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.

In our recent <a href="https://peraontheissues.com/test-your-knowledge-of-pera-benefits/" target="_blank" rel="noreferrer noopener">quiz about PERA benefits</a>, there was one question that seemed to trip a lot of people up, and it had to do with the PERA Board of Trustees:



Which of the following is the PERA Board of Trustees responsible for setting?



<ul>
<li>A: Employee and employer contribution rates</li>



<li>B: Annual benefit increase amounts</li>



<li>C: Benefit eligibility requirements</li>



<li>D: All of the above</li>



<li>E: None of the above</li>
</ul>



The correct answer is E: None of the above. While the Board is tasked with overseeing PERA operations, it isn’t directly responsible for setting many of the benefits that members receive.



PERA governance and operations are split between three main entities: The state legislature, the PERA Board, and PERA staff.



<h4 class="wp-block-heading">The legislature and state law</h4>



The state legislature established PERA as an instrumentality of the state in 1931. PERA and its benefits continue to be governed under Title 24, Article 51 of the Colorado Revised Statutes, also known as <a href="https://content.copera.org/what-roles-do-the-general-assembly-and-board-play-at-pera/" target="_blank" rel="noreferrer noopener">PERA Law</a>.



State statute lays out in detail the various provisions that determine who receives PERA benefits, when, and how much they receive, including:



<ul>
<li>Contribution amounts</li>



<li>How service credit can be accrued and purchased</li>



<li>Benefit options and eligibility</li>



<li>Annual benefit increases</li>
</ul>



Because the legislature is responsible for setting benefits, any changes to PERA benefits must also happen at the State Capitol. Change happens when lawmakers bring forth a bill, which then makes its way through the <a href="https://www.youtube.com/watch?v=WLOeY1h1TFo" target="_blank" rel="noreferrer noopener">legislative process</a> with a majority vote in the House and Senate, along with the governor’s signature. Neither the Board nor PERA staff have the power to change any of the provisions set in statute.



So far this year, lawmakers have introduced more than a half-dozen bills pertaining to PERA and its members. <a href="https://peraontheissues.com/2023-proposed-legislation-status/" target="_blank" rel="noreferrer noopener">Click here</a> for the latest on where those bills stand.



The legislature also conducts routine oversight of PERA. Various legislative panels meet regularly with PERA leadership and staff, including the Legislative Audit Committee, the House and Senate Finance Committees, the Joint Budget Committee, the Pension Review Commission and the Pension Review Subcommittee.



<h4 class="wp-block-heading">The PERA Board of Trustees</h4>



The <a href="https://www.copera.org/about/board-and-leadership" target="_blank" rel="noreferrer noopener">PERA Board</a> is made up of 16 members: three Trustees appointed by the Governor and confirmed by the Senate; four members from the School Division; three members from the State Division; one member from the Local Government Division; one Judicial Division member; two PERA retirees; a non-voting representative from the DPS Division; and the State Treasurer as an ex officio, voting member. As fiduciaries, the Board has a responsibility to act in the best interests of PERA members.



While the legislature sets benefits and other important plan provisions, the PERA Board is responsible for administering those benefits and overseeing PERA operations and management. The Board’s <a href="https://www.copera.org/about/board-of-trustees" target="_blank" rel="noreferrer noopener" class="broken_link">Governance Manual</a>, which adheres to best practices in public pension governance, defines these responsibilities. They include:



<ul>
<li>Setting rules and policy for PERA administration</li>



<li>Establishing organizational priorities and strategies</li>



<li>Overseeing PERA’s investment program</li>
</ul>



The Board also reviews and releases various important reports each year. That includes the Annual Comprehensive Financial Report (ACFR), which provides details about PERA’s financial status, funded status and membership statistics. The ACFR will be available following the Board’s June meeting.



<h4 class="wp-block-heading">PERA staff</h4>



While the legislature and Board establish policy and rules, PERA staff are responsible for administering plan benefits and managing day-to-day operations. PERA currently employs approximately 300 people who work every day to meet the goals set out in the Board’s <a href="https://www.copera.org/what-roles-do-the-general-assembly-and-board-play-at-pera" target="_blank" rel="noreferrer noopener" class="broken_link">strategic plan</a>. Some of those duties include:



<ul>
<li>Processing employee and employer contributions</li>



<li>Managing PERA’s investments</li>



<li>Distributing retirement payments and other benefits</li>



<li>Member communications and education</li>
</ul>



Providing retirement and other benefits to nearly 650,000 members is a big job, and it’s one we take seriously. The state legislature, PERA Board, and PERA staff all play important roles in making sure Colorado’s public employees will be able to receive reliable retirement income today and for generations to come.

What Roles Do the General Assembly and Board Play at PERA?

PERA presented to the Legislative Audit Committee on July 27. The primary agenda was a review of PERA’s financial returns. PERA staff and outside analysts were on hand to present and answer questions from committee members.



Financial Audit



Every year, an independent auditor hired by the Office of the State Auditor conducts a review of PERA’s financial status and fiscal controls. CliftonLarsonAllen LLP, which has been auditing PERA’s annual statements since 2015, audited the 2019 Comprehensive Annual Financial Report. The auditors gave the 2019 CAFR a clean audit, and committee members heard an overview of results from the annual report. You can read a summary of the 2019 CAFR <a aria-label="undefined (opens in a new tab)" href="https://peraontheissues.com/pera-releases-2019-financial-returns/" target="_blank" rel="noreferrer noopener">here</a>.



Signal Light Reporting



In 2014, the Legislative Audit Committee directed the Office of the State Auditor to contract with an actuarial firm to develop a methodology to simplify the understanding of PERA’s financial status. The result was the development of a tool called Signal Light Reporting, which PERA submits annually to the committee. This report summarizes the funded status of each PERA Division by using a color scale. The scale resembles a stop light, from green, indicating that PERA is projected to be on track to fully funded status, all the way to red. PERA submitted and shared the latest <a label="undefined (opens in a new tab)" href="https://content.copera.org/pera-presents-at-legislative-audit-committee-hearing/" target="_blank" rel="noreferrer noopener">report</a>, which shows that all divisions are on track to reach fully funded status by 2048 (green).



Ongoing Oversight at the Capitol



PERA reports to numerous committees at the State Capitol, including the Legislative Audit Committee, Joint Budget Committee, Joint Finance Committee, Pension Review Subcommittee, and Pension Review Commission. These regular check-ins provide lawmakers the chance to learn more about PERA and ask questions to PERA management. They also provide additional forums in which PERA members can learn more about how PERA works. For those not able to listen to the live broadcast, a recording can be found <a aria-label="undefined (opens in a new tab)" href="https://coloradoga.granicus.com/MediaPlayer.php?view_id=29&amp;clip_id=15519" target="_blank" rel="noreferrer noopener">here</a>.

PERA Presents at Legislative Audit Committee Hearing

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<iframe loading="lazy" title="Colorado PERA: Government Relations with Michael Steppat" width="640" height="360" src="https://www.youtube.com/embed/mSZ3Diqsu38?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen></iframe>
</div></figure>



Michael Steppat serves as Colorado PERA&#8217;s Public and Government Affairs Manager. He tracks <a href="https://peraontheissues.com/2020-proposed-legislation-status/">PERA-related legislation</a> and provides legislative oversight committees with the information they need, among other duties. 



In this short video, you&#8217;ll hear from Michael about the importance of PERA&#8217;s relationship with the legislature and what life is like for him at the Capitol.



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



0:26: How does PERA work with the government?



1:11: What factors does PERA consider when looking at new legislation?



1:49: What does a typical day look like for you?

Video: PERA’s Voice is Heard at the Capitol

Good governance practices don’t always draw headlines. But staying
out of the news may be a reflection of a retirement system that is running
smoothly and adhering to standards that protect the best interests of its members
and retirees as well as employers and taxpayers.



The <a href="https://www.ncpers.org/corporate%20governance">National
Conference on Public Employee Retirement Systems</a> (NCPERS)
recently issued guidelines for governance best practice for public retirement
systems. The guidelines serve as a checklist, of sorts, for policies,
procedures, and practices of public retirement systems such as Colorado PERA
that help ensure stakeholder needs are effectively met.



According to NCPERS, there is a strong link between retirement
systems that follow best practices and their performance. Research shows that
effective governance may improve long-term investment returns by up to 2.4
percent, annually. And, along with effectively implementing best practices, the
need for retirement systems to communicate about how they work to benefit their
stakeholders has never been greater.



The <a href="file:///C:/Users/test/Downloads/NCPERS_BEST%20GOVERNANCE%20PRACTICES_2019_Final.pdf">NCPERS
Best Governance Practices for Public Retirement Systems</a> includes the
following categories of best practice, each of which PERA works to achieve.



Governance Manual



According to NCPERS, “a fund should adopt a governance manual that serves as a central repository for the fund’s primary governance documents.” PERA’s <a href="https://peraontheissues.com/wp-content/uploads/2019/06/GovernanceManual11-18.pdf">Governance Manual</a>, <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link">first developed in 2001</a> and updated on a regular basis as standards change, provides a <a href="https://content.copera.org/how-pera-advocates-for-responsible-business-practices/">framework and starting point</a> for our oversight and governance functions, including:



<ul><li>Summaries of statutes, regulations,
and Board practices;</li><li>PERA’s Mission and Vision;</li><li>Board policies, including the Board Performance
Evaluation Policy.</li></ul>



Board Practices



Board practices
can have a proven impact on performance and risk oversight. The PERA Board of
Trustees engages in best practices to ensure strong oversight and plan
performance. A few practices are: 



<ul><li>Development of a <a href="https://content.copera.org/colorado-peras-2014-2018-strategic-plan/">strategic plan</a>, updated for 2019-2023;</li><li>Undertaking Board evaluations, as
referenced in the Governance Manual;</li><li>Conducting<a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link"> actuarial valuations</a> to inform the Board of the fund’s
future financial needs;</li><li>Using asset allocation studies to
identify <a href="https://www.copera.org/investments#assets">asset mixes</a> for meeting future financial needs;</li><li><a href="https://content.copera.org/pera-joins-a-lawsuit-to-defend-transparency-and-shareholder-rights/">Voting its proxies</a>.</li></ul>



Board Policies



The PERA Board
has adopted several policies designed to guide the retirement system to its
stated goals, such as:



<ul><li>Standards of conduct, ethics and conflict
of interest rules, such as those included in the Governance Manual;</li><li>A Board Communications Policy that
facilitates effective communications and outlines standards and procedures for
trustees and executives, included in the Governance Manual;</li><li>An <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link">Investment Policy</a> that includes goals, monitoring
procedures, and Board risk tolerances.</li></ul>



Risk Oversight



PERA’s risk
management includes policies and assessments that provide accountability:



<ul><li>Risk assessments (e.g. <a href="https://content.copera.org/good-governance-is-standard-practice-for-colorado-pera/">audits</a>) that test controls and potential
outcomes of risk events;</li><li>Early adoption of sensitivity analyses,
some of which is included in the CAFR;</li><li>Key measures, such as <a href="https://www.peraontheissues.com/wp-content/uploads/2018/08/08-01-18-Colorado-PERA-Signal-Light-Reporting-2018_Final.pdf" class="broken_link">signal light reporting</a>, that assess risk exposure.</li></ul>



Strategic Planning



Strategic
planning is a hallmark of successful organizations. PERA’s <a href="https://content.copera.org/colorado-peras-2014-2018-strategic-plan/">Strategic Plan</a>, newly updated in 2019, includes several
components. A few examples consist of:



<ul><li>Goals and performance measures for key
functions;</li><li>Review of long-term investment goals,
investment risk tolerances, and diversification objectives;</li><li>Succession and leadership development
plans and refreshed Board policy.</li></ul>



Reporting: Key Performance and Risk Measures



PERA issues a
number of performance and risk reports, many of which are compiled within the
annual <a href="https://content.copera.org/good-governance-is-standard-practice-for-colorado-pera/">CAFR</a>.
A few highlights:



<ul><li>The funded ratio as measured by the
ratio of fund assets to fund liabilities;</li><li>Net annualized investment returns
relative to the return assumption and benchmarks;</li><li>Future benefits owed to members as
measured by the actuarial accrued liability;</li><li>Net assets available for benefits. </li></ul>



PERA also <a href="https://content.copera.org/good-governance-is-standard-practice-for-colorado-pera/">reports on the results</a> of its effectiveness with members through the
annual CEM Benchmarking review of service and cost, incorporating: 



<ul><li>Timeliness and accuracy of
distributions paid to members and beneficiaries;</li><li>Member satisfaction with fund services
as measured by surveys and correspondence.</li></ul>



Stakeholder Communications



PERA regularly
communicates with members and other stakeholders through the <a href="https://www.copera.org/">website</a>, publications, <a href="https://www.copera.org/pera-on-the-issues">PERA
on the Issues</a>, and <a href="https://www.copera.org/pera-on-the-issues/good-governance-is-standard-practice-for-colorado-pera">other resources</a>. A few of these include:



<ul><li>A <a href="https://www.copera.org/about">mission
statement</a> that describes
the fund’s purpose to members and the public;</li><li><a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link">Surveys</a> that measure participant
satisfaction, while providing a basis for improvements;</li><li><a href="https://content.copera.org/good-governance-is-standard-practice-for-colorado-pera/">Updates</a>, <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link">letters</a>, <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" class="broken_link">annual reports</a> on fund operations and forms for
member beneficiaries.</li></ul>



At PERA, we strive to exceed expectations and to provide
transparency into complex operations. These policies and practices establish a
foundation to ensure that PERA operates as an efficient, trustworthy partner in
providing retirement and other benefits to more than 600,000 current and former
Colorado public employees.

Good governance is standard practice for Colorado PERA

In recent months, Colorado PERA has received inquiries about its approach to divestment from certain categories of its investments. The idea of divestment – making investment decisions based on national, or even international, public issues, with the goal of avoiding investments that are in conflict with specific public policy objectives – has become a political football of sorts for public pension funds throughout the United States. Various interest groups have called for divestment on political or <a href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">environmental, social, and governance (ESG)</a> grounds, while <a href="https://www.copera.org/pera-board-of-trustees-updates-divestment-policy-statement" class="broken_link">others have argued</a> that pensions’ sole investment responsibility is a <a href="https://www.copera.org/retirement-roundup-your-401k-is-just-one-piece-of-the-retirement-puzzle" class="broken_link">fiduciary</a> one, and that past divestment efforts in states such as California have resulted in significant costs to public servants’ retirement funds. Throughout 2018, the PERA Board of Trustees worked to update the divestment policy that it first adopted in 2007, seeking input from fiduciary counsel and investment consultants, as well as hearing from PERA members.



In January 2019, the PERA Board finalized and adopted an updated <a href="https://www.copera.org/pera-board-of-trustees-updates-divestment-policy-statement" class="broken_link">Statement on Divestment</a>. The Statement notes that PERA will implement divestment mandates from the Colorado General Assembly, but also that the Legislature should consider any such proposals with caution and fiduciary care. As the statement explains, PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants.



The statement concludes:



The issues facing our world today are not easily separated into gradations of severity or importance. Consensus as to the priority of these types of issues and the proper recourse is difficult to achieve. As a result, once a divestment mandate is imposed to address one issue, the resulting “slippery slope” makes differentiation among the remaining issues contentious and divisive. Increased divestment is costly and limits PERA’s ability to effectively seek the best risk-adjusted returns to secure the retirement benefits of public servants. For these reasons, PERA will oppose divestment efforts unless such opposition is inconsistent with its fiduciary duty, but will implement divestment mandates passed by the Colorado General Assembly.



For more information on the PERA Board of Trustees, see the following PERA on the Issues posts:



<a href="https://content.copera.org/how-pera-advocates-for-responsible-business-practices/">Policies
and practice shape oversight and involvement of Trustees in PERA investments</a>



<a href="https://www.copera.org/new-trustees-join-the-pera-board" class="broken_link">Understanding
the role of Trustees</a>

PERA Board of Trustees updates divestment policy statement

<a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" target="_blank" rel="noreferrer noopener" class="broken_link">PERA Trustees</a> play an important role in the administrative oversight of PERA, including the investment and management of its $49 billion portfolio. PERA invests on behalf of its membership with the sole purpose of generating returns on member and employer contributions. These returns are then used to pay retirement benefits.



While only the Colorado General Assembly has the authority to make changes to the PERA benefit and contribution structure, the Board has oversight of PERA’s investment program. Specifically, Trustees have the responsibility to set the strategic <a href="https://www.copera.org/2018-markets-year-in-review" target="_blank" rel="noreferrer noopener" class="broken_link">asset allocation</a> of the PERA funds, which guides PERA’s investment decisions. Trustees also have a responsibility to exercise oversight of staff’s implementation of their strategic asset allocation to ensure that investments are serving the best interests of PERA members and retirees.



The <a href="https://www.copera.org/retirement-roundup-your-401k-is-just-one-piece-of-the-retirement-puzzle" target="_blank" rel="noreferrer noopener" class="broken_link">fiduciary duty</a> of each Trustee along with the Board’s <a href="https://www.peraontheissues.com/wp-content/uploads/2016/09/GovernanceManual9-17.pdf" target="_blank" rel="noreferrer noopener" class="broken_link">Governance Manual</a> provide a framework and starting point for these investment functions. The Trustees have established specific rules of governance to ensure that their decisions and oversight meet that responsibility to members and benefit recipients.



As the Governance Manual explains, the Board’s role includes:



<ul>
<li>Approving and reviewing statements of investment policy and philosophy;</li>



<li>Ensuring strategies are in place to achieve investment goals and objectives; and</li>



<li>Approving internal or external investment management, new investment mandates, and necessary corporate governance or shareholder rights actions.</li>
</ul>



It is worth noting that no Trustee has any role or say in making specific investment decisions or selecting specific investments. The Board has delegated investment decision making (in the context of their strategic asset allocation) to PERA staff.



The Board’s <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" target="_blank" rel="noreferrer noopener" class="broken_link">Statement of Investment Policy</a> further outlines how the PERA portfolio is managed. The objective of the investment program is to maximize long-term returns while at the same time mitigating risk.



Operationally, the Board has a standing <a href="https://www.copera.org/policies-and-practice-shape-oversight-and-involvement-of-trustees-in-pera-investments" target="_blank" rel="noreferrer noopener" class="broken_link">Investment Committee</a> that is charged with the following duties as specified in the Governance Manual:



<ul>
<li>Recommend to the Board written statement(s) of investment policy and philosophy for the trusts, and any amendments thereto;</li>



<li>Recommend to the Board strategies to achieve the investment goals and objectives of PERA for the trusts;</li>



<li>Recommend to the Board new investment mandates;</li>



<li>Recommend to the Board the use of internal or external management for the investment mandates; and</li>



<li>Advise the Board on any other investment matters and make recommendations for Board action when necessary.</li>
</ul>



At least annually, the Investment Committee reviews PERA’s compliance with the written statements of investment policy as well as the internal and external investment management strategies and the cost effectiveness of the investment program.



In assisting them in these actions, the Trustees have access to world-class consulting firms as well as the expertise of a professional staff. Trustees are required to obtain the necessary education while in service to the PERA membership. These educational requirements are contained in the <a href="https://www.peraontheissues.com/wp-content/uploads/2016/09/GovernanceManual9-17.pdf" target="_blank" rel="noreferrer noopener" class="broken_link">Governance Manual</a> as the Board Education Policy and may be found on pages 28-1 – 28-5.



Earlier in October, PERA released a <a href="https://content.copera.org/policies-and-practice-shape-oversight-and-involvement-of-trustees-in-pera-investments/">statement</a> designed to clarify the role of Trustees related to the investment program.



For more information on how the Board works and a case study on how the long-term investment rate of return is set, see <a href="https://www.copera.org/new-trustees-join-the-pera-board" target="_blank" rel="noreferrer noopener" class="broken_link">Understanding the role of Trustees</a>.

Policies and practice shape oversight and involvement of Trustees in PERA investments

PERA’s <a href="https://www.copera.org/understanding-the-role-of-trustees" target="_blank" rel="noreferrer noopener" class="broken_link">Trustees</a> – the 16 professionals who oversee PERA’s investment program and benefits administration – are each bound by a set of fiduciary responsibilities requiring them to act in the best interest of PERA members and retirees.



As fiduciaries, Trustees have duties of loyalty, care, and prudence to act in the best interest of another party, acting <a href="https://www.copera.org/understanding-the-role-of-trustees" target="_blank" rel="noreferrer noopener" class="broken_link">“solely in the interest of his or her client” and “perform with a high level of competence and thoroughness, in accordance with industry standards.”</a> Colorado law makes it clear that PERA fiduciaries have a responsibility to “carry out their functions solely in the interest of members and benefit recipients and for the exclusive purpose of providing benefits.” <a href="https://www.copera.org/understanding-the-role-of-trustees" target="_blank" rel="noreferrer noopener" class="broken_link">(C.R.S. § 24-51-207(2)(a)).</a>



Both PERA employees and PERA Trustees receive regular training on what it means to be a fiduciary and the legal and ethical standards involved in fulfilling their roles.



In addition to attending extensive education and training to prepare them for their role, Trustees participate in five regular board meetings each year as well as committee meetings and, potentially, special meetings to review and consider proposed legislation that could impact PERA.



While only the Colorado General Assembly has the authority to make changes to the PERA benefit and contribution structure, as fiduciaries, PERA Trustees play an important role in the administrative oversight of PERA and have the responsibility to set the actuarial assumptions used by the plan, including the long-term rate of return assumption. Trustees have access to world-class consulting firms to assist them in setting the assumptions (both demographic and economic) used in the measurement of the financial health of the system.



Setting the long-term rate of investment return – a case study



Economic assumptions used by PERA include price inflation, wage inflation, and the long-term investment rate of return. The long-term rate of return assumption is the most powerful of all the assumptions therefore it receives a lot of attention.



How does the Board determine what rate of return will be used?



In October 2016, the Board conducted an Actuarial Assumption Workshop. The purpose of the workshop was to review economic and demographic information and receive presentations from actuarial and investment professionals. The process began prior to the workshop when Trustees received:



<ul>
<li>Economic and market data analysis. Ahead of the workshop, as it relates to the rate of return, materials provided to the Board included economic and market data compiled by the Board’s Investment Consultant (<a href="http://www.aon.com/human-capital-consulting/default.jsp" target="_blank" rel="noreferrer noopener">Aon Hewitt</a>), and detailed investment and funded ratio history compiled by PERA staff.</li>



<li>Economic forecasts. The Board also received information from the <a href="https://www.copera.org/understanding-the-role-of-trustees" target="_blank" rel="noreferrer noopener" class="broken_link">International Monetary Fund</a>, the <a href="https://www.cbo.gov/" target="_blank" rel="noreferrer noopener">Congressional Budget Office</a>, <a href="http://www.worldbank.org/" target="_blank" rel="noreferrer noopener">The World Bank</a>, <a href="https://www.bloomberg.com/" target="_blank" rel="noreferrer noopener" class="broken_link">Bloomberg</a>, the <a href="https://www.mckinsey.com/mgi/overview" target="_blank" rel="noreferrer noopener">McKinsey Global Institute</a>, and <a href="https://www.moodys.com/" target="_blank" rel="noreferrer noopener">Moody’s Investor Services</a>.</li>



<li>Public pension fund research. This data was further informed by information from the <a href="http://www.nasra.org" target="_blank" rel="noreferrer noopener">National Association of State Retirement Administrators</a> (NASRA) including the NASRA Public Fund Survey, and economic information from the U.S. Bureau of Labor Statistics, the Federal Reserve, the U.S. Census Bureau, as well as an overview of the investment rate of return assumptions used by public plans in the U.S.</li>
</ul>



At the workshop, key activities included:



<ul>
<li>Investment professional presentations. Presentations from an economist from <a href="http://www.goldmansachs.com/" target="_blank" rel="noreferrer noopener">Goldman Sachs</a> and the Vice Chairman of <a href="https://www.blackstone.com/" target="_blank" rel="noreferrer noopener">Blackstone</a>.</li>



<li>Capital market analysis. Aon Hewitt provided a capital market analysis</li>



<li>Actuarial analysis. The Board’s actuarial consultant (<a href="https://www.cavmacconsulting.com/" target="_blank" rel="noreferrer noopener">Cavanaugh Macdonald Consulting, LLC</a>) presented the results of their analysis of future returns based on the capital market assumptions provided by Aon Hewitt. The Board also reviewed a presentation by Xerox (formerly Buck Consultants) which projected investment returns based on a proprietary model.</li>
</ul>



Following the workshop, at the November 2016 Board meeting, the Board adopted the following economic assumptions for the 2016 valuation:



<ul>
<li>Price Inflation – 2.4%</li>



<li>Investment Return – 7.25%</li>



<li>General Wage Growth – 3.5%</li>



<li>Wage Inflation – 1.1%</li>



<li>Total Salary Increase – Adjust all ages and divisions by 0.40% for decrease in general wage growth.</li>
</ul>



These assumptions are still in place today. As a leading public retirement plan, PERA conducts regular experience studies and examines its assumptions on a regular basis.

Understanding the role of Trustees

A summary of proposed legislation affecting Colorado PERA. Check back often for new bills and updated status reports. Last updated: May 21, 2018.



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Active Bills



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<h3 class="wp-block-heading"><a href="http://leg.colorado.gov/sites/default/files/documents/2018A/bills/2018a_200_enr.pdf" target="_blank" rel="noreferrer noopener">Senate Bill 18-200</a></h3>



(Note: the summary below reflects the bill as it was passed out of the House on May 2, 2018, and does not reflect the changes made to the bill by the conference committee and approved by the House and Senate on May 9, 2018. An updated summary and a comparison between the final version and previous versions, along with the Board&#8217;s proposal, will be available soon.)



Modifications To PERA To Eliminate Unfunded Liability



Summary (applies to the reengrossed version of this bill as introduced in the second house): The public employees&#8217; retirement association (PERA) provides retirement and other benefits to employees of the school districts, state, local governments, and other public entities across the state. The bill makes changes to the hybrid defined benefit plan administered by PERA with the goal of eliminating, with a high probability, the unfunded actuarial accrued liability of each of PERA&#8217;s divisions and thereby reach a 100% funded ratio for each division within the next 30 years. The bill modifies benefits, ensures alignment of contributions and benefits, and makes other modifications as follows:



Highest Average Salary (HAS): Currently, for a PERA member who is not in the judicial division of PERA, the member&#8217;s HAS is based on an average of the highest annual salaries associated with 3 periods of 12 consecutive months of service with a base year. For a PERA member who is in the judicial division of PERA, the member&#8217;s HAS is based on an average of the highest annual salaries associated with 12 consecutive months of service. For all new PERA members hired on or after January 1, 2020, who are not in the judicial division, and for all existing PERA members who do not have 5 years of service credit as of January 1, 2020, who are not in the judicial division, the bill modifies the HAS calculation to be based on an average of the highest annual salaries associated with 5 periods of 12 consecutive months of service with a base year. For all new PERA members hired on or after January 1, 2020, who are in the judicial division, and for all existing PERA members in the judicial division who do not have 5 years of service credit as of January 1, 2020, the bill modifies the HAS calculation to be based on an average of the highest annual salaries associated with 3 periods of 12 consecutive months of service with a base year.



Definition of salary: The bill modifies the definition of salary for new hires as of July 1, 2019, by including amounts deducted from pay pursuant to a cafeteria plan or a qualified transportation plan in the definition of salary. In addition, the bill includes unused sick leave converted to cash payments in the definition of salary for all members.



Contribution increases: The bill increases the employee contribution rate by 2.0%, phased-in over three years. Beginning July 1, 2019, the bill will increase employee contributions by 0.75%, followed by another 0.75% increase on July 1, 2020, and finally a 0.50% increase on July 1, 2021. The bill also increases the employer contribution rate by 0.25% beginning on July 1, 2019, except for the Local Government employers.



Termination of affiliation: Employers assigned to the PERA local government division may terminate affiliation with PERA upon application to the PERA board. The bill clarifies that any employer that ceases operations or ceases to participate in PERA for any reason is deemed to have terminated its affiliation with PERA and is required to fully fund its share of the unfunded liability. The bill further clarifies that the PERA board will determine the amount of such payments and that such determinations are appealable through PERA’s administrative review process. Additionally, employees with less than five years of service credit will now be able to keep an account at PERA, rather than having their accounts automatically moved to a replacement plan.



Direct distribution: The bill modifies current statute to allow for a direct distribution from the state treasury to PERA of $225 million annually.



Expands state trooper definition to include certain other public safety officers: This bill adds certain public safety officers (such as sheriffs, detention officers, and corrections officers) who become members of PERA on or after January 1, 2020 to the definition of “state trooper,” applying the higher state trooper contribution rate, lower age and service credit retirement eligibility, and immediate disability eligibility for on-the-job injuries to these other public safety officers.



Automatic contribution and annual increase amount changes: The bill specifies the circumstances under which the member and employer contribution rates, the direct distribution &nbsp;and the annual increase percentage for retirement benefits can be adjusted so the fund remains within the target of paying off the unfunded liability within 30 years. The bill specifies that the yearly adjustments can be up to one-quarter of one percent on the annual increase percentage, one-half of one percent on the employee and employer contribution percentages and the direct distribution may increase by $25 million or decrease by $20 million. The bill places limits on how much the annual increase,contribution rates and the direct distribution can be adjusted. Automatic adjustments could begin as early as July 1, 2020.



Service retirement eligibility for new members: For non-state trooper members who begin employment on or after January 1, 2020, the bill increases the age and service requirements for full-service retirement benefits to age 64 with a minimum of 30 years of service, age 65 with a minimum of 5 years of service, and any age with a minimum of 35 years of service. For non-state trooper members who begin employment on or after January 1, 2020, the bill increases the age and service requirements for reduced service retirement to age 55 with a minimum of 25 years of service and age 60 with a minimum of 5 years. For new state trooper members who begin employment on or after January 1, 2020, the bill increases the age and service requirements for full-service retirement benefits to age 55 with 25 years of service, age 65 with 5 years of service, or any age with 35 years of service. For new state trooper members who begin employment on or after January 1, 2020, the bill increases the age and service requirements for reduced service retirement to age 50 with 20 years of service.



Cost of living adjustment (COLA) for all retirees, members, and inactive members: Currently, the annual COLA for benefit recipients who began membership prior to January 1, 2007, is 2%. For the years 2018 and 2019, the bill reduces the COLA to 0%. For each year thereafter, the bill changes the COLA to 1.50%, unless it is adjusted pursuant to the automatic adjustment provisions explained above. In addition, the bill requires benefit recipients to wait 36 months or three years (depending on when they became members) after benefits commence before receiving their first COLA if they had not received a COLA on or before May 1, 2018.



Defined Contribution (DC) choice expansion: New members in the Local Government Division and certain classified employees of state colleges and universities in the State Division on or after January 1, 2019 will have a choice between joining the PERA Hybrid Defined Benefit plan or the PERAChoice DC plan.



Defined Contribution (DC) supplement: Employers whose employees choose to participate in the DC plan will pay the DC supplement in order to offset any increases in PERA liabilities created by members who would otherwise have participated in the Hybrid Defined Benefit plan.



Public pension legislative oversight committee: Expands the existing Police Officers’ and Firefighters’ Pension Reform Commission to include oversight of PERA and creates a subcommittee exclusively focused on PERA. The 14-member subcommittee will include four legislators appointed from the Commission and 10 appointed external experts from relevant industries.



Investment program oversight: PERA may share private equity and real estate investment details in an executive session of the legislative members of the Subcommittee unless confidentiality provisions of contracts prohibits such disclosure.



Sponsors: <a href="http://leg.colorado.gov/legislators/jack-tate">Sen. Jack Tate</a>, <a href="http://leg.colorado.gov/legislators/kevin-priola">Sen. Kevin Priola</a>, and <a href="http://leg.colorado.gov/legislators/cheri-jahn">Sen. Cheri Jahn</a> | <a href="http://leg.colorado.gov/legislators/kc-becker">Majority Leader KC Becker</a> and <a href="http://leg.colorado.gov/legislators/dan-pabon">Rep. Dan Pabon</a>



Status:&nbsp;Awaiting action from the Governor.&nbsp;(Passed conference committee and re-passed by the House and Senate on May 9, 2018.)



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<h3 class="wp-block-heading">Inactive Bills</h3>



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<h3 class="wp-block-heading"><a href="https://leg.colorado.gov/bills/hb18-1111" target="_blank" rel="noreferrer noopener">House Bill 18-1111</a></h3>



Modifications To PERA Board Of Trustees



Summary: Reconfigure the PERA Board of Trustees and allow Trustees access to member and retiree information.



This bill would change the existing 16-member <a href="https://content.copera.org/2018-proposed-legislation-status/" target="_blank" rel="noreferrer noopener">Board of Trustees</a> as follows:



<ul>
<li>Eliminate four member-elected positions;
<ul>
<li>Eliminate one elected Trustee from the State Division (lowering from three to two Trustees in this Division, one of whom is from Higher Ed);</li>



<li>Eliminate three elected Trustees from the School Division (lowering from four to one Trustee in this Division);</li>
</ul>
</li>



<li>Require the member-elected positions to be at least 20 years from retirement eligibility (the DPS seat would not be modified to have this requirement);</li>



<li>Replace the eliminated positions with four Trustees appointed by the Governor, with Senate confirmation, bringing the total of Governor-appointed Trustees to seven. These appointees may not be PERA members or retirees. Of the seven appointees, no more than four shall be from the same political party.</li>



<li>Eventually, the seven appointed Trustees must be comprised of professionals with ten years of experience in the following fields:
<ul>
<li>One professional in investment fund management,</li>



<li>One professional in accounting and a CPA,</li>



<li>One professional in securities law and a licensed attorney in Colorado,</li>



<li>One professional in tax law and a licensed attorney in Colorado,</li>



<li>One professional in pension management,</li>



<li>One professional in actuarial analysis and a certified actuary, and</li>



<li>One professional who is a certified financial planner accredited by a nationally recognized accreditation agency.</li>
</ul>
</li>
</ul>



In addition to composition changes, the bill would also authorize a Trustee to review all records or information within the custody and control of PERA.



The bill defines information requests to include: “salary and benefit information that is contained in records of members, former members, inactive members, DPS members, DPS retirees, benefit recipients, and their dependents; except that, in fulfilling a request for records or information by a trustee pursuant to this section, the executive director of the association and the board shall not provide any other information that is designated as confidential pursuant to Section 24-51-213.”



Sponsors: <a href="https://leg.colorado.gov/legislators/justin-everett" target="_blank" rel="noreferrer noopener">Rep. Justin Everett</a> | <a href="https://leg.colorado.gov/legislators/tim-neville" target="_blank" rel="noreferrer noopener">Sen. Tim Neville</a>



Status:&nbsp;Postponed indefinitely&nbsp;(House State, Veterans, and Military Affairs 2/14/18)



PERA Board Position: Opposed.

2018 proposed legislation status

Seeking Candidates for 2018 Board Election



The Board of Trustees of Colorado PERA is a group of 16 professionals who are responsible for overseeing PERA’s investment program and the administration of PERA’s benefits. (However, the Colorado General Assembly, with the approval of the Governor, has responsibility for changing PERA benefits or contributions.) All Trustees serve as <a href="https://www.copera.org/2018-board-election-underway" target="_blank" rel="noreferrer noopener" class="broken_link">fiduciaries</a> and as such must act in the best interest of all members and retirees.



<a href="https://www.copera.org/colorados-state-legislature-goes-to-work-what-to-expect-in-2020" target="_blank" rel="noreferrer noopener" class="broken_link">State law</a> describes the responsibilities of the Board and the process for Trustees to be selected.



Twelve Trustees are elected by PERA members and retirees, three Trustees are appointed by the Governor and confirmed by the State Senate, and the State Treasurer serves as an ex officio Trustee. The Board of Trustees meets at least five times per year and is responsible for adopting the rules and policies for the administration of PERA. Elected Board members serve without pay, but are reimbursed for necessary expenses.



In May 2018, Colorado PERA will hold an election for the following seats on the Board of Trustees:



<ul>
<li>One School Division position</li>



<li>One State Division position (must work for a higher education employer)</li>



<li>One Local Government position</li>
</ul>



Candidacy packets may be obtained January 2, 2018, through February 28, 2018, by sending an email to <a href="mailto:election@copera.org?subject=Colorado%20PERA%20Board%20Candidacy%20Packet" target="_blank" rel="noreferrer noopener">election@copera.org</a> or by writing to:



Colorado PERA Internal Audit Division 1301 Pennsylvania Street Denver, CO&nbsp; 80203-5011



To be placed on the ballot, a candidate must fulfill the requirements explained in the candidacy packet. Requests for candidacy packets should include the candidate’s name, PERA Division of membership, mailing address, email address, and daytime telephone number. Candidates will be subject to a background check. State Division members must also indicate whether they are a participant in the PERA Defined Benefit or Defined Contribution Plan and for which higher education employer they work.



<a href="https://content.copera.org/colorado-pera-board-election-reminder/" target="_blank" rel="noreferrer noopener">More information on serving as a Trustee.</a>



Details on current Trustees may be viewed <a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" class="broken_link">here</a>.



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