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.

PERAtour, the statewide community outreach effort that took place throughout 2017 to address PERA’s current funded status and risk profile, concluded its final phase of community meetings and programming in late 2017.



PERA is now working with legislators from both parties to develop a bill that reflects the PERA Board of Trustees’ proposed reforms to the plan. The legislation will be introduced to the Colorado General Assembly during the 2018 session.



To remain up-to-date as this critical bill makes its way through the legislative process, visit the <a href="https://www.copera.org/peratour-resources" target="_blank" rel="noreferrer noopener" class="broken_link">“Legislation”</a> section of PERA on the Issues regularly and <a href="https://content.copera.org/legislation-to-reduce-peras-risk-profile-introduced/" target="_blank" rel="noreferrer noopener">sign up</a> to receive our bi-weekly newsletter.



If you wish to learn more about PERAtour, the PERA Board’s recommended package of reforms, and PERA’s financial health, we invite you to explore the resource library below.



VIDEOS



<a href="https://www.youtube.com/watch?v=SH9R6ZqDqfw" target="_blank" rel="noreferrer noopener">LEADING CHANGE, LASTING SECURITY</a>



A video shared at community meetings during the second phase of PERAtour that looks at the proactive steps PERA is taking to address the long-term sustainability of the plan for the hundreds of thousands of Coloradans who depend on it for their retirement security.



<a href="https://www.youtube.com/watch?v=zcSXNjP6NkA" target="_blank" rel="noreferrer noopener">A BRIEF HISTORY…WITH PERA</a>



A video shared at community meetings during the first phase of PERAtour that takes an animated look back at PERA’s history from 1998 to the present.



PRESENTATIONS



<a href="https://content.copera.org/peratour-resources/" target="_blank" rel="noreferrer noopener">PERATOUR: A STATEWIDE CONVERSATION</a>



A presentation shared at community meetings during the second phase of PERAtour that reviews the principles, priorities, and process followed by the PERA Board and provides an overview of the Board’s recommended package of reforms designed to address PERA’s financial health and funded status.



MATERIALS



<a href="https://www.copera.org/peratour-resources" target="_blank" rel="noreferrer noopener" class="broken_link">PERA BOARD’S RECOMMENDED PACKAGE TO PROTECT PERA’S LONG–TERM HEALTH</a>



An outline of the PERA Board’s recommended package of reforms that will impact all PERA membership if passed by the State Legislature.



<a href="https://www.copera.org/peratour-resources" target="_blank" rel="noreferrer noopener" class="broken_link">POLLING RESPONSES TO CORE PRINCIPLES</a>



A synopsis of the feedback received from participants during the first phase of PERAtour community meetings across the state when asked to weigh in on core principles that should guide the PERA Board’s consideration of reforms to the plan.

PERAtour resources

Phase 2 of PERAtour, PERA’s statewide community outreach effort, wrapped up on November 2. The goal for this second round of community meetings was to share details about a recommendation the PERA Board is preparing to make to the Colorado General Assembly in the 2018 legislative session which begins on January 10. This <a href="https://content.copera.org/phase-2-of-peratour-what-we-heard/" target="_blank" rel="noreferrer noopener">recommended package</a> would improve PERA’s risk profile and funded status, and improve PERA’s ability to pay benefits over the long-term. To learn more about the Board’s proposal designed to shorten the length of time it will take the plan to reach full funding, <a href="https://content.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits/" target="_blank" rel="noreferrer noopener">click here</a>.



Since kicking off the second phase of PERAtour in Grand Junction on October 16, PERA staff have traversed the state to meet with more than 2,000 members, retirees, and other stakeholders in Alamosa, Aurora, Boulder, Colorado Springs, Denver, Durango, Fort Collins, Greeley, Pueblo, and Sterling. For those not able to attend a meeting in-person, we held an interactive webcast (a recording of which can be found <a href="https://www.youtube.com/watch?v=Dyi30yqP9Vo&amp;feature=youtu.be" target="_blank" rel="noreferrer noopener">here</a>), and solicited questions and comments via our dedicated <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">website</a> and phone line.



Over the course of PERAtour, the attendees at our community meetings, as well as the countless others who chimed in via the comment form at <a href="https://www.copera.org/changing-demographics-market-conditions-addressed-peratour" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour.org</a>, have posed a variety of thoughtful questions and comments about the provisions of the Board’s package, and the impact they will have now and in the future. Here is a sampling of some commonly asked questions we heard:



Why is the Board recommending these changes? PERA’s current risk level is too high and funded status too low. According to the <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">signal light framework</a> put into place in 2015, most PERA divisions are classified in the “orange” status, which means a corrective action should be developed. The Board’s proposed changes will result in reducing PERA’s risk profile and improving its funded status, immediately and in the long‐term.



Why weren’t changes under Senate Bill 1 sufficient to ensure PERA’s long-term sustainability? Since 2010, the reforms contained in Senate Bill 1 have supported PERA’s mission to promote the long-term financial security of its members while maintaining the stability of the fund. However, changes in demographics (people are living longer) and economics (lower future financial market expectations) since Senate Bill 1 passed have impacted PERA’s financial standing, increasing the risk to members, taxpayers, and all of Colorado. The recommended package proposed by the PERA Board will reduce this risk and improve PERA’s funded status.



Should I retire earlier than I had planned? The decision to retire should not be driven by the proposed changes. There are no advantages to retiring early.



Will PERA employees, Trustees, and legislators be participating in the recommended changes? Yes. PERA employees and legislators are PERA members and retirees, as are the member-elected Trustees on the <a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" target="_blank" rel="noreferrer noopener" class="broken_link">Board</a>. Further, member-elected Trustees serve without compensation.



Will the Board still be recommending these changes in light of the recent gains in the stock market? Yes. While global stock markets may be doing well this year, the long-term expectations for the global financial markets are not as optimistic.



Shouldn’t PERA be reducing costs before cutting benefits? PERA’s administrative costs are very low and every expenditure fulfills some aspect of PERA’s <a href="https://www.copera.org/2018-board-election-underway" target="_blank" rel="noreferrer noopener" class="broken_link">fiduciary duty</a> to the membership. An international pension benefits administration benchmarking firm evaluates PERA’s administrative costs and the level of customer service PERA provides each year and produces a report card that we’re proud of. Read more about this evaluation <a href="https://www.copera.org/phase-2-of-peratour-what-we-heard" target="_blank" rel="noreferrer noopener" class="broken_link">here</a>. In addition to low administrative costs, as a large institutional investor, PERA manages the assets on behalf of 560,000 members for a low cost as well.



If you have any questions or comments about the Board’s recommended package, please fill out the submission form on the PERAtour.org <a href="https://www.copera.org/changing-demographics-market-conditions-addressed-peratour" target="_blank" rel="noreferrer noopener" class="broken_link">website</a>. All feedback on the proposed changes will be shared with the Board at their next meeting on November 17.

Phase 2 of PERAtour: What we heard

PERA members want their retirement system to be fair and equitable. So it was no surprise to PERA staff and the Board of Trustees when, in the first phase of <a href="https://www.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour</a>, 87 percent of participants agreed that retirement benefits should be aligned with career paths and contributions.



To enhance fairness and equity, the Board is looking to bring clarity to the issue of retirement salary and parity to how members earn retirement benefits. As part of its <a href="https://content.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits/" target="_blank" rel="noreferrer noopener">comprehensive package of recommendations</a> to the State Legislature, the Board addresses two calculations that are inequitable in their current form and place unneeded risk on the fund.



PERA-includable salary



The Board proposes redefining PERA salary to include employee contributions to tax-advantaged <a href="https://www.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits" target="_blank" rel="noreferrer noopener" class="broken_link">Section 125</a> and 132 plans. These are contributions employees make to flexible spending accounts or so-called cafeteria plans to pay for expenses such as dependent care, health care premiums, health care expenses, or transportation.



Members who participate in these plans have lower salary reported to PERA and therefore make lower PERA contributions. However, as members near retirement, they often seek to maximize their highest average salary and stop participating in these plans in order to report a higher salary to PERA.



This practice creates a disparity between how much some members are paying into the PERA system while working, and how much of a benefit they receive in retirement. This has a negative impact on the funding of PERA. It also creates a disincentive for members to participate in tax-advantaged plans near the end of their working careers.



The Board’s proposal would redefine PERA salary to include all members’ full salary, inclusive of any contributions to 125 and 132 plans, beginning on January 1, 2020. The change would increase fairness, but it would also align PERA with its peers. A recent survey of 28 statewide pension systems found that PERA is the only plan that excludes these tax-advantaged contributions from the salary amounts reported for retirement benefits.



More information on the Board’s proposal to make Section 125 and 132 contributions includable in PERA salary is available from PERAtour <a href="https://www.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits" target="_blank" rel="noreferrer noopener" class="broken_link">here</a>.



Accrual of PERA service credit



The Board also proposes redefining how service credit in PERA is earned by moving from a salary basis to a percentage of full-time employment worked.



Currently, PERA members earn one month of service credit for each month that they earn a minimum salary of 80 times the federal minimum hourly wage (80 x $7.25=$580). As a result, part-time employees who earn this minimum salary each month receive the same amount of service credit as a full-time employee. A part-time employee who becomes full time later in a career could then receive a retirement benefit equivalent to an employee who had worked full time for an entire career. This again creates a disparity between how much some members and their employers pay into the PERA system and the benefit the member will receive in retirement.



The Board’s proposal would redefine the accrual of service credit from the current salary threshold of $580 a month to a percentage of full-time employment. Under this change, a half-time employee would receive half a month of service credit, regardless of the amount of salary earned. This proposal would require employers to define the hourly requirement for full-time employment and PERA would base service accrual on a percentage of the employer’s definition. The Board’s recommendation does not modify how service credit is allocated for educators who work a contract period that is less than 12 months.



Together, these changes would mean that dollars paid in to PERA would be equitable with dollars paid out, ensuring that members’ benefits are directly correlated to the contributions they and their employers make.



More information about which parts of compensation are currently eligible to be included in PERA contributions is <a href="https://www.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits" target="_blank" rel="noreferrer noopener" class="broken_link">available here</a>.



More information about the Board’s proposal to change both calculations is <a href="https://www.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits" target="_blank" rel="noreferrer noopener" class="broken_link">available here.</a>



More information about the Board’s full package of recommendations is <a href="https://content.copera.org/board-proposal-calls-for-clarity-in-salary-parity-in-benefits/" target="_blank" rel="noreferrer noopener">available here</a>.

Board proposal calls for clarity in salary, parity in benefits

The Colorado PERA Board of Trustees has endorsed a comprehensive reform package to reduce the overall risk profile of the plan and improve PERA’s funded status. This endorsement follows extensive analysis by the PERA Board and a statewide outreach effort with a range of stakeholders conducted earlier this year. Learn more about the next phase of outreach at <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" class="broken_link">PERAtour.org</a>.



After taking into account assumption changes made in 2016, each of PERA’s five divisions are in the <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">“orange” category, where reporting standards applicable to PERA called for the Board to develop a plan to reduce the amount of time it will take PERA to be fully funded</a>.



The Board’s package, which must be approved by the General Assembly, includes recommendations that will significantly change the benefit provisions and contribution structure of the plan. If passed by the Legislature, the Board’s proposal would fortify the fund by making major changes:



Modify the benefits of current retirees, members, and future members.



<ul>
<li>Increase the number of years used to calculate Highest Average Salary from three years to five for most divisions. The exception is the Judicial Division, which currently uses a one-year HAS and will now use a three-year calculation. For new hires starting in 2020 and for members with less than five years of service credit as of January 1, 2020, more years of salary will be considered to calculate an average salary used to determine the total retirement benefit.</li>



<li>Change the age of eligibility for full service retirement benefits to 65 for new hires starting in 2020. For State Troopers, the minimum age for full service retirement eligibility will be raised to age 55. This change aligns PERA with national trends, including Social Security and peer defined benefit plans across the country.</li>



<li>Reduce the Annual Increase (commonly called the Cost of Living Adjustment or COLA) provided to current and future retirees. Most current retirees receive a 2 percent Annual Increase and that will be lowered to 1.5 percent. Those who became members after 2006 currently do or will receive an Annual Increase based on the CPI with a limit up to 2 percent. This Annual Increase would also be capped at 1.5 percent. This change will go into effect on the date legislation is passed.</li>



<li>Suspend the Annual Increase for two years for current benefit recipients. Under existing law, current benefit recipients have experienced a one-year waiting period upon retirement to receive an increase. Future retirees would have a three-year waiting period before their Annual Increase begins. This change will go into effect on the date legislation is passed.</li>
</ul>



Increase contributions into the fund.



<ul>
<li>Increase employee contributions for current members hired before 1/1/2020 by an additional 3 percent above current contribution rates. This increase would impact all active PERA members and retirees working after retirement.</li>



<li>Increase employee contributions for future members hired on or after 1/1/2020 by an additional 2 percent.</li>



<li>Increase employer contributions by an additional 2 percent.</li>
</ul>



Ensure the equitable alignment of “input” or contributions and service credit, with “output” of benefits paid out.



<ul>
<li>Change the definition of PERA-includable salary to require PERA to collect contributions on salary that includes Internal Revenue Code Section 125 and 132 deductions. In other words, PERA contributions would be made on gross pay rather than net pay. These changes would impact current and future members.</li>



<li>Change the definition of full-time service accrual. Under the Board’s proposal, PERA future members will earn service credit for part-time work based on the percentage of full-time employment they are actually working.</li>
</ul>



The Board also came forward with an innovative solution that will respond to future economic and demographic changes by instituting an automatic mechanism by which employer and employee contributions as well as Annual Increase amounts will adjust based on the financial condition of the fund. <a href="https://www.copera.org/2018-pera-on-the-issues-legislative-preview" target="_blank" rel="noreferrer noopener" class="broken_link">More details</a> on the Board’s proposal may be found on the PERA website.



By State law, the Colorado General Assembly sets contribution rates and benefit levels and the PERA Board of Trustees has oversight of investments and benefit administration. More information on the Board of Trustees may be found on the PERA <a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" target="_blank" rel="noreferrer noopener" class="broken_link">website</a>.

Colorado PERA Board Endorses Package of Reforms

Colorado PERA will hold a second statewide series of conversations to provide stakeholders with more information after the Board of Trustees meet in late September to develop legislative recommendations to improve the funded status of the plan and preserve its sustainability.



This follows the first phase of <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour</a>, which included a dedicated website, a telephone town hall, and a series of community meetings. Thousands of members, retirees, employers and the general public have participated in this process. More than 900 people attended one of the 12 meetings, where they had the opportunity to ask questions and provide input on the <a href="https://content.copera.org/second-phase-peratour-announced/" target="_blank" rel="noreferrer noopener">principles and priorities</a> for the Board to consider as it developed its recommendations.



The second phase of the PERAtour will include the following activities:



Telephone Town Hall



Executive Director Greg Smith will hold an interactive telephone town hall on October 3. The meeting for retirees takes place at 2:00 p.m. and the one for active members happens at 7:00 p.m. For those who have previously registered their phone number, they will automatically be called and invited to participate. More information is available . A recording of both calls will be available online afterward.



Online Resources



The special website established to communicate about PERA’s funded status and educational efforts, <a href="https://www.copera.org/changing-demographics-market-conditions-addressed-peratour" target="_blank" rel="noreferrer noopener" class="broken_link">www.peratour.org</a>, will be continually updated with information and reporting from telephone and community meetings.



Community Outreach Tour



Throughout October and early November, PERA will be hosting meetings in 12 communities across the state. No reservation is required and everyone is invited to attend.



Live Webcast October 27 | 12:00 p.m. <a href="https://www.copera.org/second-phase-peratour-announced" class="broken_link">Full details available on PERAtour.org</a>



Grand Junction October 16 | 6:00 p.m. DoubleTree Hotel, 743 Horizon Drive



Durango October 17 | 6:00 p.m. Fort Lewis College Student Union Ballroom (SUN 212), 1000 Rim Drive



Alamosa October 18 | 12:00 p.m. Alamosa Family Rec Center, 2222 Old Sanford Road



Pueblo October 18 | 6:00 p.m. Pueblo Convention Center, 320 Central Main Street



Aurora October 19 | 6:00 p.m. Radisson Hotel Denver Southeast, 3155 South Vaughn Way



Boulder October 23 | 6:00 p.m. Boulder Jewish Community Center, 6007 Oreg Avenue



Greeley October 24 | 6:00 p.m. Island Grove Event Center, 421 North 15th Avenue



Sterling October 26 | 6:00 p.m. Sterling Elks Lodge, 321 Ash Street



Colorado Springs October 30 | 6:00 p.m. Colorado Springs Marriott, 5580 Tech Center Drive



Fort Collins November 1 | 6:00 p.m. Hilton Fort Collins, 425 West Prospect Road



Denver November 2 | 6:00 p.m. PPA Event Center, 2105 Decatur Street

Second Phase of PERAtour Announced

Earlier this year, Colorado PERA <a href="https://www.copera.org/changing-demographics-market-conditions-addressed-peratour" target="_blank" rel="noreferrer noopener" class="broken_link">held telephone town halls and a series of meetings in communities across the state</a>. The purpose of the meetings was to inform and listen to members, retirees, employers, and taxpayers about reducing PERA’s risk profile while maintaining a sustainable retirement for Colorado’s public employees and strengthening the Colorado economy.



This outreach effort, called <a href="https://www.copera.org/pera-earned-7-3-percent-return-2016" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour</a>, came after a review process indicated that changing demographics and market conditions had <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">increased the risk profile of each of the PERA divisions</a>, extending the period until PERA reaches full-funded status well beyond 30 years.



At the same time, PERA launched a dedicated website, peratour.org, dedicated to providing factual information about changes to external conditions, gathering feedback from members, retirees, taxpayers, and interested citizens, and reporting the opinions that participants shared in person, by phone, and online.



There is a wealth of information available on the website, and several highlights from PERAtour are listed below.



<a href="https://www.copera.org/one-stop-shop-peratour-changes-pera" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour: A statewide conversation</a>



<ul>
<li>A <a href="https://www.youtube.com/watch?v=6X0uA6HdViQ&amp;feature=youtu.be" target="_blank" rel="noreferrer noopener">narrated</a> or <a href="https://www.copera.org/one-stop-shop-peratour-changes-pera" target="_blank" rel="noreferrer noopener" class="broken_link">self-directed presentation</a> providing an overview of the purpose and process for PERAtour.</li>
</ul>



<a href="https://www.youtube.com/watch?v=5yUznXdQhhg&amp;feature=youtu.be" target="_blank" rel="noreferrer noopener">Narrated Board presentation</a>



<ul>
<li>A video presentation made available to the <a href="https://content.copera.org/colorado-pera-board-election-reminder/" target="_blank" rel="noreferrer noopener">PERA Board of Trustees</a> in June, including a recap of what was learned from the PERAtour community meetings.</li>
</ul>



<a href="https://content.copera.org/one-stop-shop-peratour-changes-pera/" target="_blank" rel="noreferrer noopener">“What we’ve heard”</a>



<ul>
<li>A series of blog posts summarizing feedback from meeting attendees.</li>



<li><a href="https://www.copera.org/senate-bill-1-conditions-different" target="_blank" rel="noreferrer noopener" class="broken_link">Feedback on the principles and priorities that should guide potential future changes to PERA</a></li>



<li><a href="https://www.copera.org/one-stop-shop-peratour-changes-pera" target="_blank" rel="noreferrer noopener" class="broken_link">Retirement benefits should treat all employees fairly</a></li>



<li><a href="https://content.copera.org/one-stop-shop-peratour-changes-pera/" target="_blank" rel="noreferrer noopener">A deep commitment to public service</a></li>



<li><a href="https://content.copera.org/one-stop-shop-peratour-changes-pera/" target="_blank" rel="noreferrer noopener">Keeping up with inflation in retirement</a></li>



<li><a href="https://content.copera.org/one-stop-shop-peratour-changes-pera/" target="_blank" rel="noreferrer noopener">Participants concerned about changing workforce</a></li>
</ul>



<a href="" target="_blank" rel="noreferrer noopener">Support for core principles, by the numbers</a>



<ul>
<li>An infographic showing the level of support for core principles to guide any potential future changes to PERA.</li>
</ul>



<a href="https://www.youtube.com/embed/k_6d5a82drA" target="_blank" rel="noreferrer noopener">What our members have to say</a>



<ul>
<li><a href="https://www.youtube.com/embed/5Pj_9_de1xs" target="_blank" rel="noreferrer noopener">Linda</a>, <a href="https://www.youtube.com/embed/x8u4lk1gdX0" target="_blank" rel="noreferrer noopener">Anne</a>, <a href="https://www.youtube.com/embed/k_6d5a82drA" target="_blank" rel="noreferrer noopener">Steve</a>, and <a href="https://www.youtube.com/embed/yk9rULN3QSk" target="_blank" rel="noreferrer noopener">John</a>, all PERA retirees, share their thoughts about what they heard during PERAtour community meetings.</li>
</ul>



<a href="https://www.youtube.com/watch?v=iJAaMIfTOfw&amp;feature=youtu.be" target="_blank" rel="noreferrer noopener">PERAtour: Denver</a>



<ul>
<li>A full-length video recording of a PERAtour meeting in Denver, including Executive Director Greg Smith’s responses to questions asked by attendees.</li>
</ul>

One-Stop Shop: Website Offers Information On Potential Future Changes to PERA

In 2010, Colorado became one of the first states in the nation to respond to the consequences of the economic crisis by passing major reforms to the defined benefit plan. Landmark legislation, Senate Bill 10-001, reversed the course of PERA funding and returned it to sustainability. Since 2010, conditions continue to evolve and PERA has responded.



PERA now faces changes that will have a significant impact in the future. First, PERA members and retirees are living longer and, on average, receiving a benefit over a longer period. Second, the PERA Board of Trustees has reviewed the recommendations of economists, actuaries, and investment advisors and determined that the expected rate of return on its investments may not be as high moving forward as it has been in the past. Therefore, last year, the <a href="https://content.copera.org/actuarial-impact-analysis/" target="_blank" rel="noreferrer noopener">Board lowered its expected rate of return</a> to 7.25 percent from 7.5 percent previously.



Changes in economics and demographics have increased the time PERA needs to become fully funded, and therefore also increased the risk level of PERA’s funding &#8211; not only for PERA members, but for all taxpayers throughout the state of Colorado where PERA members live, work, and support the economy.



PERA measures funding risk using a “signal light” color framework to clearly categorize and communicate the current level of risk to each division. Today, all PERA divisions are in the orange category, indicating that PERA needs to formulate a plan to reduce that risk. (<a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">Read more about what the orange signal light means for PERA).</a> Shortening that period of time is an appropriate step to secure the retirement for the 565,000 members and retirees that make up PERA today.



The PERA Board has asked PERA staff to undertake an effort to inform and listen to members, retirees, employers, taxpayers and others about improving PERA’s funded status and reducing its risk exposure, while also maintaining secure retirement benefits and strengthening the Colorado economy.



Known as <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour</a>, the first stage includes gathering input on principles and guidelines for future changes. PERA staff held a <a href="https://content.copera.org/senate-bill-1-conditions-different/" target="_blank" rel="noreferrer noopener">series of meetings</a> this spring, and attendees at the meetings were <a href="https://www.copera.org/senate-bill-1-conditions-different" target="_blank" rel="noreferrer noopener" class="broken_link">overwhelmingly supportive</a> of preserving a fair and sustainable retirement system that provides a dignified retirement for public employees for both today and the future. They also recognized that, like in 2010, potential changes will require shared responsibility and teamwork from all participants: members, retirees, and employers. (More <a href="https://www.copera.org/senate-bill-1-conditions-different" target="_blank" rel="noreferrer noopener" class="broken_link">detailed results of feedback</a> are available on the <a href="https://www.copera.org/changing-demographics-market-conditions-addressed-peratour" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour website</a>, where feedback can still be provided.)



The Board expects to explore different options to improve PERA’s funded status this fall in order to make any recommendations for necessary action to be considered during the 2018 legislative session. Such efforts have recent precedent in SB 10-001, which required that all stakeholders contribute to the solution.



Senate Bill 10-001 Recap



In 2009 and 2010, the <a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" target="_blank" rel="noreferrer noopener" class="broken_link">PERA Board of Trustees</a> worked with PERA members, retirees, employers, and other stakeholders to develop a package of recommendations for the Legislature to consider in order to increase funding for the plan while also reducing costs over time. The leading principle of those recommendations was <a href="https://www.copera.org/senate-bill-1-conditions-different" target="_blank" rel="noreferrer noopener" class="broken_link">shared sacrifice</a>, meaning that all members – retired, current, and future – as well as employers gave up something as a way to improve the sustainability of the fund.



Major provisions of the changes recommended by the PERA Board in 2009 and approved by the legislature and signed by the governor in 2010 included:



<ul>
<li>Increases in contributions from members and employers to reduce the unfunded liability over time;</li>



<li>A 2 percent cap on the Annual Increase or Cost of Living Adjustment (COLA), for all current and future retirees; and</li>



<li>Increases in the minimum age to qualify for service retirement for new members as well as other provisions such as requiring retirees who return to work to make employee contributions at the same rate as all members working for that employer.</li>



<li>Some recommendations made by the Board were not included in the enacted legislation. These included increasing the number of years in the Highest Average Salary calculation and a higher age for service retirees in the School Division.</li>
</ul>



These changes illustrate the willingness of the PERA Board, membership, and employers to take critical (and often self-sacrificial) steps to improve PERA’s risk profile and ensure a long future ahead.

Senate Bill 1 and Current Conditions: How Things Are Different Now

Which principles and priorities should guide the development of future changes to help reduce PERA’s risk profile? That question was posed to 900+ attendees at a dozen statewide community meetings as part of the first phase of our PERAtour earlier this summer. The input from meeting participants and comments submitted on our dedicated <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" target="_blank" rel="noreferrer noopener" class="broken_link">website</a> will be used by the PERA Board of Trustees as it considers making recommendations to the Colorado General Assembly in 2018 to improve PERA’s funded status.



If you were unable to attend one of the PERAtour events in person, a full recording of the conversation can be found on the <a href="https://www.youtube.com/watch?v=iJAaMIfTOfw" target="_blank" rel="noreferrer noopener">PERA YouTube channel.</a>&nbsp;Additionally, a presentation that was given to the PERA Board on these principles can <a href="https://www.youtube.com/watch?v=5yUznXdQhhg" target="_blank" rel="noreferrer noopener">also be found</a> on YouTube.



The graphic below highlights the principles and priorities shared at the community meetings, as well as feedback gathered from PERA members, retirees, and concerned citizens who participated either in person or online.



<figure class="wp-block-image"><a href=""><img decoding="async" src="https://www.copera.org/what-we-heard-peratour"" class="wp-image-1529"/></a></figure>

What We Heard on the PERAtour

The <a href="https://www.copera.org/recap-of-pera-boards-june-2021-meeting" class="broken_link">Colorado PERA Board of Trustees</a> is constantly monitoring the performance of the PERA fund and the long-term health and <a href="https://content.copera.org/whats-the-deal-with-the-wep-and-gpo/">sustainability</a> of each of PERA’s divisions (State, School, Local Government, Judicial, and DPS).



One of the key aspects of performance that the Board considers is the risk profile for each division trust, essentially the likelihood that something negative could happen that would threaten any division’s sustainability and PERA’s ability to pay benefits over the long term.



To better communicate the fund’s risk profile in a straightforward way, the Colorado General Assembly’s <a href="https://leg.colorado.gov/committees/legislative-audit-committee/2017-regular-session">Legislative Audit Committee</a> directed the Office of the State Auditor to contract with an actuarial firm to develop a methodology to simplify the understanding of PERA’s financial &nbsp;status. The result of this study was the creation of a signal light color framework to report on PERA’s financial status. See prior articles on the results of this study and others specified in 2014 legislation <a href="https://www.copera.org/poked-prodded-and-perused-pera-passes" class="broken_link">here</a> and <a href="https://www.copera.org/retirement-roundup-best-places-retire" class="broken_link">here</a>.



Using a signal light color framework, the tool indicates how long it will take each PERA division to reach full funding, where dark green status means that a division would be funded by 2041 (30 years from 2011) and dark red status means that a division would run out of money within 20 years, with additional signal-light like categories in between to indicate a spectrum of risk.



<a href="https://content.copera.org/whats-the-deal-with-the-wep-and-gpo/">Last year</a>, most of the PERA divisions were in the yellow category, meaning that PERA should enhance its monitoring of the fund. In 2016, as part of their oversight of PERA, the PERA Board conducted a review of the plan’s core assumptions and made changes. Two significant changes included recognizing that PERA retirees are living longer and therefore receiving benefits for a longer period of time, and evaluating the current investment market and the fund’s expected investment return moving forward. This led to the adoption of new mortality tables to better reflect the life expectancies of PERA members and retirees and a more conservative long-term investment assumption of 7.25 percent.



After incorporating the Board’s assumption changes made in 2016 as well as <a href="https://content.copera.org/pera-signal-light-divisions-orange-mean/">2016 investment returns for the PERA fund</a>, PERA’s actuarial consultants have determined that each of PERA’s five divisions have reached orange status. This is critical because it indicates that the divisions would each need more than 50 years to return to full funding. Orange status is an indicator that the Board should develop a corrective action plan to reduce the amount of time it will take PERA to be fully funded.



It’s important to note that, while the risk profile of PERA’s divisions is too high, this does not mean that PERA is running out of money. PERA continues to pay benefits to its retirees and will keep doing so. The orange status indicates that the divisions are solvent today and will remain so in the future.



Nonetheless, in order to reduce the amount of time needed to reach full funding and help protect PERA against the possibility of a major economic downturn in the future, the Board is considering steps to reduce the risk profile over time.



As part of this work, PERA conducted a statewide outreach tour in the spring, holding meetings across Colorado. Visit the <a href="https://content.copera.org/pera-signal-light-divisions-orange-mean/">PERAtour website</a> to watch a <a href="https://youtu.be/6X0uA6HdViQ">video</a> explaining the Board’s recent actions and PERA’s funded status, learn <a href="https://www.copera.org/one-stop-shop-peratour-changes-pera" class="broken_link">what PERA heard</a> from those who attended meetings, or <a href="https://www.copera.org/colorado-pera-board-endorses-package-reforms" class="broken_link">share your thoughts</a>.



Moving forward, the Board will synthesize what was heard during the outreach tour and review input from stakeholders. There will be future opportunities to provide feedback about those options before the Board makes any recommendations to the Colorado General Assembly in advance of the 2018 legislative session.

If PERA had a signal light, its divisions would be orange. What does that mean?

Conversation about PERA’s long-term financial health ongoing



Colorado PERA announced a 7.3 percent investment return, according to its 2016 Comprehensive Annual Financial Report (CAFR) released last week. The total fund—the combined assets of all five PERA member divisions—has now matched or outperformed the policy benchmark set by the PERA Board of Trustees for the one-, three-, five-, and 10-year time periods, net of fees. The long-term investment return for 35 years is 9.8 percent, gross of fees. (For more information on the Board’s responsibilities, including how it oversees PERA’s investment program, <a href="https://content.copera.org/colorado-pera-board-election-reminder/" target="_blank" rel="noreferrer noopener">see this PERA on the Issues post</a>.)



Those who have been following along with this year’s <a href="https://www.copera.org/pera-earned-7-3-percent-return-2016" target="_blank" rel="noreferrer noopener" class="broken_link">PERAtour effort</a> are likely aware that the PERA Board and staff are currently soliciting feedback from PERA members, retirees, employers, and the general public on ways to help reduce PERA’s overall risk profile going forward. In 2016, the PERA Board lowered the long-term investment return assumption to 7.25 percent from 7.5 percent, reflecting their expectations for future market performance. Additionally, the Board conducted an experience study which showed that PERA members are living longer—meaning that PERA must pay benefits for a longer period of time than previously expected. The numbers reported in this year’s CAFR reflect these changes.



PERA is required by statute to undergo an <a href="https://content.copera.org/pera-earned-7-3-percent-return-2016/" target="_blank" rel="noreferrer noopener">annual financial audit</a> overseen by the Office of the State Auditor, and conducted by an external audit firm. On June 22, 2017, the external auditor, CliftonLarsonAllen, reported to the PERA Board’s Audit Committee that they anticipate an unmodified “clean” opinion that the financial statements are presented fairly, in all material respects, for the seventh straight year.



In addition to the annual financial audit, the CAFR has <a href="https://www.copera.org/pera-earned-7-3-percent-return-2016" target="_blank" rel="noreferrer noopener" class="broken_link">consistently been recognized</a> by the Government Financial Officers Association (GFOA) for excellence in the area of governmental accounting and financial reporting. PERA’s CAFR received this recognition for the 31st straight year in 2016. PERA’s annual CAFR is a wealth of vital information regarding the fund, including details on financial, investment, actuarial, and statistical facts. Below is an infographic highlighting some of the important pieces of information that can be found within the report.

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