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.

October is National Retirement Security Month, providing a great opportunity as the year winds down to take a look at one’s finances, goals, and plans for retirement.



With recent research showing that many of us <a href="https://www.usatoday.com/story/money/2023/10/12/how-long-does-retirement-last/71074947007/" target="_blank" rel="noreferrer noopener">greatly underestimate how long we’ll live</a>, it’s important to plan ahead and make sure you’re on track to reach your retirement goals.



If you’re a member of the PERA Defined Benefit Plan, you’re already set for lifetime income in retirement. But if you’d like to do more to ensure your retirement security, there are steps you can take.



PERA has been sharing tips throughout October on <a href="https://www.facebook.com/ColoradoPERA" target="_blank" rel="noreferrer noopener" class="broken_link">Facebook</a> and <a href="https://twitter.com/ColoradoPERA" target="_blank" rel="noreferrer noopener">Twitter</a>, and we’re wrapping up National Retirement Security Month with some more helpful information here.



Consider some of the items below if you’re taking stock of your financial health this month:



<ul>
<li>Save additional money in a PERAPlus plan: PERA offers a voluntary <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 401(k) Plan</a> to all members, and some PERA employers also offer the <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 457 Plan</a>. Both plans allow you set aside additional pre-tax dollars (there’s also a Roth option) on top of what you contribute to your PERA Defined Benefit Plan or PERA Defined Contribution Plan account.</li>



<li>Make a savings plan: A recent survey found that a surprising number of Americans <a href="https://content.copera.org/national-retirement-security-month-highlights-importance-of-planning-for-future/" target="_blank" rel="noreferrer noopener">have no savings account at all</a>. Saving money is easier said than done, but making a plan to save even a little bit at a time can make a huge difference (not to mention you can take advantage of historically high rates on savings accounts right now).</li>



<li>Take full advantage of your HSA, if you have one: If you have a high-deductible health plan with a health savings account (HSA), you might not be aware of its retirement-planning benefits. In addition to setting aside pre-tax dollars for health care expenses (one of the biggest expenses in retirement), your HSA balance is available to spend on other needs once you reach age 65. Your HSA is also exempt from required minimum distributions (RMDs).</li>



<li>Don’t forget estate planning: Estate planning isn’t just for the wealthy, and it’s not just for deciding who inherits your assets. Good estate planning can also make sure your loved ones <a href="https://www.kiplinger.com/retirement/overlooked-benefits-of-estate-planning" target="_blank" rel="noreferrer noopener">know what to do if you’re no longer able to care for yourself</a>.</li>



<li>Download the new PERA mobile app: The <a href="https://www.copera.org/pera-mobile-app" target="_blank" rel="noreferrer noopener">PERA app</a> allows members to access important information like account balance, projected monthly benefit, and service credit history, as well as fill out forms (and even apply for retirement) from their mobile phone.</li>
</ul>



Regardless of where our members are in their public service career, we have a lot of helpful resources on PERA benefits available online, including:



<ul>
<li><a href="https://www.copera.org/pera-frequently-asked-questions" target="_blank" rel="noreferrer noopener">Frequently asked questions (FAQs)</a></li>



<li><a href="https://www.copera.org/quick-tip-videos" target="_blank" rel="noreferrer noopener">Quick Tip videos</a></li>



<li><a href="https://www.copera.org/webinars" target="_blank" rel="noreferrer noopener">On-demand and live webinars</a></li>



<li><a href="https://www.copera.org/financial-wellness-library" target="_blank" rel="noreferrer noopener">Financial wellness articles</a></li>
</ul>

National Retirement Security Month Highlights Importance of Planning for Future

The last week of February is America Saves Week. From Feb. 27 to March 2, financial institutions across the country will aim to raise awareness about the importance of saving money and share tips for saving more.



The week comprises five themes:



<ul>
<li>Monday: Saving automatically</li>



<li>Tuesday: Saving for the unexpected</li>



<li>Wednesday: Saving for major milestones</li>



<li>Thursday: Paying down debt is saving</li>



<li>Friday: Saving at any age</li>
</ul>



Whatever the goal, setting money aside for the future is vital to financial security, and recent polling shows it’s something that many Americans continue to struggle with.



<h4 class="wp-block-heading">The state of savings in 2023</h4>



Bankrate has been polling Americans about their emergency savings since 2014. <a href="https://www.bankrate.com/banking/savings/emergency-savings-report/" target="_blank" rel="noreferrer noopener">This year’s survey</a>, which was conducted in December, found less than half of respondents could pay for an emergency expense from their savings, and reliance on credit cards is at an all-time high.



If faced with a $1,000 expense for an emergency room visit or a car repair, 43 percent of people told Bankrate that they would use their savings to pay the expense. Twenty-five percent of people said they would use a credit card, which is the highest percentage since the survey began in 2014.



The Bankrate survey also found that people across generations are concerned about their level of emergency savings — particularly younger generations. Bankrate said 85 percent of Generation Z and 79 percent of Millennials are worried about having enough savings to cover a month’s worth of living expenses, compared to 69 percent of Generation X and 53 percent of Baby Boomers.



When it comes to retirement savings, Americans express similar sentiments. According to the <a href="https://www.fool.com/research/average-retirement-savings/" target="_blank" rel="noreferrer noopener">most recent survey from the Federal Reserve</a>, less than half of respondents nearing retirement age said they felt like they were on track. That survey also found that a quarter of all non-retirees had no retirement savings at all.



<h4 class="wp-block-heading">PERA offers built-in options for additional savings</h4>



Colorado PERA members are already saving automatically for retirement with every paycheck. PERA also offers several options for members who want to set aside even more money.



All PERA members have access to the optional <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 401(k)</a> to set aside extra pre-tax money each month. Some employers also offer the PERAPlus 457 plan. Both plans feature a variety of investment choices as well as <a href="https://peraontheissues.com/pera-offering-new-lifetime-income-options-to-dc-plan-participants/" target="_blank" rel="noreferrer noopener">lifetime income options</a> to make savings go further in retirement.



America Saves Week is a great opportunity to take stock of your savings and make a plan for saving more. If you’re already enrolled in a PERAPlus plan, <a href="https://www.copera.org/member-login-registration" target="_blank" rel="noreferrer noopener">log in today</a> to check your balance, and consider increasing your contributions if you’re not on track to meet your goals.



Follow Colorado PERA on <a href="https://www.facebook.com/ColoradoPERA/" target="_blank" rel="noreferrer noopener" class="broken_link">Facebook</a>, <a href="https://twitter.com/ColoradoPERA" target="_blank" rel="noreferrer noopener">Twitter</a> and <a href="https://www.copera.org/do-you-have-a-savings-plan-for-2023" target="_blank" rel="noreferrer noopener">Instagram</a> for more tips during America Saves Week.

Do You Have a Savings Plan for 2023?

In 2019, Congress passed sweeping legislation known as the SECURE Act that ushered in some major changes in retirement plans. One of those changes was making it easier for employer-sponsored plans like 401(k)s to offer annuities to plan participants.



Since then, consumer interest in annuities has grown, and 2020 <a href="https://www.fa-mag.com/news/total-annuity-sales-rose-16--last-year-to--255b-66117.html" target="_blank" rel="noreferrer noopener">saw the highest annuity sales in over a decade</a>, totaling nearly $255 billion.



PERA now has two annuity products to offer participants in the <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 401(k), 457</a> and DC plans.



<h3 class="wp-block-heading" id="what-is-an-annuity">What is an annuity?</h3>



Simply put, an annuity is a financial product that provides guaranteed, regular payments — either for a fixed amount of time or for a person’s life. PERA’s Defined Benefit (DB) plan and Social Security are both annuities that provide a lifetime retirement benefit.



While PERA’s DB plan offers lifetime income in retirement, workers who save on their own in a defined contribution plan like a 401(k) risk running out of savings in retirement. Annuities, which are usually available for purchase through insurance companies, can help offset this risk by converting all or a portion of a person’s account balance into regular income. Like a pension, annuities collect or “pool” assets from a large number of individuals in order to provide each person with guaranteed payments.



There are many types of annuities with a variety of features, but PERA, through its partner Empower, is able to offer two types of annuities for participants in the PERAPlus 401(k), 457 and DC plans: A single premium fixed immediate annuity and Qualified Longevity Annuity Contracts (QLACs).



<h4 class="wp-block-heading" id="single-premium-fixed-immediate-annuity">Single premium fixed immediate annuity</h4>



Empower’s parent company Great-West Life &amp; and Annuity Insurance Company offers a <a href="https://www.copera.org/pera-offering-new-lifetime-income-options-to-dc-plan-participants" target="_blank" rel="noreferrer noopener">single premium fixed immediate annuity</a> through the PERAdvantage Capital Preservation Fund within the PERAPlus 401(k)/457 and DC plans. This allows participants to use all or a portion of their account balance to make a one-time purchase that immediately converts to guaranteed payments. The participant can choose the frequency of the payments as well as how long they’ll continue.



This annuity can be a good option for plan participants who are entering retirement and are ready to start receiving income right away.



<h4 class="wp-block-heading" id="qlac-marketplace">QLAC marketplace</h4>



Plan participants who want to wait until later in retirement to begin collecting payments can take advantage of the <a href="https://www.blueprintincome.com/copera/" target="_blank" rel="noreferrer noopener">Qualified Longevity Annuity Contract (QLAC) marketplace</a> offered by Blueprint Income.



While an immediate annuity provides income right away, a QLAC is a deferred annuity that is designed to begin providing income after age 72, and as late as 85. QLACs are exempt from IRS required minimum distribution (RMD) rules, so they can be a good option for retirees who wish to reduce their RMDs and taxes between the ages of 72 and 85.



Blueprint Income facilitates the rollover of the purchase amount from the participant’s retirement account into the annuity option the participant chooses.



Both annuity options provide retirees the ability to turn their savings into reliable income, and both offer joint annuity options, which can provide income to a surviving spouse. While an annuity might not be the right fit for everyone, it can be a helpful tool in planning for one’s golden years.



For more information on these annuity options, visit <a href="https://coperaplus.org" target="_blank" rel="noreferrer noopener">coperaplus.org</a>.

PERA Offering New Lifetime Income Options to DC Plan Participants

The PERAPlus 401(k)/457 plans and the Defined Contribution (DC) Plan — collectively known as Capital Accumulation Plans — have become an important part of PERA, with more than $5.5 billion invested as of Dec. 31, 2020.



There are some important changes coming to the CAPs in the coming months, including increased contribution limits and a new recordkeeper. Continue reading for an overview of these changes and what they mean for plan participants heading into 2022.



<h4 class="wp-block-heading">New contribution limits</h4>



Earlier this month, the Internal Revenue Service announced <a href="https://www.irs.gov/newsroom/irs-announces-401k-limit-increases-to-20500" target="_blank" rel="noreferrer noopener">updated contribution limits</a> for 401(k) and 457 plans for 2022. Participants will be able to contribute up to $20,500 into a 401(k) or 457 plan next year, up from $19,500 in 2020 and 2021.



The IRS said the catch-up contribution limit for participants who are 50 and over will remain unchanged at $6,500, making for a contribution limit of $27,000 in each type of plan for that age group.



<h4 class="wp-block-heading">PERAPlus and DC plans moving to Empower</h4>



In March, the PERA Board <a href="https://www.copera.org/what-to-know-about-peraplus-401k-457-dc-plans-in-2022" target="_blank" rel="noreferrer noopener">selected Empower Retirement as the new recordkeeper</a> for the PERAPlus 401(k)/457 and DC plans, replacing Voya Financial. That transition will take place in late November and early December.



Greenwood Village-based Empower is one of the largest retirement providers in the country, with significant experience administering large public plans like PERA. The Board selected Empower based on its experience, customer service, mobile-friendly technology tools, and its modern approach to communicating with members.



With the transition to Empower, plan participants will have access to:



<ul>
<li>Expanded call center hours</li>



<li>A robust technology platform, including Empower’s website and mobile app</li>



<li>Financial wellness tools</li>



<li>Retirement planning tools, including personalized, one-on-one financial advice at no additional cost</li>
</ul>



The PERAdvantage funds available for investments in the 401(k)/457 and DC plans will not change — account balances will transfer to the same funds within Empower.



For more information on the Empower transition, including key dates, fees and more, visit <a href="http://coperaplus.org" target="_blank" rel="noreferrer noopener">coperaplus.org</a>.

What to Know About PERAPlus 401(k)/457, DC Plans in 2022

The last week of February is <a href="https://americasavesweek.org/" target="_blank" rel="noreferrer noopener">America Saves Week</a>, and now more than ever, it’s vital to have a plan for saving money.



The events of the past year made clear the importance of having money set aside. The COVID-19 pandemic and the resulting shutdowns and layoffs threw a wrench in the finances of families across the country.



Despite the turmoil, surveys have shown that many Americans are actually <a href="https://apnorc.org/projects/economic-consequences-of-the-coronavirus-outbreak/" target="_blank" rel="noreferrer noopener">saving more money</a> and paying down debt during the pandemic. In an informal poll on PERA’s <a href="https://facebook.com/ColoradoPERA/" target="_blank" rel="noreferrer noopener" class="broken_link">Facebook</a> and <a href="https://twitter.com/ColoradoPERA" target="_blank" rel="noreferrer noopener">Twitter</a> pages, more than 200 people weighed in and nearly 60 percent of them said they, too, have been saving more.


<div class="wp-block-image">
<figure class="alignright size-medium"><a href="" target="_blank" rel="noopener"><img decoding="async" src="" alt="Results of an informal PERA poll on savings during the COVID-19 pandemic" class="wp-image-4132"/></a></figure></div>


Increasingly, PERA members know the value of participating in the voluntary PERAPlus 401(k) and 457 plans to boost their retirement savings.



In 2019, the average PERA benefit was $3,153 a month, or $37,836 a year. Reliable lifetime income is a financial cornerstone for many PERA members, but many also plan to have additional income in retirement. To do this, they participate in voluntary retirement savings plans. In 2019, more than 87,000 PERA members contributed to a PERAPlus 401(k) or <a href="https://www.copera.org/america-saves-week-five-savings-tips-for-getting-finances-on-track" target="_blank" rel="noreferrer noopener">457 plan</a>, up several hundred from the year before.



The nonprofit Consumer Federation of America organizes America Saves Week every year to encourage even more people to take up good money habits and start saving for the future. Each weekday has its own theme to get people thinking about different aspects of saving.



They are:



<h5 class="wp-block-heading">Save Automatically</h5>



One of the easiest ways to save money is to do it automatically. The <a href="https://www.copera.org/recap-of-pera-boards-september-meeting" target="_blank" rel="noreferrer noopener">PERAPlus 401(k) and 457 retirement plan</a>s allow members to make automatic contributions every time they get paid. Those in the plans also have the option to contribute a percentage of each paycheck, rather than a simply flat dollar amount. This makes increasing retirement savings automatic, too, as the amount of savings increases any time pay increases.



Another option for automatic saving is rounding up debit card purchases and putting that extra change into a savings account. A growing number of banks and mobile banking apps offer this hands-off saving feature.



<h5 class="wp-block-heading">Save for the Unexpected</h5>



Many experts recommend having three to six months’ worth of living expenses stashed away, but that’s easier said than done. Starting small and aiming for an emergency fund of $500 can make a big difference, as research has shown that even before the pandemic, many Americans <a href="https://www.cbsnews.com/news/most-americans-cant-afford-a-500-emergency-expense/" target="_blank" rel="noreferrer noopener">couldn’t afford an unexpected $500 expense</a>. Setting aside about $1.37 a day (roughly $42 a month) will result in savings of $500 in one year’s time.



<h5 class="wp-block-heading">Save to Retire</h5>



Members of PERA are already on the path to saving for retirement, as workers and their employers both automatically contribute to the employee’s PERA account each month. PERA invests these funds on behalf of its members in the Defined Benefit (DB) plan in order to provide a monthly benefit that retirees cannot outlive. PERA members in the Defined Contribution (DC) plan have the flexibility to choose their investments to meet their retirement goals.



The voluntary <a href="https://www.copera.org/recap-of-pera-boards-september-meeting" target="_blank" rel="noreferrer noopener">PERAPlus 401(k) and 457 plan</a>s, available to those in both the DB and DC plans, offer even more flexibility with the option to set up additional retirement savings and invest that money to plan for a more secure future.



<h5 class="wp-block-heading">Save by Reducing Debt</h5>



Accrued debt like student loans and credit cards can be a big obstacle to saving more money. That’s why it’s important to make a plan to reduce debt wherever possible – a good rule of thumb is to focus on high-interest debt like credit cards first. This results in saving money on interest charges long-term.



<h5 class="wp-block-heading">Save as a Family </h5>



It’s never too early to learn about saving money! Parents should think about setting aside some time to talk to their children about money and the importance of saving. This could even be a great opportunity to set a young child up with a piggy bank, if they don’t already have one.



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



Have a helpful savings tip to share? Leave a comment&nbsp;below!

America Saves Week: Five Savings Tips for Getting Finances on Track

For the first time, PERA members have amassed $1 billion in savings in PERAPlus 457 accounts. The account plays a unique role in the world of retirement planning. For those in PERA’s DB plan, a 457 plan can serve as a source of flexible savings.



The 457’s Place in the Savings Universe



A 457 plan is a type of tax-advantaged retirement plan (like a 401(k), 403(b), etc.) that is primarily reserved for government employees. Jeffrey Cable, the Defined Contribution Manager at PERA, says changes in federal law over the last 15 years have minimized the number of differences among these types of accounts, which can make them seem indistinguishable. But one key difference remains, and it’s significant.



Whereas in most retirement accounts you must reach a certain age before making penalty-free withdrawals, the 457 allows a person to take penalty-free distributions immediately upon leaving the person’s job.



What a 457 Looks Like in Practice



Say a person starts a position at a PERA-covered employer at age 25 and saves $1,000 each year. That person is able to invest those dollars in the same <a href="https://copera401k.voya.com/einfo/fundinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=investment_informationfundperformance&amp;s=&amp;d=139350e7368e378d6f4496c683ba94fa190f1047" target="_blank" rel="noreferrer noopener" class="broken_link">PERAPlus funds</a> available to participants of PERA’s 401(k).



Between savings and investment gains, imagine that person leaves employment at age 35 with $15,000 in their 457 ($1,000 annual savings x 10 years, plus $5,000 in gains from investments). That person is able to access these funds at age 35 without the tax penalty.



If those same funds were instead in a 401(k), distribution of the funds would be penalized by the IRS in the form of additional taxes until that person turned 59.5.



Taking Advantage of the 457



The lack of age restrictions can add flexibility to financial planning, Cable said. Although 457 savings are retirement savings, the ability to withdraw them before retirement can allow those funds to serve double duty–a backup emergency fund, for example. “It can be perfect for young people who may or may not have a full career in their current role,” he said.



PERAPlus 457 Facts and Figures



Administered by PERA since: 2009



Number of PERA participants as of December 31, 2019: 18,919



Available to: Every PERA employer can offer the 457 to employees, though not every employer has enrolled in the program.



Tax advantages: You make contributions to a 457 account on a pre-tax basis; then you pay taxes when you take distributions in the future. Some employers offer a <a href="https://peraontheissues.com/colorado-pera-launches-roth-option-for-peraplus-401k-and-457-plan-participants/" target="_blank" rel="noreferrer noopener">Roth 457</a> option as well. In that case, you may choose to also make tax-paid contributions, and qualified distributions are tax free.



The maximum amount you can save in a 457 plan in calendar year 2020 is $19,500. This is not a coordinating limit—you may contribute the maximum to a 457 and a 401(k) this year. If you are 50 or older, you may contribute up to $26,000 in each plan—or, if you are in your last three years before retirement, you may be eligible to contribute even more.



However, few members hit that max. In fact, most PERA members with a 457 account contribute between $1 and $416 each month. Here’s the breakdown:



<figure class="wp-block-table"><table><tbody><tr><td class="has-text-align-center" data-align="center">Annual contributions</td><td class="has-text-align-center" data-align="center">Number of PERA participants</td></tr><tr><td class="has-text-align-center" data-align="center">$0-$5,000</td><td class="has-text-align-center" data-align="center">7,237</td></tr><tr><td class="has-text-align-center" data-align="center">$5,001-$10,000</td><td class="has-text-align-center" data-align="center">1,151</td></tr><tr><td class="has-text-align-center" data-align="center">$10,001-$15,000</td><td class="has-text-align-center" data-align="center">530</td></tr><tr><td class="has-text-align-center" data-align="center">$15,000+</td><td class="has-text-align-center" data-align="center">1,614</td></tr></tbody></table></figure>

PERAPlus 457 Plan Reaches $1 Billion Milestone

Nearly 40 million Americans <a href="https://www.usatoday.com/story/money/2020/05/21/coronavirus-2-4-m-file-unemployment-benefits-amid-covid-19/5228863002/" target="_blank" rel="noreferrer noopener">have filed</a> for unemployment since March. Those losing an income stream who need access to cash often look to assets they’ve stored away. After using funds stored in checking and savings accounts, some then tap their emergency fund (a standard <a href="https://www.investopedia.com/terms/e/emergency_fund.asp" target="_blank" rel="noreferrer noopener">recommendation</a> is keep three to six months of expenses in such an account).



For those without additional cash savings, accessing retirement funds can be a last resort. It’s a last resort for good reason. Dollars in a 401(k) or 457 typically aren’t stored as cash; they’re invested. An investor who withdraws funds before retirement loses not just the amount taken out, but years of tax-free potential gains. 



For example, a 40-year-old who takes out $5,000 could have had $27,137 at age 65 if that $5,000 was left alone and earned a 7-percent return. On top of that, the IRS imposes a 10-percent penalty for those who withdraw before the <a rel="noreferrer noopener" href="https://www.thebalance.com/what-age-can-funds-be-withdrawn-from-401k-2388807" target="_blank">allowable</a> age. In other words, the true cost of a $5,000 withdrawal is much higher than $5,000.



Of course, some people are left with no option. It’s not cheap, but in a true emergency, access to these reserves is necessary, regardless of penalties, taxes, or lost compounding. 



In recognition of the millions who might be facing just such an emergency, the federal government, with the passage of the CARES Act, temporarily <a rel="noreferrer noopener" href="https://www.nerdwallet.com/blog/investing/cashing-out-401k-covid-19/" target="_blank">waived</a> the 10-percent penalty for withdrawals from qualified retirement plans.



Are People Using This Option?



A recent <a href="https://content.copera.org/most-pera-members-arent-touching-their-401k/" target="_blank" rel="noreferrer noopener">survey</a> conducted by MagnifyMoney shows that the pandemic has had a significant effect on 401(k) activity. The survey showed that:



<ul><li>Nearly half of the respondents reported lowering or stopping their contributions.</li><li>Half of those with a retirement account have withdrawn funds within the last two months or say they plan to do so.</li><li>Half of those taking withdrawals were doing so to cover expenses.</li><li>Young savers are taking withdrawals at a higher rate than older savers—40-percent of Gen Xers and nearly as many Millennials compared to 7-percent of Baby Boomers.</li></ul>



PERA members have access to retirement savings via <a href="https://copera401k.voya.com/einfo/planinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=plan_informationintroduction" class="broken_link">PERAPlus</a>. The following chart shows the behavior of 401(k) participants under 70 in the first four months of 2020:



<figure class="wp-block-table"><table><tbody><tr><td>Month</td><td>Number of accounts with a balance</td><td>Number of people making withdrawals</td><td>Percentage of participants withdrawing from their account</td></tr><tr><td>January </td><td>61,120</td><td>651</td><td>1.07%</td></tr><tr><td>February </td><td>61,058</td><td>527</td><td>0.86%</td></tr><tr><td>March </td><td>60,970</td><td>559</td><td>0.92%</td></tr><tr><td>April </td><td>60,867</td><td>371</td><td>0.61%</td></tr></tbody></table></figure>



 PERA does not track the reasons people take withdrawals. Reasons might include standard withdrawals in retirement, required minimum distributions, leaving a job and rolling the balance over to a new 401(k) or IRA, emergencies, and more. However, even if every person making a withdrawal from a PERA 401(k) account in 2020 did so as the result of an emergency, the rate falls far below that of the national survey.



Considering Other Options



For those who are in need of emergency income replacement, Tyler Barondeau, an Investment Compliance and Performance Analyst at Colorado PERA, suggests looking into all relief options, some of which have been created since this crisis began. “For those with a federally-backed mortgage, you may be able to defer payments for up to six months with the option to extend deferment for an additional six months if needed,” he said. “And, if you have federal student loans, payments and interest accrual have been paused through September 30th. These payments are often the largest monthly financial obligations a family faces and these deferral options may allow many families to keep their retirement savings protected and on course to provide for retirement.”



Barondeau said that lenders, including credit card companies, banks, credit unions, and even landlords &nbsp;may be willing to work with you to setup a flexible payment arrangement if you reach out to them. “We’re all working our way through this together, and you may be surprised at the flexibility being offered to help you weather this event.”



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

Most PERA Members Aren’t Touching Their 401(k)

On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security Act (<a href="https://www.copera.org/three-ways-the-cares-act-affects-your-peraplus-accounts" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)">CARES Act</a>) was signed into law. The legislation provides nearly $2 trillion in <a href="https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">economic support</a> to individuals, businesses, health care providers, and governments at the federal, state, and local level. 



Reports often highlight the CARES Act’s direct cash
distribution of up to $1,200 for individuals. But the bill contains multiple
other sources of relief for individuals who need access to additional funds
amid this health crisis. For PERA members, the CARES Act makes it easier to
access savings in PERAPlus 401(k) and 457 plan accounts, if needed.



Coronavirus-related Distribution 



The CARES Act adds a new opportunity to receive up to a
$100,000 distribution from a retirement plan account if an individual: (1) is
diagnosed with COVID-19; (2) has a spouse or dependent diagnosed with the
virus; or (3) is quarantined, furloughed, laid off, has their work hours
reduced, or is unable to work due to lack of childcare. 



Typically, individuals are charged a 10-percent penalty in
addition to regular taxes if they make withdrawals from a retirement account,
including a 401(k), before reaching the age 59½. The CARES Act waives the
penalty for coronavirus-related distributions during 2020. &nbsp;Further, taxes on this distribution can be
spread out over a three-year period. Individuals will have the opportunity to
pay the distribution back (pending future guidance from the IRS). 



RMD Waiver



Required Minimum Distributions (RMDs) are waived for 2020
for Defined Contribution (DC) plans. For PERA retirees, no RMDs are required
for the DC Plan, the 401(k) Plan, or the 457 Plan. Defined Benefit Plan RMDs must
still be taken in 2020. 



Expanded Loans



Members who are affected by COVID-19 (under the same criteria as listed in the distribution section) can take a loan of their entire account balance (up to $100,000) from a 401(k) or 457 account within 180 days of enactment of the Act. 



The due date on loan repayments for members who are affected by COVID-19 is delayed for one year. Prior to the Act, the maximum loan amount was half the account balance (up to $50,000). 



Before Using
Retirement Funds, Consider This



This increased flexibility can bring a much-needed source of money in an emergency. However, many <a href="https://www.copera.org/three-ways-the-cares-act-affects-your-peraplus-accounts" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)">financial experts</a> recommend tapping retirement accounts only as a last resort. Withdrawing retirement account funds during a market downturn limits your ability to bounce back when the market recovers. Instead, consider cutting unnecessary expenses and contacting creditors about repayment options before making withdrawals from your retirement accounts.



The development and passage of this law took place rapidly. PERA is working with Voya to interpret and implement these changes as soon as possible. Members with questions are encouraged to call PERA’s Defined Contribution team at (303)398-7665.



Important
Information for PERA Members and Retirees About Receiving Federal Rebates



A major
component of the CARES Act is a rebate of up to $1,200 per individual. These
rebates will be processed by the IRS. 



The IRS
plans to use Social Security records&nbsp;and tax returns from 2018 and 2019 to
coordinate these rebates. As a result, PERA retirees who neither receive Social
Security payments nor file federal taxes, as well as PERA members who do not
file federal income taxes, should be aware that they might need to take an
additional step to receive a rebate. Once the IRS determines what this step is,
it will conduct a public awareness campaign to provide additional guidance. 



The House Committee on Ways &amp; Means has <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://www.copera.org/three-ways-the-cares-act-affects-your-peraplus-accounts" target="_blank">addressed</a> many common questions about this topic.







Editor&#8217;s note: We will update this story as more information becomes available. Last updated: March 31, 2020.

Three Ways the CARES Act Affects Your PERAPlus Accounts

In 2019, mutual funds and ETFs with an ESG focus saw an inflow of <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.cnbc.com/2020/01/14/esg-funds-see-record-inflows-in-2019.html" target="_blank">more than $20 billion</a> nationwide—nearly quadruple the amount these investment products added the year before. ESG funds (funds whose investment strategy includes environmental, social, and governance [ESG] factors) have increased in popularity during the past decade. At the end of 2019, the value of these funds topped $137 billion. While that number represents only one-tenth of one percent of the $20 trillion invested in all mutual and exchange-traded funds, experts expect <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://content.copera.org/pera-updates-socially-responsible-investment-fund/" target="_blank">ESG growth</a> to continue.



PERA members who have a <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://www.copera.org/recap-of-pera-boards-september-meeting" target="_blank">PERAPlus</a> account have had access to the PERAdvantage Socially Responsible Investment (SRI) <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://copera401k.voya.com/einfo/fundinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=investment_informationfundinformationperadvantagesri&amp;domain=copera401k.voya.com&amp;s=dvw1wyshrdmo5misweslmbqg&amp;d=54707eb56287fc41622036248754ba04012ab13d" target="_blank">Fund</a> since 2011. The fund has two parts: an equity sleeve and a fixed income sleeve. Each sleeve screens investments for various ESG factors. At the end of 2019, PERA replaced both of these with products that have a wider reach and a lower cost. 



<blockquote class="wp-block-quote">“We went through each of the DC funds to see if there’s a better way to construct each. Our goal was to make each more efficient at a lower cost.” &#8211; Jim Liptak, Director of Equities at PERA </blockquote>



The change to the SRI Fund was the latest in a series of updates to PERAPlus Funds. “We went through each of the DC funds to see if there’s a better way to construct each,” said Jim Liptak, Director of Equities at PERA. “Our goal was to make each more efficient at a lower cost.” (In December, PERA On the Issues <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://peraontheissues.com/peraplus-investing-costs-continue-to-fall/" target="_blank">covered</a> changes to the U.S. Small and Mid Cap Stock Fund). 



The SRI Fund was particularly well poised to benefit, as the still emerging ESG market is quickly evolving, giving investors more and better options. 



Change to the Equity
Sleeve



One challenge when constructing an ESG fund is choosing which investments count as sustainable or responsible. “Some people have specific issues they’re focused on—but those issues are different for everyone,” Liptak said. 



Rather than sort through dozens of industries and tens of thousands of companies, Liptak said his team worked to identify a partner that had a sound methodology, good performance, and low costs when evaluating the SRI Fund&#8217;s equity sleeve, which makes up about 60 percent of the fund&#8217;s total holdings. 



PERA found that partner in BlackRock and its product called the MSCI ACWI ESG Focus Index Fund, which tracks <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.msci.com/documents/10199/8769a870-eaa5-ec35-8558-424489802702" target="_blank">the MSCI ACWI ESG Focus Index</a>. This index is designed to maximize its exposure to high ESG factors. 



In addition to preferring this methodology, Liptak said this fund gives investors exposure to emerging markets like China, Brazil, and India, something the other fund did not have. In total, the fund invests in nearly 500 companies. Finally, the costs are lower. Much lower. The annual fees for the equity sleeve of the SRI Fund dropped from 0.30 percent of assets invested to 0.08. 



Change to the Fixed
Income Sleeve



Like equities, ESG is a relatively new concept in fixed income products. Bessie Conty is PERA’s Manager of Fixed Income and said that the bond market is less diversified than the equity market for ESG products. She said it was exciting to find the product they did, the <a href="https://www.nuveen.com/mutual-funds/tiaa-cref-social-choice-bond-fund?shareclass=Advisor" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">TIAA-CREF Social Choice Bond Fund</a>. 



The SRI Fund had been using a J.P. Morgan Government Bond
fund. Conty said the fund didn’t have exposure to corporate bonds. The new fund
does, bringing with it an increased potential return profile.



The TIAA-CREF fund focuses on bonds that can show ESG achievements in their industries. <a href="https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=a1a3498b-5238-4226-824e-92e2cd2f830f" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">TIAA-CREF states</a> that the TIAA-CREF fund has helped: 



<ul><li>Avoid 69.5 million tons of CO2-equivalent
emissions</li><li>Reduce 71,000 tons of air pollutants</li><li>Save 5.6 million megawatt hours of energy </li><li>Add 74,000 megawatts of renewable energy
capacity</li><li>Build 48 LEED-certified buildings</li></ul>



Sustainable Investing
and PERAPlus



As Liptak mentioned, some investors may wish to target even
more specific ESG factors, or make investment decisions based on some other
metric that isn’t represented in PERAdvantage Fund options. Liptak said the TD
Ameritrade brokerage window presents the opportunity for PERA members to invest
according to their specific preferences. This window allows members to choose
among thousands of investments offered on TD Ameritrade’s trading platform. 



But those who wish to invest in ESG funds might find the SRI Fund meets their needs. The fund’s annual cost to investors is 0.26 percent of assets invested, below the <a href="https://www.wsj.com/articles/falling-fees-boost-appeal-of-sustainable-etfs-11554642000" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">industry average</a> of 0.35 percent. At the end of 2018, PERA members had about $23 million invested in the fund.

PERA Updates Socially Responsible Investment Fund

Low-cost investing was a popular topic in 2019.



In January, Jack Bogle, legendary investor and founder of The Vanguard Group, died. Bogle was known for giving straightforward, cost-conscious <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://www.barrons.com/articles/jack-bogle-investing-tips-51556894514" target="_blank">investment advice</a> to the average, everyday investor. His tips were simple: keep investment costs as low as possible, diversify broadly, stay the course. 



In October, Charles Schwab Corp. made waves in the investment world when the company announced it would eliminate trading fees for all U.S. stocks and exchange-traded funds (ETFs). Companies including Fidelity, E*Trade, and TD Ameritrade soon <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://www.kiplinger.com/article/investing/T052-C007-S001-commission-free-trades-a-bad-deal-for-investors.html" target="_blank">followed suit</a>. 



More than 90,000 Colorado PERA members have a PERAPlus 401(k) or 457 account. They also have access to low-cost investment choices. In 2019, those costs continued falling.



What you need to know about investing fees



Investing isn’t free. It’s worth understanding the various types of fees you encounter while investing. Over time, small differences can add up. For example, the difference between an annual fee of 0.25 percent and a fee of 0.75 percent can cost a person tens of thousands of dollars over the course of his or her career.



Account fees and minimums



A PERAPlus account costs $1 per month for all members, regardless of account balance. This fee has remained unchanged since PERAPlus launched in 2011. PERAPlus accounts don’t have minimum balance or contribution requirements. 



To cover the administration of the investments themselves, PERA funds have an annual administrative fee equal to 0.03 percent of the market value. 



Management fees 



This is the fee that investment firms charge to manage the assets. Like the administrative fee listed above, this is calculated by multiplying the management fee by the participant’s market value in that fund. For example, a management fee of 1 percent would result in a $10 charge for every $1,000 of market value.



As of November 2019, the total fee (plan administration plus investment management) for PERAPlus funds ranged from 0.08 percent to 0.3 percent. Fee information for each PERAPlus fund can be found <a label=" (opens in a new tab)" rel="noreferrer noopener" href="https://copera401k.voya.com/einfo/fundinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=investment_informationfundfees&amp;s=&amp;d=ce4791fb72934759a7898de9fbe03f04e00ac982" target="_blank" class="broken_link">here</a>. 



PERA has reduced these fees consistently for years. PERAPlus fund fees decreased an average of 68 percent between 2011 and 2018. 



Trading costs



This is a transaction fee, usually a flat dollar amount, paid to the brokerage where an investor buys or sells a stock or fund. 



PERAPlus investors are free to buy or sell PERA’s 17 funds at any time at no cost. Those who wish to have additional investment options can move funds to a self-directed brokerage account at TD Ameritrade. TD Ameritrade’s fee structure applies.



Front-end and back-end loads



Some mutual funds charge a one-time fee, usually a percentage of the amount invested, whenever an investor buys or sells that fund. This fee is in addition to whatever trading fee the brokerage charges. Front-end loads occur when you buy a fund, back-end loads occur when you sell. None of the PERAPlus funds have loads.



Financial planner fees



This is a fee you pay for someone else to manage your account for you. PERAPlus accountholders have the option to hire an account manager at Voya. The annual fee begins at 0.5 percent of the participant’s account balance. As the account balance gets higher, the percentage goes down.



How PERA cut one fee by more than half



In 2019, four PERAdvantage funds saw additional fee reductions: the Fixed Income Fund, the International Stock Fund, the U.S. Small and Mid Cap Stock Fund, and the SRI Fund. 



The <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://copera401k.voya.com/einfo/fundinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=investment_informationfundinformationperadvantageus2&amp;domain=copera401k.voya.com&amp;s=v0a2tb302l0dypng5uelyfyk&amp;d=38d3cda68025e2ce1c3865610b8d5dd9865e5b7e" target="_blank">U.S. Small and Mid Cap Stock Fund</a> saw the most precipitous drop, with annual fees falling from 0.46 percent to 0.18 percent. This drop came on the heels of a restructure of the fund. 



In 2018, PERA initiated a due diligence review of the U.S. Small and Mid Cap Stock Fund. An investment team reviewed elements such as risk, cost, and composition. “We were comfortable with the <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://www.investopedia.com/terms/a/activerisk.asp" target="_blank">active risk</a> in the fund, but we thought we could do it at a lower cost,” said Jim Liptak, Director of Equities at PERA. 



At that time, the fund contained three underlying funds. Like ingredients in a recipe, each underlying fund contributes something to the overall mix. During the review, staff decided to move from three underlying funds to two. “We knew we wanted to add a small-cap fund we were already managing internally on the [defined benefit] side,” Liptak said. “It demonstrates strong relative performance at a low cost.”



The objective then became identifying a mid-cap fund that would pair effectively with the more growth-oriented small-cap fund. Liptak said the ideal pairing was a value-oriented fund. <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://www.investopedia.com/terms/g/growthstock.asp" target="_blank">Growth-oriented</a> equity portfolios focus on companies that are expanding at above-average growth rates. <a aria-label=" (opens in a new tab)" rel="noreferrer noopener" href="https://www.investopedia.com/terms/v/valuestock.asp" target="_blank">Value-oriented</a> funds focus on companies that are underpriced relative to companies in similar industries.



Because PERA does not currently manage this type of equity fund in-house, the review team looked elsewhere to find the best fit. The team reviewed both passive and active investment options. Dimensional Fund Advisors provided the best solution. “We want the best long-term odds of success at the lowest cost,” Liptak said.



The PERAdvantage U.S. Small and Mid Cap Stock Fund restructure was completed in June 2019. The outlook and risk levels have remained similar, but the cost to PERA members has dropped by nearly 60 percent.

Tag Archives: