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 this story:



<ul>
<li>PERA offers Colorado’s public employers and employees a flexible and dynamic retirement plan – called a hybrid defined benefit plan.</li>



<li>PERA’s hybrid plan combines the best of defined benefit and defined contribution plans.</li>



<li>A new report surveys the various kinds of hybrid DB plans in the U.S.</li>
</ul>



<hr class="wp-block-separator has-css-opacity"/>



Like all defined benefit (DB) plans, PERA’s DB plan has the following features:



<ul>
<li>The use of a benefit formula, which makes retirement income predictable</li>



<li>Shared longevity risk, which results in a benefit that lasts for a retiree’s lifetime</li>
</ul>



But did you know that the DB plan PERA administers is technically a hybrid (DB) plan? It’s easy to pass up “hybrid” on your way to “defined benefit,” but it’s worth pausing to unpack what having a hybrid plan means for members.



In short, a hybrid plan contains elements of both a DB plan and a defined contribution (DC) plan. But what this looks like in practice can vary.



The National Institute on Retirement Security recently released <a href="https://www.nirsonline.org/wp-content/uploads/2021/05/Hybrid-Handbook-F8.pdf" target="_blank" rel="noreferrer noopener">an overview</a> of hybrid plans across the country. As the repost states, “there is a wide range of hybrid design, each offering tradeoffs in terms of retirement benefits, risks, and costs.”



The report goes on to say that there is no single ideal version of a hybrid DB plan. Instead, each system must be designed around its unique goals, political environment, and stakeholder needs. The report concludes that the key to a well-functioning system isn’t any particular component but instead the degree to which the long-term implications of any specific plan design have been planned for: &#8220;[These] hybrids are well-thought-out and more likely to provide retirement security to employees while also enabling public employers to recruit and retain a qualified workforce.”



A selection of observations from this overview are shared below alongside additional information about what these features look like at PERA.



<h5 class="wp-block-heading">From the report:</h5>



Given the loose usage of the term hybrid today, it is important to focus on key features that balance retirement security, economic efficiency and workforce management, as NASRA notes: “A vital factor in evaluating a retirement plan is the extent to which it contains the core elements known to best meet human resource and retirement policy objectives of state and local governments: mandatory participation, shared financing, pooled investments managed by professionals, targeted income replacement with disability and survivor protections, and lifetime benefit payouts.”



What this means at PERA:



PERA’s hybrid DB plan contains all core elements mentioned.



<h5 class="wp-block-heading">From the report:</h5>



The final objective that must be considered in designing a retirement system relates to ancillary benefits that are desired in the structure, such as death and disability benefits.



<h5 class="wp-block-heading">What this means at PERA:</h5>



All members of PERA’s DB plan automatically become eligible for survivor benefits after earning one year of service credit and become eligible for disability benefits after reaching five years. These benefits come at no additional member cost.



<h5 class="wp-block-heading">From the report:</h5>



As prior NIRS research has found, DB plans deliver benefits more efficiently due to longevity risk pooling, the ability to maintain a diverse portfolio over time rather than having to follow a single individual’s life cycle, and lower expenses and fees. The sum of these three advantages mean a DB plan can deliver the same benefits at about half the cost as a traditional DC plan.



<h5 class="wp-block-heading">What this means at PERA: </h5>



The pooling of assets, risk, and costs is a cornerstone of DB plans and is true at PERA as well, where an investment team <a href="https://www.copera.org/investments" target="_blank" rel="noreferrer noopener">manages</a> more than $50 billion at a low cost to members. PERA will release details about its investment performance from 2020 later this month. These results will be the focus of PERA’s <a href="https://www.copera.org/telephone-town-hall-frequently-asked-questions-3-2" target="_blank" rel="noreferrer noopener" class="broken_link">virtual town hall meeting on June 23</a>.



<h5 class="wp-block-heading">From the report: </h5>



Cash balance plans are the oldest existing type of public pension hybrid, with the Texas Municipal Retirement System established in 1947. These plans are a traditional hybrid in that they blend features of both DB and DC plans.



<h5 class="wp-block-heading">What this means at PERA: </h5>



Cash balances are a component of PERA’s hybrid DB plan. Every dollar a member sends to PERA goes to that member’s account. It earns interest, currently 3%. Members can check their account value at any time on their online account. When a PERA member leaves their job, whether for another job or for retirement, they have the option to take their contributions plus interest instead of a pension. In most cases, PERA members receive a match on this amount as well. If a member opts for a pension instead of refunding their account, their initial monthly benefit payments are taken from their account balance.



<h5 class="wp-block-heading">From the report: </h5>



In horizontal hybrids, the [DB and DC plans] apply to the same salary amounts in parallel, in contrast to the vertical hybrid where the DB plan applies to lower salary levels and the DC plan applies to higher salary levels.



<h5 class="wp-block-heading">What this means at PERA: </h5>



PERA is a horizontal hybrid. The DB plan is not capped out at any salary level.



<h5 class="wp-block-heading">From the report: </h5>



The fourth type of hybrid considered also involves both a DB and a DC plan. However, instead of having members covered by both plans, each member must elect to participate in one of the two plans.



<h5 class="wp-block-heading">What this means at PERA: </h5>



Currently, <a href="https://content.copera.org/whats-so-hybrid-about-peras-db-plan/">some new members</a> have the option to choose between participating in a DB or a DB plan. This option is known as PERA Choice. The state legislature determines who is eligible.



<h5 class="wp-block-heading">From the report: </h5>



There are three general areas where these risk-sharing provisions typically apply: contributions, cost-of-living adjustments in retirement, and benefit accruals while working. Many of the existing plans with risk-sharing provisions include more than one of these types



<h5 class="wp-block-heading">What this means at PERA: </h5>



The <a href="https://content.copera.org/peras-automatic-adjustment-provision-a-case-study-for-pension-risk-sharing/" target="_blank" rel="noreferrer noopener">automatic adjustment provision</a> is a risk-sharing tool that can modify contributions and the annual increase from year to year in order to keep PERA on track to reach its funding goal.



<h5 class="wp-block-heading">From the report: </h5>



While the primary focus for retirement security objectives is typically the benefits received by career employees who retire from the plan, it is also necessary to consider the objectives related to benefits for employees who terminate before reaching retirement age.



<h5 class="wp-block-heading">What this means at PERA: </h5>



Not every PERA member works at a PERA employer until retirement. Those who leave have many options. In fact, the report highlighted PERA as having a plan that works well for people who have a shorter tenure in public service:



<blockquote class="wp-block-quote">
In the past, NIRS has highlighted how Colorado’s PERA plan offers workers who terminate before reaching retirement age (vested or not) unique options that improve outcomes, incentive these dollars be used for retirement (not cashed out), and even allow annuitization of their contributions and a system match. These creative provisions are described below:



The Colorado Public Employees’ Retirement Association (PERA) provides its members with a special benefit incentive to keep their contributions in the pension plan after they terminate employment. After termination, if the PERA member leaves his or her account with PERA until age 65, the individual can receive a higher benefit than just the amount of the refunded contributions.



&nbsp;All terminated, vested members receive a 50 percent match of the refund of the employee’s contributions compounded with credited interest. Should the employee keep his or her money in PERA until retirement age, however, the match provided by PERA increases to a 100 percent match. Interestingly, even non-vested employees can take advantage of this feature. In fact, while they also receive the 100 percent match on the value accumulated in the employee member account at retirement, they would otherwise receive no match at all, were they to request a refund instead.



Under PERA, these amounts may be converted into an annuity at the PERA assumed rate of return, which is less costly than purchasing an annuity from an insurance company.
</blockquote>



<h4 class="wp-block-heading">Conclusions</h4>



In sum, the hybrid features of the PERA DB Plan give members increased flexibility and additional options. It’s a powerful retirement tool that adapts to the many different paths people take in public service: whether working part time or full time, whether planning on a long tenure or a short one, and whether near retirement or far from it.

What’s So “Hybrid” About PERA’s DB Plan?

Melissa Vigil moved to Fort Collins to earn a Ph.D. in
organic chemistry. Three years later, those plans changed. “I
realized that while I love chemistry and science in general, I wasn&#8217;t a happy
lab rat,” she said. “I switched to teaching to share my passion for science
with students.” 



Eleven years later, Melissa is still teaching at Fossil Ridge High
School, part of Poudre School District. 



Like many Coloradans, Melissa spends a lot of time outside—white
water rafting, skydiving, hiking, snowshoeing, shooting, stand up paddle
boarding, swimming, and more. And, like many who work in public service
careers, she measures success by the impact she has on others. “I feel most
proud when I&#8217;ve done something tangible when I leave for the day,” she said. “Whether that’s having a successful parent-teacher
conference to teach a kid a life lesson bigger than a science concept, finally
getting caught up on grading, or creating a new way to engage students.”



Melissa’s career outlook and values are shared by hundreds of thousands of state and local employees across the country. A recent <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.nirsonline.org/2019/11/amid-worker-shortages-new-research-examines-state-local-employee-views-on-their-jobs-pay-and-benefits/" target="_blank">study</a> published by the National Institute on Retirement Security (NIRS) collected and analyzed data surrounding the sentiments public sector workers have about their jobs and the compensation they receive for it.



What Do
Public Sector Workers Think About Their Jobs?



State
and local employees like helping others, and they like their jobs…



Nearly 90 percent of state and local employees reported being satisfied
with having the ability to serve the public. Although 71 percent say that their
jobs are stressful, 85 percent are satisfied with their jobs.



In Colorado, 90 percent of state employees report feeling that the work they do is important, according to a <a href="https://content.copera.org/are-public-sector-workers-satisfied/" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)">2017 study</a>.



…Yes, even
Millennials



Amid reports of Millennials hopping from job to job, the NIRS study
showed that 84 percent of Millennials working in state and local government are
satisfied with their current job. Eighty-five percent said they plan to stay at
their current employer until they are eligible for retirement or can no longer
work. 



They
like their jobs despite a mixed view on pay



Twenty-two percent reported their salaries being very competitive,
and 80 percent say they could earn a higher salary in the private sector.



A
defined benefit plan is a major factor in retention



Ninety-four percent of state and local employees have favorable
views of defined benefit pensions. Fifty-eight percent said that moving them
from a pension and into an individual retirement plan would make them more
likely to leave their job. And those Millennials: 74 percent said a pension
benefit is a major reason they chose a public sector job.



The mission of Colorado PERA is to promote long-term financial security for our membership. The passage of Senate Bill 18-200 puts PERA on the path to become <a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" class="broken_link">fully fun</a><a rel="noreferrer noopener" label="d (opens in a new tab)" href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" target="_blank" class="broken_link">d</a><a href="https://www.copera.org/trend-states-make-adjustments-to-retiree-cost-of-living-payments" class="broken_link">ed</a> within 30 years. 



Retirement
Security in Colorado



Melissa Vigil loves teaching, but she doesn’t think she’ll teach
forever. She said that teaching is a demanding profession. “I want to be able to retire at an age
where I&#8217;m still fighting to give students my best,” she said. “And selfishly,
I&#8217;d like to retire at an age where I can enjoy my retirement. My husband and I
have a long list of places we would love to travel to!” 



As a result, she said “it means everything to be able to rely on a
secure retirement.” But planning for retirement isn’t always easy. “I, like
many people, find it a bit overwhelming,” she said. “What is most helpful for
me is a two pronged approach—some electronic and some in-person information.”



Preparing for retirement isn’t something you do once. Learning about retirement takes place throughout a person’s career. To that end, thousands of people take advantage of PERA’s <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://content.copera.org/are-public-sector-workers-satisfied/" target="_blank">face-to-face educational opportunities</a> and <a href="https://www.copera.org/members/webinars" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">webinars</a> every year. 



The
Importance of Understanding the Public Sector Mindset



The trends highlighted in the national study mirror those found in
Colorado. “It’s clear from the research that public service is important to
state and local workers like teachers, nurses, police officers, and
firefighters,” said Dan Doonan, NIRS executive director. Driven by a sense of
purpose, state and local workers often accept lower salaries than they could
earn in the private sector. “Understanding at a deep level these employee
preferences and concerns will best position state and local policymakers to
recruit and retain qualified, experienced employees that taxpayers depend
upon.”

Are public sector workers satisfied?

<h4 class="wp-block-heading">States that close pension plans face increased costs, retirement insecurity</h4>



A new <a href="https://www.nirsonline.org/reports/enduring-challenges-examining-the-experiences-of-states-that-closed-pension-plans/">series of case
studies</a> released from the <a href="http://www.nirsonline.org">National Institute
on Retirement Security</a> (NIRS) shows that taxpayers’ costs increased when
four states closed their pension plans in favor of alternative plan designs. As
the states shifted new employees from their defined-benefit pension plans to
defined-contribution or cash-balance plans, they did not experience major
improvements in the funding of their existing pensions.



Key conclusions from the research, Enduring Challenges: Examining
the Experiences of States that Closed Pension Plans, include:



<ul>
<li>Switching
from a defined benefit pension plan to a defined contribution or cash balance
plan did not address existing pension underfunding, despite claims that such
changes would improve funding levels or slow growing liabilities of the
retirement plans. Instead, costs for the states reviewed (Alaska, Kentucky, Michigan and
West Virginia) increased after closing their
pension plans.</li>



<li>Changing
benefits for new hires does not solve existing funding shortfalls, as the
experience of these states shows. Managing legacy costs is key to responsible
funding of pension plans.</li>



<li>Greater
retirement insecurity for employees has been a challenge due to changes in plan
design, leading West Virginia to reopen its closed pension plan.</li>



<li>Other
workforce challenges, such as difficulty recruiting and retaining public
employees, are emerging as a result of the changes to retirement benefits. In
Alaska, the Department of Public Safety lists the ability to offer a pension as
a “critical need” for the department.</li>
</ul>



Download the NIRS case studies <a href="https://www.nirsonline.org/wp-content/uploads/2019/08/Enduring-Challenges-Final.pdf">here</a>.

Solving pension challenges has not been easy in other states

The vast majority of Colorado teachers will have a more
stable, secure retirement because of Colorado PERA’s defined benefit style
retirement plan, compared to a 401(k)-type option. That’s according to a <a href="https://www.nirsonline.org/wp-content/uploads/2019/01/Teacher-Pension-vs-401ks-in-Six-States_FINAL.pdf">new
report</a> jointly released by the <a href="https://www.nirsonline.org/">National Institute on Retirement Security
(NIRS)</a> and the <a href="http://laborcenter.berkeley.edu/">UC Berkeley Labor Center</a>.



Critics of public pensions often argue that high attrition
rates among new teachers mean that 401(k)-type retirement plans make more
financial sense than established defined benefit (DB) plans for all educators.
These contentions usually include claims that choosing, or being forced into,
401(k) plans wouldn’t harm teachers’ retirement security in the long run. But
new research suggests that these conclusions are based on narrow interpretations
of employment data and that they could hardly be further from the truth.



The study lays out compelling evidence that migrating
teachers away from existing pension plans like Colorado PERA’s and into 401(k)
savings options “would sharply reduce the retirement income security of
teachers who account for a large majority of educational labor.” The report
adds that such moves hamper teacher recruitment and retention, resulting in
lower educator quality.



The study examined six states—Colorado, Connecticut,
Georgia, Kentucky, Missouri, and Texas—chosen because they represent a
geographic and demographic cross-section of the United States. Researchers found
that 65 percent of all teachers will have worked for at least 20 years before
they leave their careers, and that 77 percent of teachers’ retirement benefits
will surpass what they could receive under an idealized 401(k) plan—meaning, a plan with low fees and professional
management.



Skeptics tend to lean heavily on high turnover rates among young teachers when making their anti-pension arguments. While it’s true that a higher proportion of younger teachers leave for other professions during their first five years, once they’ve cleared that threshold, attrition drops sharply and remains low until retirement age. In fact, the “typical” teachers studied will serve 25 years in the same state and retire around age 58; in Colorado, the median age teachers retire is 57, after a median total of 17 years of service, and 48 percent of all Colorado teachers will stay in the profession until retirement age. See this <a href="https://peraontheissues.com/wp-content/uploads/2019/02/Pensions-are-Better_Final.pdf">graphic</a>.



For those who have committed to teaching as a career, the
debate between a DB plan and a 401(k) is no contest: According to the authors, 81
percent of Colorado’s teachers are economically better off choosing the PERA DB
plan versus an idealized 401(k) plan with a 0.25 percent annual fee (compared
to a 77 percent average for all six states in the study). Not only that, any
teachers who start working at age 25 and serve for 30 years would have to
contribute 100 percent more every pay period into their 401(k) to earn the same
benefit as they would get from their DB plan contributions; in effect, they’d
have to double what comes out of each check—while tracking and adjusting their
own investments—just to barely equal their no-maintenance DB option.



Further, the PERA DB plan account is portable and can be left for a future benefit or rolled over to another retirement plan. Members always receive the value of their contributions (plus interest and if eligible a matching amount) when withdrawing an account – something that promoters of 401(k)-type plans often mischaracterize or fail to mention. Evidence of the value of PERA’s DB plan was presented in 2015 when an <a href="https://content.copera.org/why-a-teachers-defined-benefit-retirement-plan-outshines-a-401k/">independent evaluation</a> found PERA’s DB retirement plan to be more efficient and effective than other types of retirement plans, including 401(k)s.



See <a href="https://peraontheissues.com/wp-content/uploads/2019/02/Pensions-are-Better_Final.pdf">Pensions are Better</a> infographic.

Why a teacher’s defined benefit retirement plan outshines a 401(k)

For all the talk about how much public pensions cost state
and local governments—and by extension, taxpayers who don’t work in the public
service sector—the positive economic effects these plans have on virtually
every state and city in the country have received far less attention.



A new report by the <a rel="noreferrer noopener" aria-label="National Institute on Retirement Security (opens in a new tab)" href="https://www.nirsonline.org" target="_blank">National Institute on Retirement Security</a> (NIRS) provides a much clearer picture of just how significant this contribution is. On January 10th, NIRS released “<a rel="noreferrer noopener" aria-label="Pensionomics 2018: Measuring the Economic Impact of Defined Benefit Pension Expenditures (opens in a new tab)" href="https://www.nirsonline.org/reports/pensionomics-2018-measuring-the-economic-impact-of-defined-benefit-pension-expenditures/" target="_blank">Pensionomics 2018: Measuring the Economic Impact of Defined Benefit Pension Expenditures,</a>” which quantifies how much public service retirees spend in and around their communities. 



These amounts could hardly be more significant: In 2016,
retiree spending of pension benefits created $1.2 trillion of economic output
and supported about 7.5 million jobs across the U.S., which is almost 5 percent
of the country’s entire workforce. These funds also poured $202.6 billion into
federal, state, and local coffers in the form of taxes. 



About the results, NIRS executive director Diane Oakley
said, “Pension expenditures are especially vital for small and rural
communities where other steady sources of income may not be found if the local
economy lacks diversity.”



When retirees receive their monthly check, the ripple
effects begin. In 2016, almost $295 billion was paid to about 10.7 million
retired state and local public service workers and their beneficiaries. These
people then use this money to pay for goods and services such as food, health
care and retail products, and most of this everyday spending, of course,
happens where retirees live. The report concludes that each dollar paid in
pension benefits in 2016 supported $2.13 in total economic output nationwide. 



But that’s not all. By their nature, public pensions invest
much of what they receive as contributions from employees and employers, which
means that thanks to pensions’ strong long-term investment returns and the
shared funding model, in 2016, each taxpayer dollar that went to supporting
these pensions generated $8.48 in total economic output.



This already impressive return on investment has an even
more acute impact in Colorado, where 90 percent of the state’s retirees choose
to live after they end their careers instead of heading for retirement hotspots
such as Arizona or Florida. 



Economic and business analysis firm <a href="https://www.paceyecon.com/" target="_blank" rel="noreferrer noopener" aria-label="Pacey Economics (opens in a new tab)">Pacey Economics</a> calculated the economic impact of benefits paid to retirees in the Colorado PERA system, and found that these retirees generate about $6.5 billion in annual economic output on $4.1 billion in benefits paid, which supports about 35,000 non-public service jobs statewide. 



As the accompanying chart illustrates, in almost half the
counties in Colorado, PERA benefit distributions amount to at least 10 percent
of area payroll, and that number rises to more than 25 percent of payroll in
four counties. And per Oakley’s comments, Colorado’s more sparsely populated areas
see the greatest impact from these funds.



The political and economic discussions around public pensions are complex and thorny. But as these debates continue, it’s worth remembering what invaluable contributors they are to the national as well as local economies.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="834" src="https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-1024x834.jpg" alt="" class="wp-image-44085" srcset="https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-1024x834.jpg 1024w, https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-300x244.jpg 300w, https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-768x626.jpg 768w, https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-1536x1251.jpg 1536w, https://content.copera.org/wp-content/uploads/2019/01/PayrollbyCountyMap_2018-2-1-scaled-1-2048x1668.jpg 2048w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">In almost half the counties in Colorado, PERA benefit distributions amount to at least 10 percent of area payroll, and that number rises to 25 percent of payroll in four counties. </figcaption></figure>

Why public pensions benefit everyone

Recent research by the <a href="https://www.nirsonline.org/" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS) finds that inequalities in access and eligibility for employer-sponsored retirement plans result in retirement savings gaps for Latinos. As a result, <a href="https://www.nirsonline.org/wp-content/uploads/2018/12/latinoretirement_unidosus_nirs_report_112818_lr.pdf" target="_blank" rel="noreferrer noopener">Latinos are falling behind in preparing for retirement</a>.



Why does this matter? As the largest minority group in the U.S. workforce, Latinos comprised 16.8 percent of the labor force in 2016. (According to the <a href="http://www.pewhispanic.org/states/state/co/" target="_blank" rel="noreferrer noopener">Pew Research Center</a>, the Hispanic population in Colorado is even higher – at 21 percent in 2014.) Latinos lead population growth in United States, accounting for 17.8 percent of the total U.S. population and numbering over 57.5 million. The U.S. Census Bureau estimates that by 2060, the Latino population will number 119 million and will account for approximately 28.6 percent of the nation’s population. Additionally, the U.S. Administration on Aging predicts the Latino population that is age 65 and older will number 21.5 million and will comprise 21.5 percent of the population by 2060.



The NIRS research finds that access and eligibility to employer-sponsored retirement plans remains the largest hurdle to Latino retirement security.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="605" height="466" src="https://content.copera.org/wp-content/uploads/2024/04/Fig1-1.png" alt="Bar graph showing the percentage of workers with retirement plan access by ethnicity: latinos 53.7%, all 69.8%, white 73.4%, non-white 62.2%." class="wp-image-46364" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig1-1.png 605w, https://content.copera.org/wp-content/uploads/2024/04/Fig1-1-300x231.png 300w" sizes="(max-width: 605px) 100vw, 605px" /></figure>



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="605" height="462" src="https://content.copera.org/wp-content/uploads/2024/04/Fig2.png" alt="Bar chart showing the percentage of workers eligible for an employer-sponsored retirement plan by ethnicity, with latinos having the lowest eligibility rate at 60.3%." class="wp-image-45244" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig2.png 605w, https://content.copera.org/wp-content/uploads/2024/04/Fig2-300x229.png 300w" sizes="(max-width: 605px) 100vw, 605px" /></figure>



However, when offered a retirement plan for which they are eligible, Latinos participate at the same or higher rates than other Americans.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="602" height="483" src="https://content.copera.org/wp-content/uploads/2024/04/Fig3.png" alt="Bar chart comparing participation rates in employer-sponsored retirement plans among latinos, all workers, white and non-white eligible workers, and latino workers, indicating similar high rates of participation for all groups." class="wp-image-45245" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig3.png 602w, https://content.copera.org/wp-content/uploads/2024/04/Fig3-300x241.png 300w" sizes="(max-width: 602px) 100vw, 602px" /></figure>



Despite these high take-up rates, Latino workers had the lowest participation rate in employer-sponsored retirement plans, at only 30.9 percent, compared to 53 percent of white workers. The top reason Latinos did not have retirement savings was that they worked part-time, resulting in less access to retirement savings plans. Many employers are allowed by law to exclude part-time workers from participation in their retirement plans.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="605" height="458" src="https://content.copera.org/wp-content/uploads/2024/04/Fig4.png" alt="Bar chart showing lower participation rates in employer-sponsored retirement plans among latinos compared to all workers and white, non-latino workers." class="wp-image-45247" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig4.png 605w, https://content.copera.org/wp-content/uploads/2024/04/Fig4-300x227.png 300w" sizes="(max-width: 605px) 100vw, 605px" /></figure>



The NIRS study states that allowing part-time workers to participate in employer-sponsored retirement plans would greatly increase the number of Latinos that could save for retirement.



The gap between Latinos and whites is particularly significant in the private sector, with 47.7 percent of Latinos participating compared to 67.1 percent of whites, a difference of 19.4 percent. In the public sector, retirement plan participation is higher across the board. While the gap in participation for Latinos persists, it is far narrower with 86 percent participation compared to 94.1 percent of whites, a difference of 8.1 percent in public plans.



One part of the solution to the retirement savings gap could be greater awareness of the <a href="https://www.nerdwallet.com/blog/taxes/can-you-take-the-savers-credit/" target="_blank" rel="noreferrer noopener">Saver’s Credit</a>. The Federal Saver’s Credit is a non-refundable income tax credit for taxpayers with adjusted gross incomes of less than $31,500 for single filers and $63,000 for joint filers. Because the median household income for Latinos was $46,882 in 2016, a large number of these households would qualify for the Federal Saver’s Credit if they saved for retirement. By widely promoting the credit, many more Latino households could be rewarded for saving for retirement.



Finally, NIRS recommended that more states explore the adoption of state retirement plans, noting that in 2014, an estimated 103 million Americans between 21 and 64 had no access to an employer-sponsored retirement account. State retirement savings plans can provide low-cost retirement products to working Latinos and other Americans who are not covered by a workplace retirement plan, thereby helping to alleviate the current retirement savings crisis that Latinos, <a href="https://content.copera.org/latinos-falling-behind-other-americans-in-retirement-preparedness-research-shows/" target="_blank" rel="noreferrer noopener">and many others</a>, face.



Read the <a href="https://www.nirsonline.org/wp-content/uploads/2018/12/latinoretirement_unidosus_nirs_report_112818_lr.pdf" target="_blank" rel="noreferrer noopener">NIRS study</a>.



Additional PERA on the Issues articles on NIRS retirement research:



<a href="https://www.copera.org/latinos-falling-behind-other-americans-in-retirement-preparedness-research-shows" target="_blank" rel="noreferrer noopener" class="broken_link">Good news for millennials with access to retirement plans</a>



<a href="https://www.copera.org/latinos-falling-behind-other-americans-in-retirement-preparedness-research-shows" target="_blank" rel="noreferrer noopener" class="broken_link">PERA works for Colorado stakeholders</a>

Latinos falling behind other Americans in retirement preparedness, research shows

Recent research by the <a href="https://www.nirsonline.org/" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS) found that the typical working-age American has no retirement savings, with 59 percent of Americans ages 21 through 64 (more than 100 million individuals) not having any retirement account assets. This includes employer-sponsored 401(k)-type plans and IRAs, as well as defined-benefit (DB) pensions like PERA. The report, “<a href="https://www.nirsonline.org/wp-content/uploads/2018/09/FINAL-Report-.pdf" target="_blank" rel="noreferrer noopener">Retirement in America: Out of Reach for Working Americans</a>,” underscores the importance of access to stable and secure pensions.



<figure class="wp-block-image"><a href=""><img decoding="async" src="https://www.copera.org/new-research-shows-retirement-insecurity-persists-despite-economic-recovery"" class="wp-image-2100"/></a></figure>



NIRS found that saving for retirement is closely correlated with income and wealth, with retirement account holders earning more than three times the income of those who do not have retirement accounts. Even for older workers approaching retirement (ages 55-64) who do have retirement accounts, their median (half higher/half lower) account balance is $88,000. Using a traditional withdrawal rate of 4 percent a year, an account with $88,000 would generate only $300 in monthly income for a retiree.



<figure class="wp-block-image"><a href=""><img decoding="async" src="https://www.copera.org/new-research-shows-retirement-insecurity-persists-despite-economic-recovery"" class="wp-image-2102"/></a></figure>



Retirement savings adequacy is becoming even more critical as changes to the Social Security retirement age are beginning to impact retiring Baby Boomers. As the age for reaching full Social Security eligibility is gradually increasing to 67, the monthly benefit for those who begin receiving Social Security early at age 62 is diminishing even further. NIRS notes that these early retirees would need to have 14 times the amount of their annual salary saved by age 62 in order to reach an income-replacement rate of 10 times income at age 67, as recommended by financial experts like <a href="https://www.fidelity.com/mymoneylifestyle/income/#/income-start" target="_blank" rel="noreferrer noopener">Fidelity</a>.



<blockquote class="wp-block-quote">
<a href="https://content.copera.org/new-research-shows-retirement-insecurity-persists-despite-economic-recovery/" target="_blank" rel="noreferrer noopener">Read more about how Coloradans and most Americans are worried about retirement.</a>
</blockquote>



These retirement inadequacy findings by NIRS echo those of a <a href="https://www.gao.gov/assets/690/688063.pdf" target="_blank" rel="noreferrer noopener">GAO study</a> performed in 2017 that found a “shift to DC plans [defined-contribution plans like 401(k)s] has increased the risks and responsibilities for individuals in planning and managing their retirement.”



NIRS identifies several public policy solutions to address the lack of retirement savings. These include strengthening Social Security and expanding access to retirement savings accounts for working Americans. NIRS also recommends enhancing the <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit">Saver’s Credit</a>, a federal tax deduction for lower-income workers’ contributions to retirement savings accounts.



The NIRS and GAO research underscore the value of a defined benefit retirement plan design in ensuring retirement income adequacy. As the NIRS report concludes, “A report card on the U.S. retirement system would at best say ‘Needs Improvement.’ ”



Read more about how defined-benefit (DB) plans earn higher returns than defined-contribution (DC) plans in a previous <a href="https://www.copera.org/new-research-shows-retirement-insecurity-persists-despite-economic-recovery" target="_blank" rel="noreferrer noopener" class="broken_link">Retirement Roundup</a> and how DB plans are <a href="https://www.copera.org/new-research-shows-retirement-insecurity-persists-despite-economic-recovery" target="_blank" rel="noreferrer noopener" class="broken_link">more efficient and cost less</a>.

New research shows retirement insecurity persists despite economic recovery

Recent research by the <a href="https://www.nirsonline.org/" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS) found that 90 percent of those in the Millennial Generation (born between 1981 and 1996) participate in an employer-sponsored retirement plan when one is offered. This is good news for Colorado’s public employers who offer PERA when it comes to recruiting the next generation of public employees.



Millennials, numbering 83.2 million, are the largest, best educated, and most diverse generation in U.S. history according to the <a href="http://www.pewresearch.org/topics/millennials/" target="_blank" rel="noreferrer noopener">Pew Research Center</a>. And while many millennials entered the workforce during an economically stressful time, <a href="https://www.nirsonline.org/wp-content/uploads/2018/02/Millennials-Report-1.pdf" target="_blank" rel="noreferrer noopener">NIRS research shows</a> that they are just as motivated to save as older generations, if not more.



As the report explains, workers who are both offered and eligible for an employer-sponsored retirement plan choose to participate about 95 percent of the time across all generations, and millennials are right in line with that average, with a 94.2 percent participation rate.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="362" height="459" src="https://content.copera.org/wp-content/uploads/2024/04/Fig3-Millennial-Article-1.png" alt="Chart comparing the high rates at which millennials, genx, and boomers choose to participate in employer-sponsored retirement plans, indicating similar levels of participation across these generations." class="wp-image-45246" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig3-Millennial-Article-1.png 362w, https://content.copera.org/wp-content/uploads/2024/04/Fig3-Millennial-Article-1-237x300.png 237w" sizes="(max-width: 362px) 100vw, 362px" /></figure>



Despite their high rate of participation in retirement plans when eligible, many millennials worry about their retirement security, and for good reason. NIRS notes that nearly half of millennials are concerned that they will not be able to retire when they want to, while two-thirds are concerned about outliving their retirement savings.



But because many millennials are not eligible to participate in employer-sponsored retirement plans, even when they are offered to certain employees, only about one-third (34.3 percent) of millennials actually participate in an employer’s plan.



According to NIRS, “nearly half of millennials that do not participate in an employer-sponsored retirement plan cited part-time work or lack of tenure with their employer as a reason for not participating in a plan, rather than economic reasons such as student debt.”



However, millennials who work for an employer that offers PERA or similar public employee defined benefit plans, are automatically starting to save toward retirement – and have the option to save even more by contributing to the PERAPlus 401(k) or 457 Plans. These plans require no minimum contribution amount and vesting is 100 percent from day one.



For those millennials who do not have access to an employer-sponsored retirement savings plan, the news isn’t so good. NIRS says that two-thirds of the millennial generation have nothing saved for retirement.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="701" height="360" src="https://content.copera.org/wp-content/uploads/2024/04/Fig16-Millennial-Article-1.png" alt="Pie chart showing 33.9% of all working millennials have retirement savings, and bar graph comparing percentages of millennials with no savings by race: white 59.9%, black 70.3%, latino 67.0%, asian 82.9%." class="wp-image-46349" srcset="https://content.copera.org/wp-content/uploads/2024/04/Fig16-Millennial-Article-1.png 701w, https://content.copera.org/wp-content/uploads/2024/04/Fig16-Millennial-Article-1-300x154.png 300w" sizes="(max-width: 701px) 100vw, 701px" /></figure>



NIRS: <a href="https://www.nirsonline.org/wp-content/uploads/2018/02/Millennials-Report-1.pdf" target="_blank" rel="noreferrer noopener">Millennials and Retirement: Already Falling Short</a>



Millennials have longer tenure in their first jobs than did previous generations.



The NIRS report also debunks the common myth that millennials are loathe to stay in a job for very long. When different generations are compared on the aspect of job tenure, millennials actually spend more time in jobs early in their careers than Generation Xers or Baby Boomers. A study conducted by the U.S. Bureau of Labor Statistics <a href="https://content.copera.org/good-news-for-millennials-with-access-to-retirement-plans/" target="_blank" rel="noreferrer noopener">tracking Boomers throughout their work-lives</a> found that Boomers held short tenures with their employers during their younger years. Specifically, it found that, of the jobs that Boomers began when they were 18 to 34, 69 percent ended in less than a year and 85 percent ended in fewer than five years. The NIRS research concludes that “millennials are job-hopping at similar or even lower rates to their Gen X and Boomer predecessors.”



PERA’s hybrid defined benefit plan is a particularly strong recruitment and retention tool because of the value it offers to employees regardless of the length of their career. PERA’s plan design has evolved to serve both long-service employees as well as those who only work for a short time in public employment. This benefits Colorado’s public employees, their employers and the valuable services delivered to Colorado taxpayers.

Good news for millennials with access to retirement plans

New <a href="https://www.nirsonline.org/wp-content/uploads/2018/01/NRTA_CO-min.pdf" target="_blank" rel="noreferrer noopener">research</a> released last week by the <a href="http://www.nirsonline.org" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS) in partnership with <a href="https://www.aarp.org/about-aarp/nrta/" target="_blank" rel="noreferrer noopener">NRTA</a>, <a href="https://www.aarp.org/" target="_blank" rel="noreferrer noopener">AARP</a>’s Educator Community, provides a snapshot of the economic impact of pensions in Colorado, outlining the importance of a defined benefit plan to attract and retain teachers, and the economic impact of spending by PERA retirees. This updated research builds on the NIRS Pensionomics report published in 2016.



Highlights include:



<ul>
<li>Pensions in Colorado provide $6.3 billion in economic output from retirees’ spending in the state.</li>



<li>Public retirees spending their retirement income in Colorado support 41,719 jobs.</li>



<li>An additional $1.2 billion in federal, state, and local taxes are generated by public employee retiree benefits.</li>



<li>$1 in employer contributions to public retirement plans in the state generates $6.82 in economic output.</li>



<li>Pensions play a fundamental role in retaining high-quality, experienced teachers in Colorado classrooms.</li>
</ul>



Download the Colorado-specific fact sheet <a href="https://www.nirsonline.org/wp-content/uploads/2018/01/NRTA_CO-min.pdf" target="_blank" rel="noreferrer noopener">here</a>. See other state fact sheets <a href="https://www.nirsonline.org/resources/nirs-fact-sheets/" target="_blank" rel="noreferrer noopener">here</a>. Review the NIRS Pensionomics data on Colorado <a href="https://www.nirsonline.org/wp-content/uploads/2017/11/pensionomics2016_co.pdf" target="_blank" rel="noreferrer noopener">here</a>.



Previous PERA on the Issues posts: <a href="https://content.copera.org/pera-works-colorado/" target="_blank" rel="noreferrer noopener">Retiree spending boosts Colorado’s economy, sustains jobs </a><a href="https://www.copera.org/pera-works-colorado" target="_blank" rel="noreferrer noopener" class="broken_link">The Economic Impact of Colorado PERA</a>

PERA works for Colorado stakeholders

Unsuccessful Shift to Costly 401(k) Accounts Led to Unprecedented Public Employee Turnover



A new case study released by the <a href="http://www.nirsonline.org" target="_blank" rel="noreferrer noopener">National Institute on Retirement Security</a> (NIRS), <a href="https://www.nirsonline.org/reports/retirement-reform-lessons-the-experience-of-palm-beach-public-safety-pensions/" target="_blank" rel="noreferrer noopener">Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions</a>, looks at a decision by the Palm Beach Town Council to close its defined benefit (DB) pension retirement plan in 2012 and move its police officers and firefighters to a “combined” plan that offered a dramatically lower pension benefit along with individual 401(k)-style accounts.



As the case study shows, public safety workers quickly fled Palm Beach, retiring or finding employment in other cities that continued to offer DB retirement plans. Only four years after the sharp cuts to the traditional pension, the town found that about a third of its police department had three years of experience or less. Along with a retirement rate of 20 percent after the 2012 change, 53 mid-career safety officers left Palm Beach from 2012 to 2015. By comparison, only two mid-career employees departed from 2008 to 2011.



Palm Beach faced significant financial challenges as a result of the high attrition. The town had to cover high levels of overtime to fill staffing gaps and soaring training costs as it brought in rookie police officers and firefighters. And as the case study notes, “the move to (defined-contribution) accounts does nothing to reduce plan liabilities on its own.”



After the costs of employee turnover and recruitment skyrocketed, Palm Beach reversed course and, in 2016, <a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener" class="broken_link">abandoned the defined-contribution aspects</a> of new retirement plans and strengthened the defined benefit provisions. As a result of the exodus of workers, the town council strengthened the pension elements of the plan with the aim of improving recruitment and retention.



The high rate of retirements and departures from the town might not be that surprising, given the value that public sector employees place on retirement benefits. A 2015 <a href="https://www.nirsonline.org/wp-content/uploads/2017/07/final_opinion_research_2015.pdf" target="_blank" rel="noreferrer noopener">NIRS study</a> found that 88 percent of public-sector employees rate retirement benefits as extremely or very important, compared to 57 percent who said the same the about salary.



The experience in Palm Beach mirrors <a href="https://www.nirsonline.org/wp-content/uploads/2017/11/public_pension_resource_guide_-_case_studies_of_state__pension_plans_that_switched_to_defined_contribution_plans.pdf" target="_blank" rel="noreferrer noopener">similar experiences of statewide plans</a> in Alaska, Michigan, and West Virginia, where shifts from DB pensions to 401(k)-style accounts caused pension plan costs to skyrocket.



For more on defined benefit and defined contribution research, see these PERA on the Issues posts:



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener" class="broken_link">Cautionary Tales: Case Studies Show How States Face Funding, Debt Challenges After Switching to Defined Contribution Retirement Plans</a>



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener" class="broken_link">Report: Defined Benefit Plans Increase Retention and Reduce Turnover Costs</a>



<a href="https://www.copera.org/pension-changes-offer-cautionary-tale" target="_blank" rel="noreferrer noopener" class="broken_link">Importance of Public Sector Defined Benefit Plans</a>

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