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.

Colorado PERA works diligently to provide a stable and secure retirement for Colorado’s public workers. Though most PERA members participate in its hybrid defined benefit (DB) plan, many members also contribute additional supplemental savings to either the PERAPlus 401(k) or 457 Plans. Additionally, a smaller number of PERA members are eligible to choose the PERAChoice DC Plan instead of the hybrid DB plan.



Together the PERAPlus and PERAChoice plans make up PERA’s defined contribution (DC) portfolio, with total assets of $3.2 billion and $130 million respectively. Recently, PERA was recognized for its innovative DC plan structure when it was asked to present at the annual conference of the <a href="https://www.copera.org/pera-shares-successful-strategies-for-defined-contribution-retirement-savings">National Association of Government Defined Contribution Administrators,</a> Inc. (NAGDCA).



The leading association for defined contribution retirement plans (such as 401(k) or 457 plans) sponsored by government employers, NAGDCA brings together representatives from state and local governments with private sector organizations that service and support DC plans. NAGDCA works to enhance government DC retirement plans so that they can provide their participants with financial security at retirement.



NAGDCA’s annual conference focuses on topics of interest to its members and incorporates case studies from successful DC plans to foster collaboration and provide education. This year, Jeffrey Cable, Colorado PERA Defined Contribution Manager, presented Colorado’s DC plan structure as an example case study of a successful plan. Cable joined representatives from the City of Los Angeles and Missouri in discussing innovative DC plan designs.



In 2011, PERA restructured its investment options for the DC plans by creating “<a href="https://www.copera.org/nobel-prize-puts-spotlight-on-behavioral-economics-retirement-plan-policy">white label funds</a>.” White label funds are titled based on the investment options they contain, rather than the investment manager retail name. This innovation helps to achieve PERA’s goal of encouraging DC plan participants to focus on aligning the allocation of their assets with their retirement savings needs.



Most PERA members who participate in the DC plans are invested in the PERAdvantage funds:



<ul>
<li>PERAdvantage Capital Preservation Fund</li>



<li>PERAdvantage Fixed Income Fund</li>



<li>PERAdvantage Real Return Fund</li>



<li>PERAdvantage U.S. Large Cap Stock Fund</li>



<li>PERAdvantage U.S. Small and Mid Cap Stock Fund</li>



<li>PERAdvantage International Stock Fund</li>



<li>PERAdvantage SRI Fund</li>
</ul>



Each of the fund options contains multiple underlying funds, which offer differing characteristics. The underlying funds include both actively and passively managed funds, and are combined to provide diversified exposure to the represented asset class.



For those participants who prefer an asset allocation strategy determined by their planned retirement date, the DC plans offer Target Date Funds. These funds include a variety of different investment styles or asset classes and are designed to reach a savings goal by a set or “target” date.



Additionally, some participants invest using the self-directed brokerage, which allows investors significant control and customization of their investments.



PERA has lowered the costs of its plans for participants by implementing the white label approach along with using a combination of index (passive) funds and leveraging the size of dollars invested. PERAdvantage Funds are low in cost and best in class.



<a href="https://www.copera.org/pera-shares-successful-strategies-for-defined-contribution-retirement-savings">Research</a> has shown that high investment fees can negatively impact retirement savings over time. That’s why it’s important to understand the fees associated with investing. PERA redesigned the DC plans in 2011 to ensure members’ supplemental (and in the DC Plan, mandatory) savings are not eroded by high fees.



By structuring its DC plans to allow participants to concentrate on portfolio diversification while having compelling investment choices, PERA provides DC plan participants with another option to save more for retirement while getting the most benefit from their savings. All PERA members are encouraged to save in addition to their PERA defined benefit plan and the PERAPlus plans offer easy to understand, low cost ways to save for retirement.



See PERA on the Issues “<a href="https://content.copera.org/active-passive-management-brief-summary/">The Importance of Understanding Investment Fees</a>”

PERA Shares Successful Strategies for Defined-Contribution Retirement Savings

That’s what <a href="http://www.cembenchmarking.com/" target="_blank" rel="noreferrer noopener">CEM Benchmarking</a>, an international firm that analyzes pension fund performance, concluded about Colorado PERA after comparing 73 different pension plans across the globe. Pension plans are analyzed relative to a peer group of similar-sized plans as well as to all 73 different funds.



<blockquote class="wp-block-quote">
For another year, Colorado PERA has been recognized for outstanding customer service and low administrative costs by a global company that analyzes pension funds worldwide.
</blockquote>



Colorado PERA is included in a peer group of 13 U.S. plans including Ohio PERS, with a membership of 1,045,000 down to TRS Louisiana, with 184,000 members. PERA is in the middle of this group, with 549,000 members as of July 2015.



The range of U.S. pension plans varies from CalSTRS and CalPERS in California to Nevada PERS and Utah RS. Global pension plans studied include Rolls Royce and Scottish Public Pension Agency in the United Kingdom to Ontario Pension Board in Canada, Abu Dhabi RPB and numerous other plans in several countries.



For 2014, PERA’s administrative costs were well below the average of both the 13 funds in its peer group and the 73 pension funds evaluated across the globe. PERA’s annual pension administration costs were $51 per active member per year (or annually), inactive member, and retiree, or $9 below the peer average of $60 per year.



<figure class="wp-block-image"><a href=""><img decoding="async" src="" alt="Pension Costs" class="wp-image-429"/></a></figure>



Source: CEM Benchmarking presentation to the Colorado PERA Board of Trustees, September 2015.



The reasons for PERA’s lower than average costs included higher employee productivity and lower costs for activities like information technology and financial control. PERA had 3.54 Full Time Employees (FTE) per 10,000 members, below the peer average of 4.62.



PERA’s overall service score, measuring the customer service PERA provides its members and retirees, was 87 out of 100. Only five funds out of the 73 measured had higher service scores than PERA.



<figure class="wp-block-image"><a href=""><img decoding="async" src="" alt="Service Score" class="wp-image-428"/></a></figure>



Source: CEM Benchmarking presentation to the Colorado PERA Board of Trustees, September 2015.



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It is notable that PERA has such strong customer service scores while maintaining below-average costs, given that strong customer service tends to drive costs higher.
</blockquote>



“It’s important that Colorado PERA members, policymakers, and taxpayers know that PERA continues to receive high marks when we are compared to our peers in the United States, as well as around the world,” said Greg Smith, PERA’s executive director. “It is infrequent that one of our members would have the occasion to interact with another pension fund, so the CEM Benchmarking service confirms what many of our members tell us – that PERA is one of the best customer service experiences they have. Every business strives to have satisfied customers and meet their needs at a low cost. This report shows that we continue to do that at PERA,” Smith concluded.



PERA’s call center and customer satisfaction survey scores, in particular, were higher than many of its peer plans. The report also noted that 100 percent of annuity pension inceptions, or monthly retirement distributions, are paid without an interruption of cash flow greater than one month between the final paycheck and the first retirement distribution check.



PERA’s service score increased by three points from 84 to 87 over the last four years, while the average score of the peer group remained relatively flat over that time. The CEM report noted that PERA had one of the highest service ratings in the CEM global pension universe.



<figure class="wp-block-image"><a href=""><img decoding="async" src="" alt="Service Trends" class="wp-image-427"/></a></figure>



Source: CEM Benchmarking presentation to the Colorado PERA Board of Trustees, September 2015.



The results of the CEM Benchmarking study further demonstrate the strong commitment of PERA on a daily basis to deliver exceptional service for PERA members and retirees.&nbsp;PERA provides this level of service at a low cost, protecting the retirement savings of its members and continuing to be one of Colorado’s best investments for members, retirees, and taxpayers across the state.

Low Cost, High Service

A recent study of retirement plan design shows Colorado PERA is more efficient and uses dollars more effectively than other types of plans in use today.&nbsp;Three simple charts summarize the findings.



Read the <a href="https://www.copera.org/independent-report-finds-pera-efficient-and-effective" target="_blank" rel="noreferrer noopener">Gabriel, Roeder, Smith &amp; Company report</a> on PERA’s income replacement in retirement efficiency and cost effectiveness.

Independent Report Finds PERA Efficient and Effective

Few decisions in life are more important than those having to do with health care. Yet, medical decisions are often the most complicated—especially when facing a significant treatment or procedure. Simply seeking out a diagnosis can be challenging enough, but that’s only the first step in a process that can be fraught with worry and uncertainty. That’s why Colorado Public Employees’ Retirement Association (PERA) recently launched a new hip and knee replacement benefit option called PERACare Select, which is available to its PERACare Anthem Pre-Medicare participants.



According to a study by the <a href="https://content.copera.org/peracare-select-offers-new-solutions-that-simplify-health-care/" target="_blank" rel="noreferrer noopener">Mayo Clinic</a>, more than seven million people in the U.S. are living with a hip or knee replacement, and this number is expected to increase greatly as the population ages. Put another way, 2.3 percent and 4.6 percent of adults age 50 or older have an artificial hip or knee, respectively. With so many people relying on these procedures for their health and well-being, it’s critical the care be accessible and affordable.



The process for getting a hip or knee replacement is hardly straightforward, even though the procedures themselves are quite common. Many patients feel confused and overwhelmed by vast inconsistencies in price and quality of care resulting from choice of doctor, facility, and geographical location.



For example, when seeking out a hip or knee replacement, Colorado patients may encounter a price variation of $40,000 across the state. What’s more, there’s no correlation between price and quality, so one patient could potentially pay thousands of dollars more than another patient for the same procedure—with no better outcome or experience. This unpredictability makes it impossible for patients to plan for the future or make informed decisions about their health.



Recognizing the need for reliable health care at a fair and predictable cost, PERA created PERACare Select as a solution to cost and quality confusion. By contracting with a select group of doctors and facilities, PERA is able to provide its members with a full suite of services related to a hip or knee replacement with no out-of-pocket cost for HMO and PPO members, and no coinsurance for HDHP members. Under this program, costs of services typically billed separately like anesthesiology, X-rays, and nursing assistance, are included in one fixed price for the total procedure. This cost predictability means patients can feel confident they’ll have access to the comprehensive health services they need.



PERACare Select ensures patients can afford their hip and knee replacement surgery and receive consistently high quality care. By working with qualified, experienced surgeons at local HealthONE health care facilities, PERA is cracking the code on cost confusion and taking the guesswork out of choosing a reliable health care provider.



Colorado’s school teachers, snowplow drivers, state patrol, and other public employees spend their careers taking care of the public—and PERA works for them to ensure they have a healthy, stable, and secure quality of life in retirement. In overcoming cost and quality disparities, PERA’s model of health care helps not only its retirees, but all Colorado families.



PERACare Select is available now to PERACare Anthem Pre-Medicare participants. Visit the <a href="https://www.copera.org/controlling-your-health-care-costs">PERACare Select</a> website for more information.

PERACare Select Offers New Solutions that Simplify Health Care

On December 4, 2014, the <a href="http://www.nirsonline.org/" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS) issued updated research showing how defined benefit (DB) plans outperform defined contribution (DC) or 401(k)-type plans. “<a href="https://content.copera.org/defined-benefit-plans-less-costly-more-efficient/" target="_blank" rel="noreferrer noopener">Still a Better Bang for the Buck: Update on the Economic Efficiencies of Pensions</a>” updates research from a 2008 study that found the pooled professional investments, long-term time horizons, and lower fees of defined benefit plans outperform individually managed 401(k)-type plans. NIRS says DB plans provide the same amount of retirement income for about half the cost of an individual DC account.

Defined Benefit Plans Less Costly, More Efficient

The National Institute of Retirement Security (<a href="http://www.nirsonline.org/" target="_blank" rel="noreferrer noopener">NIRS</a>) recently released a report, <a href="https://content.copera.org/the-economic-impact-of-colorado-pera/" target="_blank" rel="noreferrer noopener">Pensionomics</a>, highlighting the economic impact of pension plans across the country.



Distributions from pension plans like Colorado PERA create substantial economic benefits in local communities where retirees live. NIRS created state-specific fact sheets that detail the economic impact of retirement distributions in each state. The <a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Colorado fact sheet</a> includes the impact of all retirement distributions in the state, but the bulk of retirement distributions made in Colorado are those made to PERA retirees.



As the study authors note, “Because pensions supply secure income to retirees, pensions provide local economies with stable sources of revenue.”



Nationwide, the NIRS study found that over $943 billion in total economic output resulted from spending coming from defined benefit pension plans in 2012. Those same expenditures also supported 6.2 million American jobs that paid $306.9 billion in income in that year. Also in 2012, the benefits that defined benefit pension plans paid out supported $135.1 billion in tax revenue at the local, state, and federal levels.



As they do across the country, retirees in Colorado spend their pension benefit distributions on everything from food and entertainment to health care, housing, transportation and even taxes. That spending creates a ripple effect in local economies, sustaining local businesses and supporting employment.



And reliable income from plans like PERA can be especially important during economic downturns. Retirees who know they will receive a steady check despite economic conditions will spend that regular income, helping to stabilize the economy more broadly.



Local economists at Pacey Economics worked with PERA to research the economic and fiscal impacts of spending by <a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">PERA retirees across Colorado</a>. What they found is that PERA is one of Colorado’s best investments.



<ul>
<li>PERA provides $3.35 billion in annual benefit distributions to Colorado residents – distributions that are prefunded, by both employee and employer contributions, and invested while a member is working.</li>



<li>Annual benefit distributions to Colorado residents result in $4.78 billion in total output, of which more than $2.0 billion is value added above the benefit distributions, or newly created goods and services that result.</li>



<li>This economic impact contributes to $1.12 billion in labor income, helping to sustain nearly 26,000 jobs in Colorado.</li>



<li>Benefit distributions also help produce more than $280 million in state and local tax revenue.</li>
</ul>



When households receive PERA benefit distributions, those dollars are spent in local economies across the state, creating a chain reaction. The impact of a dollar spent has a ripple effect across the economy, so that one retiree’s spending becomes someone else’s income.



In addition to measuring the impact of its distributions throughout Colorado, PERA looked in more detail at the economic impact in nine different regions across the state:



<ul>
<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Colorado Springs</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Eastern</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Metro Denver</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Mountain</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Northern</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Pueblo‒Southern Mountains</a></li>



<li><a href="https://content.copera.org/the-economic-impact-of-colorado-pera/" target="_blank" rel="noreferrer noopener">San Luis Valley</a></li>



<li><a href="https://content.copera.org/the-economic-impact-of-colorado-pera/" target="_blank" rel="noreferrer noopener">Southwest Mountains</a></li>



<li><a href="https://www.copera.org/the-economic-impact-of-colorado-pera" target="_blank" rel="noreferrer noopener">Western</a></li>
</ul>



The reliable distributions that go to retirees in Colorado from PERA and similar pension funds have an impact far beyond PERA’s more than 500,000 members. From local restaurants to doctors and hospitals, small businesses and Colorado communities see a direct benefit from retired public workers who have contributed to Colorado throughout their careers and continue to do so in retirement.

Tag Archives:

PERA Shares Successful Strategies for Defined-Contribution Retirement Savings

Low Cost, High Service

Independent Report Finds PERA Efficient and Effective

PERACare Select Offers New Solutions that Simplify Health Care

Defined Benefit Plans Less Costly, More Efficient

The Economic Impact of Colorado PERA

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