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.

The Colorado General Assembly wrapped up the 2021 legislative session in June, but legislative work has continued in the ensuing months at the Capitol. Some of that work over the summer and fall involved committees that conduct routine oversight into Colorado PERA and its operations.



PERA and its Board of Trustees appreciate the value of rigorous review and transparency, so staff regularly engage with these legislative panels to provide updates on PERA’s finances, answer questions and listen to feedback from lawmakers and others. Summaries of those activities are included below.



<h4 class="wp-block-heading">Legislative Audit Committee</h4>



The <a href="http://leg.colorado.gov/committees/legislative-audit-committee/2021-regular-session" target="_blank" rel="noreferrer noopener">Legislative Audit Committee</a> met in August to hear an update on PERA’s financial status and receive the results of an independent audit of PERA’s <a href="https://www.copera.org/colorado-pera-board-releases-2020-annual-report" target="_blank" rel="noreferrer noopener">Comprehensive Annual Financial Report</a>. The Committee heard from PERA Executive Director Ron Baker, Chief Investment Officer Amy C. McGarrity, external auditors, and actuarial consultants.



The auditors gave PERA’s annual report a clean audit with no significant issues or outstanding recommendations.



Read more <a href="https://content.copera.org/pera-oversight-continues-between-legislative-sessions/" target="_blank" rel="noreferrer noopener">here</a>.



<h4 class="wp-block-heading">Pension Review Commission and Pension Review Subcommittee</h4>



The legislature’s <a href="http://leg.colorado.gov/committees/pension-review-subcommittee/2021-regular-session" target="_blank" rel="noreferrer noopener">Pension Review Subcommittee</a>, which was established as part of the PERA reforms of Senate Bill 200 in 2018, consists of legislators and members of the public with expertise in topics such as accounting, economics and investment management.



At its Sept. 10 meeting, the Subcommittee voted to draft a bill for the 2022 legislative session that would make up the legislature’s missed $225 million direct distribution payment to PERA from July 2020. The Subcommittee forwarded that bill to the <a href="http://leg.colorado.gov/committees/pension-review-commission/2021-regular-session" target="_blank" rel="noreferrer noopener">Pension Review Commission</a>, which then forwarded the draft to <a href="http://leg.colorado.gov/committees/pension-review-commission/2021-regular-session" target="_blank" rel="noreferrer noopener">Legislative Council</a> for review. In November, the Legislative Council voted to approve the bill, clearing the way for it to be introduced in the upcoming legislative session, which begins in January.



Read more about that bill <a href="https://peraontheissues.com/legislative-committee-seeks-to-make-up-missed-225m-payment-to-pera/" target="_blank" rel="noreferrer noopener">here</a>.



The Pension Review Subcommittee also conducted an independent review of the actuarial assumptions PERA uses in its financial calculations and reporting. Based on that review, the Subcommittee made three recommendations to the PERA Board regarding PERA’s funding policy and Signal Light methodology and reporting.



At its November meeting, the Board discussed the recommendations in detail and heard from PERA staff as well as PERA’s actuarial consultants. Following the discussion, the Board decided to draft a letter to the Pension Review Subcommittee responding to the recommendations. In the letter, the Board stated it agrees with the Subcommittee that there’s a need for clearer communication in the Signal Light report and the Board will consider implementing changes in future versions of the report. The Board also said it will consider making changes to <a href="https://www.copera.org/despite-changes-in-accounting-standards-pera-remains-on-track" target="_blank" rel="noreferrer noopener">PERA’s funding policy</a> when it undertakes its planned review of the policy in 2023.



Read the Board’s letter <a href="http://leg.colorado.gov/sites/default/files/images/colorado_pera_board_responses_to_pension_review_subcommittee_recommendations_-_11.29.21.pdf" target="_blank" rel="noreferrer noopener">here</a>.



<h4 class="wp-block-heading">Joint Budget Committee</h4>



On Dec. 9, PERA Executive Director Ron Baker and Chief Investment Officer Amy C. McGarrity appeared before the <a href="http://leg.colorado.gov/committees/joint-budget-committee/2021-regular-session" target="_blank" rel="noreferrer noopener">Joint Budget Committee</a> for that panel’s annual hearing on PERA. Baker and McGarrity provided the Committee with updates on a number of topics — including PERA’s finances and membership, results of <a href="https://peraontheissues.com/2020-experience-study-preparing-for-a-secure-future/" target="_blank" rel="noreferrer noopener">2020’s actuarial experience study</a>, and market performance in 2021 — and answered questions from committee members.



<h4 class="wp-block-heading">What’s ahead in 2022</h4>



The Colorado General Assembly will convene to kick off the 2022 legislative session on Jan. 12. PERA On The Issues will keep track of any proposed legislation that pertains to Colorado PERA, including the draft bill to make up the state’s missed 2020 payment of $225 million, and provide updates throughout the session. If you haven’t already subscribed to our newsletter, <a href="https://www.copera.org/pera-oversight-continues-between-legislative-sessions" target="_blank" rel="noreferrer noopener">you can do so here</a>.

PERA Oversight Continues Between Legislative Sessions

Gov. Jared Polis included PERA&#8217;s direct distribution in his 2021 state budget proposal.



The state legislature passed a bill in 2020 suspending the $225 million payment for one year due to historic revenue shortfalls and consequential budget cuts. PERA On The Issues has covered the 2020 suspension in depth in <a href="https://peraontheissues.com/legislative-update-an-uncertain-path-ahead/" target="_blank" rel="noreferrer noopener">previous</a> <a href="https://content.copera.org/polis-budget-plan-includes-pera-direct-distribution/" target="_blank" rel="noreferrer noopener">articles</a>.



It&#8217;s up to the state legislature to ultimately create and pass a budget, but the governor&#8217;s budget proposal helps get the budget conversation underway.



Direct Distribution – a Summary



The landmark SB 18-200 included a number of changes that work in concert to bring PERA to full funding. The <a href="https://peraontheissues.com/direct-distribution-of-225-million-helps-return-pera-to-full-funding/" target="_blank" rel="noreferrer noopener">direct distribution</a> was one of these changes. In short, it is a $225 million annual payment from the state. Every dollar goes toward paying off PERA’s unfunded liability.



This payment was more than a commitment of budget writers in 2018. The direct distribution was written into statute, to occur every year until all unfunded actuarial accrued liabilities from all divisions of PERA are eliminated.



2020 Crisis



The global pandemic led to a precipitous drop in state revenue. Billions of dollars of expected income vanished. The Joint Budget Committee (JBC), the bipartisan group of senators and representatives who write the state budget, faced an unenviable task: reducing or eliminating a <a href="https://peraontheissues.com/legislative-update-an-uncertain-path-ahead/" target="_blank" rel="noreferrer noopener">large number</a> of previously budgeted items in order to balance the budget. The direct distribution was one of many emergency cuts.



2021 Budget Process



We won’t know what next year’s budget will look like for a while. Typically, the JBC releases their budget in late March or early April. However the process of creating the budget takes months.



The governor’s budget plan is one of the first waypoints of this process. While the governor does not write the budget, he can signal priorities via this plan. Restoring the direct distribution is a key part of <a href="https://www.colorado.gov/governor/news/3376-governor-polis-releases-state-budget-proposal" target="_blank" rel="noreferrer noopener">his proposal</a>, which he released on November 2. Next Steps



The status of the direct distribution won’t be official until the state legislature passes a budget next year. However, learning about the priorities of everyone involved in the budget process, like the governor, can bring some focus to an otherwise hazy picture.



Another opportunity to gain clarity is when the state releases its revenue forecasts periodically. Revenue forecasts supply JBC members with crucial information about how much money they can expect to work with. 



Remember, these forecasts are estimates and can change over time. But they are important in setting expectations as the JBC does their work.



“The September revenue forecast painted a slightly less grim picture of the state’s revenue situation as the economy continues to rebound,” said Michael Steppat, PERA’s Public and Government Relations Manager. “But all eyes will be on the upcoming December forecast as state and local leaders ponder the best response to currently surging COVID cases across the state.”



PERA On The Issues will continue following the budgeting process and post updates as they occur.







Editor&#8217;s note: this story was updated on 11/11 for clarity.

Polis Budget Plan Includes PERA Direct Distribution

On May 20, the Joint Budget Committee (JBC) moved forward draft legislation that would suspend the State’s $225 million <a rel="noreferrer noopener" href="https://content.copera.org/legislative-update-an-uncertain-path-ahead/" target="_blank">direct distribution</a> to PERA for one year. The direct distribution is not related to retiree benefit payments, including those made using direct deposit. (Learn more about what the direct distribution is <a rel="noreferrer noopener" href="https://peraontheissues.com/direct-distribution-of-225-million-helps-return-pera-to-full-funding/" target="_blank">here</a>.)



The bill was introduced as the General Assembly reconvened on May 26. To become law, it needs approval from the House, Senate, and the Governor. 



The State’s Budget Situation: A Recap



A few weeks ago, PERA On The Issues <a href="https://peraontheissues.com/legislative-update-an-uncertain-path-ahead/" target="_blank" rel="noreferrer noopener">outlined</a> the budget challenges Colorado’s legislature faces. Billions of dollars they had planned on receiving in tax revenue is now suddenly off the table as the economy slammed on its brakes.



The JBC, a six-person bipartisan committee made up of members of both the House of Representatives and the Senate, is charged with leading the State’s initial response.



PERA and the State Budget: Important Distinctions



PERA has a unique position in the state budgeting process. Retiree benefits, for example, are not paid via the state budget and are not affected by this bill. These payments are made from the investment funds PERA manages. Recent market volatility has affected investors around the world, including PERA. The Fund had $45 billion in assets at the end of 2018, however, and is designed to withstand the ups and down of the market. 



In addition to investment returns, the Fund receives contributions from employees, employers, and the State. These various elements work together to maintain the health of the fund for the long term.



JBC Deliberation and Introduction in the House



On May 11, PERA Executive Director Ron Baker, Chief Investment Officer Amy McGarrity, and Board of Trustees’ Chairman Tim O’Brien presented to the JBC. They gave a <a href="http://leg.colorado.gov/sites/default/files/pera-05-11-20.pdf" target="_blank" rel="noreferrer noopener">brief presentation</a> that outlined the costs of the proposals the JBC was considering and answered questions from committee members.



In the following days, the JBC decided to <a rel="noreferrer noopener" href="http://leg.colorado.gov/sites/default/files/20-1267_01_peradd_05-19-20.pdf" target="_blank">pursue</a> one of the JBC staff proposals: withholding the direct distribution to PERA for one year. This $225 million payment was first implemented upon the passage of SB 18-200. It is scheduled to resume in 2021.



The bill was introduced in the House on May 26. 



The Impact to PERA



The suspension of the direct distribution has a negative impact on reducing PERA’s unfunded liabilities. PERA projects that the long-term cost of suspending the direct distribution to be nearly $1 billion over the time frame to reach 100% funding in all divisions.



This does not mean that PERA is cutting a check for $1 billion today. Instead, that figure is calculated by determining what the value of that $225 million would be if PERA invested it and realized its assumed rate of return.



The PERA Board, as fiduciaries and pursuant to their funding policy, opposes reductions in contributions to PERA while PERA has unfunded liabilities. The Board has also acknowledged the unprecedented nature of the budget deficit.



PERA On The Issues will continue posting updates on this, and <a rel="noreferrer noopener" href="https://peraontheissues.com/2020-proposed-legislation-status/" target="_blank">all PERA-related legislation</a>, as it moves through the legislative process.











Editor&#8217;s note: This story was edited on 5/29 for clarity.

Amid Massive Budget Cuts, Joint Budget Committee Votes to Suspend Direct Distribution

PERA staff are committed to providing regular, transparent updates to state legislators about the status of the PERA trust funds and the economic impact of the public employee retirement plan across Colorado.



Currently, four different legislative committees have oversight responsibility of PERA. Each committee held hearings this fall where PERA staff provided <a href="http://coga.prod.acquia-sites.com/sites/default/files/html-attachments/i_pensionrevew_2018a_20180815t100058z1__hearing_summary/Attachment%20B%20-%20PERA%20Presentation.pdf" target="_blank" rel="noreferrer noopener">general updates</a> as well as specific information tailored to the needs of the different committees. Recent presentations to reporting committees in 2018 included:



<ul>
<li><a href="http://leg.colorado.gov/sites/default/files/images/lac_agenda_august_13-14_2018_.pdf" target="_blank" rel="noreferrer noopener">Legislative Audit Committee</a>, held on August 14</li>



<li><a href="http://leg.colorado.gov/content/ipensionrevew2018a2018-08-15t100058z1-hearing-summary" target="_blank" rel="noreferrer noopener">Pension Review Commission</a>, held on August 15</li>



<li><a href="http://leg.colorado.gov/sites/default/files/images/joint_finance_smart_act_agenda_1.pdf" target="_blank" rel="noreferrer noopener">Joint Finance Committee</a> (SMART Act hearings), held on November 26</li>



<li><a href="https://leg.colorado.gov/sites/default/files/fy2019-20_perahrg.pdf" target="_blank" rel="noreferrer noopener">Joint Budget Committee</a>, held on December 4</li>
</ul>



Led by Colorado PERA Executive Director Ron Baker, PERA staff presented information about PERA’s status and impact as well as major developments in 2018.



PERA continues to have significant economic impact around the state. Contributions to the Colorado economy come from $4.1 billion in total Colorado distributions, creating $6.5 billion in economic output. PERA provides retirement and other programs to one in every 10 Coloradans, paying benefits in every Colorado county, including over 25 percent of payroll in some of the state’s most rural counties.



The investment program continues to meet benchmarks through a diverse asset allocation and a long-term investment time horizon, while maintaining low costs by managing more than half of its portfolio internally, saving approximately $40 million annually in investment fees.



Senate Bill 200 (SB 200) significantly improved PERA’s funded status and every division is expected to reach full funding within the next 30 years. Major provisions of the <a href="https://content.copera.org/pera-staff-keep-legislators-prepared-for-2019-legislative-session/" target="_blank" rel="noreferrer noopener">legislation</a>, approved during the 2018 legislative session, include increased contributions, modified benefits, and an <a href="https://www.copera.org/pera-staff-keep-legislators-prepared-for-2019-legislative-session" target="_blank" rel="noreferrer noopener">automatic adjustment provision</a>.



The automatic adjustment provision in SB 200 is designed to keep each division on schedule to full funding by 2048, with three components that include employer contributions, employee contributions, and the annual increase that can be adjusted over time if PERA falls behind or moves ahead of schedule to reach full funding. The direct distribution from the State’s budget could also be adjusted but cannot exceed the current funding level of $225 million. The first eligible year for any needed adjustments would be on or after July 1, 2020.



No legislative agenda items have been identified by the PERA Board for the upcoming 2019 legislative session.



In addition to the general overview, PERA staff offered more specific information for the various committees. For example, a PERA audit response plan for the Legislative Audit Committee detailed a process of examining current procedures in place for the review of actuarial reports and a review of controls over financial reporting. For the Joint Budget Committee, staff responded to several questions, such as looking for more detail about the automatic adjustment provision of SB 200 and how funded status might trigger an adjustment in the future.



At each hearing, PERA staff reminded legislators of their willingness to serve as a resource during the 2019 session as retirement security and the financial stability of Colorado’s largest public employee retirement plan continue to be priorities.



Stay up-to-date by following <a href="https://www.copera.org/pera-on-the-issues" target="_blank" rel="noreferrer noopener">PERA on the Issues</a> and <a href="https://www.copera.org/pera-staff-keep-legislators-prepared-for-2019-legislative-session" target="_blank" rel="noreferrer noopener">subscribing to our newsletter</a> for insights throughout the First Regular Session of Colorado’s Seventy-second General Assembly, convening on January 4, 2019.

Tag Archives:

PERA Oversight Continues Between Legislative Sessions

Polis Budget Plan Includes PERA Direct Distribution

Amid Massive Budget Cuts, Joint Budget Committee Votes to Suspend Direct Distribution

PERA staff keep legislators prepared for 2019 legislative session

Subscribe to PERA On The Issues