
<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>We often receive questions from our members, lawmakers, and the general public who want to know: What does PERA invest in and how do staff manage the portfolio?</p>



<p>Every year since 2018, we’ve published the <a href="https://copera.org/investment-stewardship"><em>Investment Stewardship Report</em></a> to answer those questions and provide transparency into why and how PERA invests on behalf of nearly 700,000 members.</p>



<p>PERA’s approach to stewardship is guided by four main practices:</p>



<ul>
<li>We <strong>protect</strong> our members’ interests through cost-conscious investment management.</li>



<li>We <strong>integrate</strong> financially relevant factors into our investment decisions.</li>



<li>We <strong>advocate</strong> for robust capital markets and business practices.</li>



<li>We <strong>evaluate</strong> various exposures within our portfolios on an ongoing basis.</li>
</ul>



<h4 class="wp-block-heading"><strong>Protect</strong></h4>


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<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/protect.png" alt="" class="wp-image-54008" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/protect.png 371w, https://content.copera.org/wp-content/uploads/2024/08/protect-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/protect-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>Each person on PERA’s investment staff is an expert committed to serving our members’ financial longevity. We leverage that expertise to reduce the need to use outside investment managers, which saves money while adding value for our members.</p>



<p>As of Dec. 31, 2023, we managed approximately 60% of PERA’s Defined Benefit Plan assets in-house at a cost of about 0.05% of those assets. In the same year, internal management saved an estimated $65 million compared to the cost of externally managing those assets.</p>



<p>The PERA Board and staff also work to lower fees in the PERAPlus 401(k)/457 and PERA Defined Contribution Plans. For example, since 2011, we’ve been able to reduce the all-in costs for members to participate in the 401(k) plan by 82%. Lower fees mean participating members can save more money toward their individual retirement goals.</p>



<p><strong>RELATED</strong>: <a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-global-equity" target="_blank" rel="noreferrer noopener">Asset Classes Explained</a></p>



<h4 class="wp-block-heading"><strong>Integrate</strong></h4>


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<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/integrate.png" alt="" class="wp-image-54010" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/integrate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/integrate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/integrate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>We invest for one purpose: To provide retirement income for our members. To that end, we consider various economic and business factors in our investment decisions with a focus on long-term financial results.</p>



<p>PERA’s integrative approach considers many aspects of businesses and markets that can have a financial impact on our investments. Those aspects may include factors that can be labeled as environmental, social, or governance-related (ESG). However, PERA does not have any ESG-themed mandates, nor do we screen our investments on specific ESG criteria when deciding whether to include them in the portfolio.</p>



<p>In 2023, the Colorado General Assembly passed Senate Bill 016, which requires PERA to publicly report on how we consider climate-related risks in our investments and operations. In response, we’ve augmented the 2024 <em>Investment Stewardship Report</em> with new insights into how we consider both risks and opportunities related to climate change.</p>



<p><strong>RELATED:</strong> <a href="https://copera.org/pera-on-the-issues/esg-making-sense-of-alphabet-soup" target="_blank" rel="noreferrer noopener">ESG: Making Sense of Alphabet Soup</a></p>


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<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/advocate.png" alt="" class="wp-image-54011" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/advocate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/advocate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/advocate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<h4 class="wp-block-heading"><strong>Advocate</strong></h4>



<p>We promote fair and transparent markets by contributing our expertise to regulators and financial industry advisory boards in advocacy of best practices that serve long-term investor interests.</p>



<p>By engaging with portfolio management partners, public companies, and policymakers, we can encourage practices that are expected to be profitable over the long run, and with more transparency in the market, we can make better investment decisions on behalf of our members.</p>



<h4 class="wp-block-heading"><strong>Evaluate</strong></h4>


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/evaluate.png" alt="" class="wp-image-54012" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/evaluate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/evaluate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/evaluate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>The PERA Board and staff monitor the investment portfolio on an ongoing basis. Our priority remains financial performance and seeking the best long-term, risk-adjusted returns so we can provide retirement income for our members in perpetuity.</p>



<p>As of Dec. 31, 2023, the PERA Defined Benefit Plan portfolio earned a one-year return of 13.4%, and over the past 10 years, the portfolio has earned an annualized return of 7.8%. In the past three decades, the investments we have made on behalf of the PERA membership have earned $82 billion, strengthening the longevity of the Fund.</p>



<p><strong>RELATED:</strong> <a href="https://copera.org/pera-on-the-issues/how-pera-prioritizes-financial-value-over-personal-or-political-values" target="_blank" rel="noreferrer noopener">How PERA Prioritizes Financial Value Over Personal or Political Values</a></p>



<p>Chief Executive Officer/Executive Director Andrew Roth underscored the importance of investment stewardship in fulfilling PERA’s purpose: “By maintaining our commitment to sensible investment practices and long-term performance, we continue to work toward our mission of providing retirement security for our members while ensuring the financial sustainability of the fund,” Roth said.</p>



<p><strong>Explore the </strong><a href="https://copera.org/investment-stewardship-report-digital-snapshot/" target="_blank" rel="noreferrer noopener"><strong>Investment Stewardship Report Digital Snapshot</strong></a><strong> or download the </strong><a href="https://copera.org/investment-stewardship-report" target="_blank" rel="noreferrer noopener"><strong><em>Investment Stewardship Report</em></strong></a><strong> to learn more.</strong></p>


Investment Stewardship Report Highlights How PERA Manages Plan Assets


<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>



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<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>



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<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>



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<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>



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<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>If you follow the stock market and investing news, you may have noticed a term that’s been gaining in popularity in recent years: ESG.</p>



<p>ESG is an acronym for environmental, social, and governance factors. It’s a widely used caption for labeling non-traditional aspects of a business that may have a financial impact on a company and its investors.</p>



<p>The term “ESG” is sometimes used to describe business or investment strategies perceived to have a global sustainability focus. However, that may be a misnomer. &nbsp;</p>



<h4 class="wp-block-heading"><strong>Evaluating business practices through an ESG lens</strong></h4>


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<figure class="alignright size-large is-resized"><a href="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png" alt="An infographic illustrating PERA's approach to ESG." class="wp-image-44041" width="306" height="396" srcset="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png 612w, https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic-232x300.png 232w" sizes="(max-width: 306px) 100vw, 306px" /></a><figcaption class="wp-element-caption">Click to view infographic</figcaption></figure></div>


<p>Rather than being a one-size-fits-all way to describe a company or investor, ESG is intended to be a way to describe nuanced inputs, outputs, and operations that can affect the environment, society, and/or business governance. These factors may or may not be financially relevant to a company and its investors.</p>



<p>Take a soda company for example. The company’s usage of water, an important ingredient in soda and other drinks, makes it neither an ESG nor non-ESG company. Instead, water could be considered a financially relevant input with implications for business that can be labeled through an ESG lens. Water is a natural resource, and it therefore can be considered an environmental factor. How the company accesses and uses that water in relation to the local community can be considered a social factor, and how the company adapts its strategy to changing supply, demand, regulation, and technology could be considered a governance factor.</p>



<p>How the company approaches these and many other elements of its business can affect its ability to remain competitive in its industry. Competitiveness and profitability are important to companies and their investors, and ESG is just one way to label various factors that may influence long-term financial outcomes.</p>



<p>As investors managing the retirement funds for nearly 700,000 members and retirees, it’s important for PERA to consider financially relevant factors when managing the portfolio, regardless of how they are labeled, or whether they may also have non-financial impacts.</p>



<h4 class="wp-block-heading"><strong>PERA’s investment approach</strong></h4>



<p>PERA invests with one objective: to provide present and future benefits for our members and their beneficiaries. To that end, our approach to <a href="https://www.copera.org/investment-stewardship" target="_blank" rel="noreferrer noopener">Investment Stewardship</a> is to seek out investments that are expected to provide the best risk-adjusted returns. PERA values financial sustainability first and foremost, and we do not invest to suit the personal beliefs of any one person or entity.</p>



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<p>PERA staff consider a wide variety of financially relevant factors when deciding what to include in the portfolio, including some that can be labeled as environmental, social, or governance-related. As of Dec. 31, 2023, PERA staff managed approximately 60 percent of the Fund in-house with most of those assets in actively managed portfolios using this integrative approach. PERA does not have any ESG-centric investment requirements and does not screen investments based on any specific ESG criteria.</p>



<p>“As ESG terminology becomes more prominent, it’s important that our members know PERA’s priority is maximizing long-term, risk-adjusted returns so we can continue paying benefits for decades to come,” said PERA Director of Investment Stewardship Tara Stacy. “By focusing on financial sustainability in our investment decisions, we uphold the fiduciary duty we owe to PERA members and their beneficiaries.”</p>



<p>For PERA members in the Defined Contribution Plan or a PERAPlus 401(k) or 457 plan who want to invest their own savings in companies that are screened on ESG criteria, PERA offers the <a href="https://www.copera.org/pera-on-the-issues/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants" target="_blank" rel="noreferrer noopener">PERAdvantage Socially Responsible Investment Fund</a>. The SRI Fund is designed for long-term performance through investment in companies that have demonstrated leadership in ESG-related practices — that is, companies that have shown an ability to manage risks and take advantage of opportunities associated with environmental, social and governance issues. Participants may also choose from a large variety of investments within the self-directed brokerage option.</p>



<p>To learn more about how PERA integrates various financially material factors into its investment decisions, read the Investment Stewardship Report, <a href="https://www.copera.org/investment-stewardship" target="_blank" rel="noreferrer noopener">available online here</a>.</p>


ESG: Making Sense of Alphabet Soup


<p>Recent <a href="https://news.gallup.com/poll/389780/investors-stand-esg-investing.aspx" target="_blank" rel="noreferrer noopener">polling by Gallup</a> shows nearly half of U.S. investors are interested in sustainable funds that take into account environmental, social and governance (ESG) factors, but few have heard much about them or invested in them. Additionally, 70 percent of respondents said they would be likely to include ESG funds in their 401(k) portfolio, if their employer offered them.</p>



<p>Since 2011, PERA has offered the PERAdvantage Socially Responsible Investment (SRI) Fund to members interested in directing their PERAPlus 401(k), 457 or Defined Contribution (DC) Plan savings into sustainable investments.</p>



<p>While PERA invests Defined Benefit (DB) Plan funds on behalf of PERA members and retirees, the SRI Fund provides members the opportunity to invest their personal savings with a focus on socially responsible or ESG leadership. The fund is designed for long-term performance through investment in companies that demonstrate strong ESG practices — that is, companies that have shown an ability to manage risks and take advantage of opportunities associated with environmental, social and governance issues. <strong></strong></p>



<h4 class="wp-block-heading"><strong>What makes the PERAdvantage SRI Fund “sustainable”</strong></h4>



<p>PERA offers a range of <a href="https://coperaplus.empower-retirement.com/participant/#/articles/COPERA/investmentInformation" target="_blank" rel="noreferrer noopener">PERAdvantage fund options</a> to 401(k), 457, and DC Plan participants, but the SRI Fund is the only one with a stated focus on environmental, social and governance factors. In 2019, <a href="https://peraontheissues.com/pera-updates-socially-responsible-investment-fund/" target="_blank" rel="noreferrer noopener">PERA updated the SRI Fund</a>, selecting new asset managers with portfolios offering better market coverage, lower costs and a stronger focus on ESG leadership.</p>



<p>The SRI Fund has two underlying portfolios: The BlackRock ACWI ESG Fund (stocks), which makes up approximately 60 percent of the fund, and the TIAA-CREF Core Impact Bond Fund (bonds), which makes up approximately 40 percent of the fund. Both portfolios include investments that are tilted toward positive ESG exposure. The bond fund also includes investments aimed at driving positive environmental and social impact.</p>



<p>For example, the BlackRock fund <a href="https://www.msci.com/documents/10199/8769a870-eaa5-ec35-8558-424489802702" target="_blank" rel="noreferrer noopener">mirrors an index</a> with more than 500 stock holdings, but companies with primary business in tobacco, controversial weapons, fossil fuel extraction and thermal coal power are not included. Holdings in the information technology sector make up nearly a quarter of the index, with some of the top holdings including companies like Apple, Microsoft and Tesla.</p>



<p>The <a href="https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=a1a3498b-5238-4226-824e-92e2cd2f830f" target="_blank" rel="noreferrer noopener">TIAA-CREF bond fund</a> includes investments in projects like affordable housing, renewable energy and land conservation. TIAA-CREF says the investments in the Core Impact Bond Fund resulted in the avoidance of nearly 275 million metric tons of emissions, energy savings of 7.7 billion kilowatt hours and the conservation of nearly 850,000 acres in 2020.</p>



<p>As with all PERAdvantage funds, the primary objective of the SRI Fund is to deliver financially sustainable risk-adjusted returns to participating members. In 2021, the SRI Fund <a href="https://content.copera.org/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants/" target="_blank" rel="noreferrer noopener">provided a return of 10.2 percent</a> for the year. The 10-year annualized return was 8.8 percent. As of the end of 2021, PERA members had more than $40 million invested in the fund.</p>



<p><strong>Learn more:</strong></p>



<ul>
<li><a href="https://www.copera.org/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants" class="broken_link">SRI Fund fact sheet</a></li>



<li><a href="https://www.copera.org/peraplus-401-k-457-plans">Enroll in a PERAPlus 401(k) and/or 457 Plan</a></li>



<li><a href="https://www.copera.org/investment-stewardship">PERA’s Investment Stewardship program</a></li>
</ul>


Tag Archives:

Investment Stewardship Report Highlights How PERA Manages Plan Assets

PERA Leaders Answer Member Questions at 2023 Town Halls

ESG: Making Sense of Alphabet Soup

PERAdvantage SRI Fund: A Sustainable Investing Option for 401(k), 457 and DC Plan Participants

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