employees Retirement System – or OPERS – aimed to shore up the $90 billion fund. After a handful of hearings, the bill did not have enough votes to pass. It was opposed by many Republican and Democratic lawmakers, and even the state representative sponsoring the bill was skeptical about the plan.



<a href="https://www.marketwatch.com/story/why-early-retirement-can-be-a-killer-2018-03-19">Why early retirement can be a killer</a> |<a href="https://www.marketwatch.com">MarketWatch</a>Think twice – nay, thrice – before claiming your Social Security benefits at age 62. Your life might depend on your decision. Literally. That’s because there’s a marked increase in mortality among men who retire at 62 and begin receiving Social Security, according to a fascinating new study that recently was distributed by the National Bureau of Economic Research. Its authors are two economics professors: Maria Fitzpatrick of Cornell University and Timothy Moore of the University of Melbourne in Australia. The increase in the death rate is quite large, furthermore, particularly among males who retire and claim Social Security at 62: By 20 percent, according to the study. Among females, in contrast, the data are inconclusive.



<a href="https://www.nytimes.com/2018/03/30/health/unretirement-work-seniors.html">Many Americans try retirement, then change their minds</a> |<a href="https://www.nytimes.com">The New York Times</a> Sue Ellen King had circled her retirement date on the calendar: March 8, 2015. She had worked as a critical care nurse and nursing educator at University of Florida Health (UF Health) in Jacksonville, Fla., for 38 years; co-workers joked that she was there when the hospital’s foundation was laid, which happened to be true. So the send-offs went on for days — parties in the units where she had worked, a dinner in her honor, gifts including a framed photo signed by colleagues. Ms. King felt ready. She’d turned 66, her full Social Security retirement age. She’d invested fully in the hospital’s 401(k) plan and consulted with a financial adviser. She and her husband, who had already retired, had paid off the mortgage on their three-bedroom ranch. They took a week’s trip to Hilton Head, S.C., to celebrate their impending freedom. But her retirement lasted just three months. “I’d done all the preparation, except to really think about what life was going to be like,” Ms. King said. Days spent organizing recipes and photos, and lunching with friends, proved less engaging than expected.



<a href="https://www.ai-cio.com/news/minnesota-senate-unanimously-approves-pension-bill/">Minnesota Senate unanimously approves pension bill</a> |<a href="https://www.ai-cio.com">Chief Investment Officer</a>The Minnesota State Senate has unanimously approved a pension overhaul bill that proposes mandatory contribution increases, reduced cost-of-living adjustments, and a lower investment rate of return for the state’s public retirement plans. Backers of the reform say the proposed bill would save Minnesota $6.1 billion over a 30-year period, $3.4 billion of which will be in immediate savings. They also say that if enacted, the state’s public pension plans’ funded status will be between 85 percent and 95 percent by 2048 from approximately 77.8 percent in 2017. “This is the largest pension reform bill in Minnesota’s history,” said the bill’s author, Sen. Julie Rosen (R), in a statement, adding that it “took years of work and negotiations.”



<a href="https://blogs.wsj.com/economics/2018/04/03/why-women-should-keep-working-after-their-husbands-retire/">Why women should keep working after their husbands retire</a> |<a href="https://blogs.wsj.com/">The Wall Street Journal</a>American women should keep working after their husbands retire if they want to catch up in terms of Social Security benefits, based on new research. Married couples often choose to stop working at the same time, taking advantage of the opportunity to travel or otherwise spend time together. But most married women are younger than their husbands, and some have delayed or interrupted careers due to child-rearing. Waiting longer to retire would bring them disproportionate gains under the formula for calculating Social Security retirement benefits, economist Nicole Maestas said in a recent paper. “If you have had a period out of the labor force, or a period of part-time work, or a period when you were earning much less than you’re earning now….you have an opportunity to replace those zeros with positive numbers that are high,” said Ms. Maestas, an associate professor of health care policy at Harvard Medical School. “I’m not sure people are fully aware of all of that.”

Retirement Roundup: What to do about the ‘impending retirement crisis’

PERA CIO sends comments to the SEC to improve transparency in equity trading and research after MiFID II impacts European markets



New government regulations are rarely thought of as transformational, but a recent regulatory change out of Europe is proving the exception. New rules for the investment community have increased transparency and, ultimately, fairness for investors – including the members and retirees who belong to PERA.



PERA staff work diligently to stay aware of the latest trends in investment markets and to advocate for increased <a href="https://www.copera.org/pera-advocates-for-increased-transparency-at-the-federal-level" target="_blank" rel="noreferrer noopener" class="broken_link">shareholder rights</a>, transparency in <a href="https://www.copera.org/retirement-roundup-long-1-million-last" target="_blank" rel="noreferrer noopener" class="broken_link">investments</a>, and <a href="https://www.copera.org/pera-advocates-for-increased-transparency-at-the-federal-level" target="_blank" rel="noreferrer noopener" class="broken_link">strong corporate governance</a>. Recently, PERA Chief Investment Officer (CIO) Amy McGarrity wrote to the Securities and Exchange Commission (SEC) asking for guidance that would increase pricing transparency in investment research.



McGarrity wrote the letter in part as a response to the regulation known as <a href="https://mifidii.thomsonreuters.com/en/what-is-mifid-ii.html" target="_blank" rel="noreferrer noopener" class="broken_link">MiFID II</a>. On January 3, 2018, the Markets in Financial Instruments Directive came into effect impacting the UK and European markets. The intent is to provide greater transparency and protection to investors in various asset classes, including the equities, bonds, and currencies in which Colorado PERA invests. While the new rules directly apply to European investors, banks, asset managers, and other market participants, McGarrity’s letter was a direct result of the impact of MiFID II on the investment landscape across the globe.



PERA is particularly interested in sections of MiFID II related to the distribution of investment research and how such research is compensated. Why is PERA focused on this area? PERA invests a significant portion of Fund assets “in house,” including the internal management of approximately 70 percent PERA’s stock investments. In their active asset manager roles, PERA analysts use broker-generated research to help explore investment ideas in detail. This research can range from data in specific industries to company-specific research that would be burdensome and redundant for PERA to replicate.



Traditionally, investment research generated by brokers has been paid via a “bundled” relationship. That is, when PERA would need to trade stocks, the broker or investment bank that executed the trade would then allow PERA access to their research products. MiFID II prohibits this bundling of trading and research. Instead, trading must be compensated for on its own merits, as must research. Consequently, in Europe, research is now paid for primarily by asset managers out of their profits. Similarly, trading relationships must rest solely on the best, or most cost-effective, execution of stock trades.



The benefits of this disruption of the status quo are being felt. Direct payment for research has already greatly improved the transparency of research service pricing, as specific research charges are negotiated. In the bundled model, research pricing has been opaque, with banks avoiding any discussion of explicit costs, thus limiting the ability of investors such as PERA to determine if they have been paying an appropriate amount for the product. MiFID II also has liberated the trading side of the equation by making the choice of transacting broker clearly based on execution skill, rather than unrelated research quality and access. Again, when bundling, trading decisions are less transparent given that the research product cost must be considered.



In the letter from PERA to the SEC, McGarrity recommended that the SEC increase pricing transparency by providing clear guidance that would allow U.S. investors to pay directly for research, rather than receiving research as part of a bundle of services paid for by commissions. PERA’s Equities Division is already in the process of negotiating clear, specific research arrangements with a variety of providers, and form of payment remains a topic of debate. While many of PERA’s research relationships will accept a check from PERA, others have interpreted the latest SEC guidance as limiting the ability of investors to directly pay for research due to on-going regulations.



PERA will continue discussions with the “holdout” brokers still requiring trade commissions to access research, while also engaging with the SEC on the issue. In the meantime, PERA will set firm expectations with research providers, pay for research directly where permitted, and create as much transparency as possible where bundling remains. These efforts will continue to ensure that investment costs are low, ultimately benefiting the PERA membership and Colorado taxpayers.



Read PERA Chief Investment Officer’s <a href="https://content.copera.org/pera-advocates-for-increased-transparency-at-the-federal-level/" target="_blank" rel="noreferrer noopener">letter to the SEC</a>.

PERA advocates for increased transparency at the federal level

A digest of timely information and insight about finance, investing, and retirement.



<a href="https://www.plansponsor.com/public-pensions-able-pay-promised-benefits/" target="_blank" rel="noreferrer noopener">Public Pensions Have Been Able to Pay Promised Benefits</a> |&nbsp;<a href="https://www.plansponsor.com" target="_blank" rel="noreferrer noopener">PLANSPONSOR</a>Some policymakers want to close participation in a public pension plan to all new hires, cut benefits and increase employee contributions, or convert defined benefit (DB) plan pensions into defined contribution (DC) plans. They usually cite the underfunding of public pension plans as the reason for these ideas. New research shows that funding status has little correlation with a pension fund’s ability to pay its promised benefits. Michael Kahn, director of research for the National Conference on Public Employee Retirement Systems (NCPERS) used data from the annual survey of public pensions by the U.S. Census Bureau for 1993 to 2016 and other data and found that during the last quarter century or so, state and local pension plans have always been able to meet their benefit and other payment obligations.



<a href="http://squaredawayblog.bc.edu/squared-away/retirees-say-ugh-to-medicare-shopping/">Retirees say ‘Ugh’ to Medicare Shopping</a> |<a href="http://squaredawayblog.bc.edu/">Squared Away Blog</a>In terms of popularity, reviewing Medicare plans during the open enrollment period ranks right up there with doing taxes. Retirees on Medicare view healthcare as their most burdensome expense. But they are less likely to comparison shop for Medicare plans than for their groceries and gas, even though plan shopping would probably save more money.



<a href="https://content.copera.org/retirement-roundup-pensions-are-keeping-promises/" target="_blank" rel="noreferrer noopener">Funds fighting effort to add UBIT measure</a> |<a href="https://www.copera.org/federal-legislation-hurt-institutional-investors-main-street-retirees" target="_blank" rel="noreferrer noopener" class="broken_link">Pensions &amp; Investments</a>As Congressional Republicans rush to pass tax reform before 2018, public pension plan officials are determined to see one new idea not make it to the finish line: the House plan for a new tax on unrelated business income from direct investments, such as real estate and private equity. The Internal Revenue Service already applies the unrelated business income tax, known as UBIT, to state colleges and universities. But its longstanding silence on application of that tax to other state entities has led public pension plans to believe it does not apply to them, particularly since their gross income already is excluded under another part of the IRS code. Under the House bill, being exempt under one section of tax code would not spare entities from UBIT on income from direct investments. With no grandfathering period, public pension funds would be facing a whole new world in January if the measure is passed.



<a href="https://www.cnbc.com/2017/11/24/health-care-costs-in-retirement-can-top-275000.html" target="_blank" rel="noreferrer noopener">The $275K retirement expense you can&#8217;t afford to ignore</a> |<a href="https://www.cnbc.com" target="_blank" rel="noreferrer noopener">CNBC</a> Before you retire, give your health-care financial plan a checkup. A healthy 65-year-old couple retiring this year can expect to spend $275,000 to cover health-care costs in retirement, according to Fidelity. Those calculations include premiums, cost-sharing provisions and out-of-pocket costs associated with Medicare parts A, B and D — but don&#8217;t include other health expenses, such as over-the-counter medications, dental services, and long-term care.



<a href="https://www.ai-cio.com/news/survey-shows-geopolitical-risk-tops-pension-asset-managers-concerns/" target="_blank" rel="noreferrer noopener">Survey Shows Geopolitical Risk Tops Pension, Asset Managers’ Concerns</a> |<a href="https://www.ai-cio.com/" target="_blank" rel="noreferrer noopener">Chief Investment Officer</a>Institutional investors see geopolitical stability as the biggest short- to medium-term risk to the global economy, more than inflation, growth rates, and central bank policy combined, according to a report from asset manager PineBridge Investments. In a survey of pensions, consultants, and asset management professionals, PineBridge found that 55 percent of pension professionals, and 54 percent of asset managers, saw geopolitical risk as the biggest threat to the economy. “The results surprised me, as I believe geopolitical risk is currently quite low by recent standards,” said Steve Cook, co-head of emerging markets fixed income at PineBridge Investments, in a <a href="https://www.pinebridge.com/press-releases/pinebridge-investments-survey-shows-geopolitical-risk-tops-pension-professionals-concerns" target="_blank" rel="noreferrer noopener">release</a>. “Presumably, respondents are nervous with regard to Korea, Iran, and other potential flashpoints.”



<a href="https://www.nytimes.com/2017/11/24/your-money/some-women-attain-an-enviable-status-401-k-millionaire.html" target="_blank" rel="noreferrer noopener">Some Women Attain an Enviable Status: 401(k) Millionaire</a>&nbsp;|&nbsp;<a href="https://www.nytimes.com" target="_blank" rel="noreferrer noopener">The New York Times</a> Accumulating $1 million in retirement savings is symbolic, even if it means different things to different people. It represents an aspirational amount of wealth to some, financial security to others or a milestone on the way to greater savings still. Of course, in a nation where 44 percent of the population does not have $400 saved for an emergency expense, reaching $1 million may seem unimaginable. For a small but growing number of working women, however, it has become a reality.

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Colorado PERA Chief Investment Officer Amy McGarrity Honored

Retirement Roundup: What to do about the ‘impending retirement crisis’

PERA advocates for increased transparency at the federal level

Retirement Roundup: Pensions are keeping promises

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