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 New York Times’ journalist Eduardo Porter asks a critical question in his <a href="http://www.nytimes.com/2015/06/17/business/economy/doing-more-not-less-to-save-retirees-from-financial-ruin.html?_r=0" target="_blank" rel="noreferrer noopener">Economic Scene column</a>: “How can workers and their employers be convinced, cajoled or compelled to consistently save more?”



He begins by making the case that most Americans lack the skills to make investment decisions and manage their own retirement savings. (Take <a href="http://www.nytimes.com/interactive/2015/06/16/business/economy/financial-literacy-quiz.html" target="_blank" rel="noreferrer noopener">an interactive quiz</a> to test your own financial literacy.)



Of respondents to a nationally representative <a href="http://www.nber.org/papers/w17078.pdf" target="_blank" rel="noreferrer noopener">Health and Retirement survey of Americans age 50 and over</a>, only one-third correctly answered all three fairly basic questions about interest rates, inflation and investments.



Along with their poor preparation to understand the intricacies of saving and investing, most American workers are also not very good savers.



From 1990 to 2010, the typical contribution to 401(k) accounts ranged from 4.7 to 5.2 percent of earnings. (Note that <a href="https://www.copera.org/doing-more-not-less-to-save-retirees-from-financial-ruin" target="_blank" rel="noreferrer noopener" class="broken_link">not every American worker has access to a 401(k) account</a>.) Even the age group who tends to save the most – those aged 65 to 69 – typically saved 7.5 percent in 2005. If employers were to match half of their workers’ contributions, American workers at retirement still would not be “anywhere near where they must be.”



Coupled with low savings rates, early withdrawals from retirement savings accounts and large fees diminish the savings workers have available at retirement.



So Porter argues that employers, the government, or both, may need to step in to “prevent a demographic catastrophe.”



“That might require enhancing Social Security rather than limiting it,” Porter writes. “Or it might require employers to take back more of the responsibility for employee’s retirement savings.”



He concludes with an argument from Brad Delong, an economist at the University of California, Berkeley:



“The 21st century will see longer life expectancy, and thus a greater role for pensions,” Delong explains. “Yet here in the United States the privatization of pensions via 401(k)’s has been an equally great disaster.”

Doing More, Not Less, To Save Retirees From Financial Ruin

Despite a widespread belief among government officials that public pensions are the biggest fiscal challenge facing states and local governments, infrastructure needs are actually a greater concern. That’s the argument Mark Funkhouser makes in “<a href="http://www.governing.com/gov-institute/funkhouser/gov-fiscal-issue-that-matters-most-infrastructure-pensions.html" target="_blank" rel="noreferrer noopener">Why the Fiscal Issue That Matters Most Isn’t Pensions</a>” in the June issue of <a href="http://www.governing.com/" target="_blank" rel="noreferrer noopener">Governing</a> magazine.



Infrastructure needs are more significant than pension challenges in three ways:



<ul>
<li>An estimate of the country’s infrastructure deficit ($3.6 trillion) is larger than state and local governments’ defined-benefit pension underfunding (between $2 and $3 trillion).</li>



<li>Infrastructure issues are pervasive from the Southwest to Northeast and everywhere in between, while many pension plans are well-funded.</li>



<li>The consequences of failing infrastructure are dire, including loss of life, property and economic competiveness.</li>
</ul>



Policymakers may be overly concerned about pension funding in part because criticizing pensions fits with an ideological agenda. Cutting pension benefits and shifting payments from employers to employees may also be easier than finding new money for infrastructure spending, Funkhouser suggests.



As Funkhouser concludes, “The issues confronting pensions, while not trivial, are manageable. But…you cannot repeal the laws of physics.”

Biggest Challenge Governments Face Is Infrastructure, Not Pensions

By Gregory W. Smith, PERA Executive Director
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Published July 27, 2013, in <a href="http://www.denverpost.com/opinion/ci_23740082/what-detroit-could-have-learned-from-pera" target="_blank" rel="noopener noreferrer">The Denver Post</a>
There are a lot of important lessons in the sad news of Detroit&#8217;s serious economic woes.
A variety of factors — including population decline and political corruption, among others — contributed to Detroit&#8217;s current bankruptcy. It will take time for that city to work its way back toward recovery, but it&#8217;s hard not to think that such a crisis could have been averted if they had taken action sooner.
We now live in a world that is constantly changing, and requires us to continuously adapt to new circumstances. Those who are not thinking a few steps ahead can quickly get left behind.
Coloradans are known for their willingness to step up and find solutions to problems. So, as the country was beginning to feel the effects of the recession several years ago, PERA, the retirement plan for most of Colorado&#8217;s public employees, was one of the first such plans in the country to recognize that our long-term sustainability was in jeopardy.
That&#8217;s when, in 2010, the PERA Board of Trustees recommended to the Colorado General Assembly that a plan was needed to ensure PERA&#8217;s financial health for the long term.
The PERA board&#8217;s proactive recommendation called on members to pay in more of their salaries and retirees to take modest reductions to their benefits. These decisions were painful, but necessary. PERA members and retirees shoulder 90 percent of the burden to restore PERA to financial stability and ensure a solid, modest retirement for Colorado&#8217;s public employees.
We asked public employers to help out, too. This shared sacrifice between members, retirees, and employers cut nearly $9 billion in future liabilities in 2010 alone.
I can&#8217;t underscore enough the importance of this proactive, bipartisan, collective effort, especially as Detroit looks to shed its retirement obligations through bankruptcy.
Colorado PERA invests $42 billion on behalf of 500,000 current and former public employees, like teachers, state troopers, corrections workers, and others. We are a not-for-profit economic engine that is adaptive, innovative, and consistently delivering value to Colorado&#8217;s largest workforce.
PERA is and will continue to be Colorado&#8217;s best investment — a vital and stable contributor to Colorado&#8217;s economy.
Through the distribution of more than $3 billion every year to PERA retirees who call Colorado home, our state&#8217;s economy is made stronger. The economic research group of <a href="https://content.copera.org/what-detroit-could-have-learned-from-pera/" target="_blank" rel="noopener noreferrer">Pacey &amp; McNulty</a> found that PERA retirees&#8217; spending in Colorado supported in excess of 24,000 Colorado jobs and generated more than $230 million in tax revenue annually for our state and local governments.
See <a href="https://www.copera.org/what-detroit-could-have-learned-from-pera" target="_blank" rel="noopener noreferrer" class="broken_link">PERA’s infographic</a> on our economic impact on Colorado.
It is my firm belief that other cities, states, and our national government need to take the steps we took in Colorado to ensure that all Americans have a secure retirement.
It&#8217;s good public policy and, as we&#8217;ve demonstrated in Colorado, it makes sense for our economy.
One can&#8217;t help but wonder if Detroit had been more proactive about finding common-sense solutions for public employees, retirees and taxpayers, perhaps its future would look more like ours.
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Doing More, Not Less, To Save Retirees From Financial Ruin

Biggest Challenge Governments Face Is Infrastructure, Not Pensions

What Detroit Could Have Learned from PERA

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