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 American public continues to hold positive opinions of defined benefit pension plans, according to <a href="https://www.nirsonline.org/reports/what-do-americans-think-about-pensions-for-public-employees/" target="_blank" rel="noreferrer noopener">the latest survey data from the National Institute on Retirement Security</a> (NIRS).



Researchers contacted more than 1,200 adults aged 25 and older across the country to understand public opinion about defined benefit plans like what Colorado PERA offers. They found 86% of survey respondents think all workers should have access to a defined benefit pension, and not just public employees.



In addition, while Americans may be divided politically, the NIRS survey found strong agreement on the value of pensions. More than 80 percent of each political group—Democrats, Republicans, and Independents—voiced their support for pensions.



Unlike a defined contribution plan such as a 401(k), a defined benefit plan like the PERA Defined Benefit Plan provides retirement income a person cannot outlive. That makes for a valuable benefit that can be a powerful tool in maintaining a qualified workforce.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="2428" height="1414" src="https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions.png" alt="Two pie charts showing results of a survey of Americans' attitudes toward pensions. The left chart shows 82% of Americans agree that pensions are a good way to recruit and retain qualified teachers. The right chart shows 84% of Americans agree that pensions are a good way to recruit and retain qualified public safety employees." class="wp-image-54938" srcset="https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions.png 2428w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-300x175.png 300w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-1024x596.png 1024w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-768x447.png 768w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-1536x895.png 1536w, https://content.copera.org/wp-content/uploads/2024/11/nirs-american-attitudes-on-pensions-2048x1193.png 2048w" sizes="(max-width: 2428px) 100vw, 2428px" /><figcaption class="wp-element-caption">Image courtesy: National Institute on Retirement Security</figcaption></figure>



Defined benefit plans are most common in the public sector today, and the NIRS survey asked respondents whether they agreed that pensions are a valuable tool to recruit and retain workers who provide important public services, such as teachers and public safety workers. The survey found 82% agree that pensions help recruit and retain teachers and 84% agree that they help recruit and retain public safety workers.



Since 1931, Colorado PERA has been helping support Colorado’s public workforce by providing lifetime retirement and other benefits. In addition to the PERA Defined Benefit Plan, PERA members have access to defined contribution plans, health care benefits, and more, ensuring the state’s public workers have the tools they need for a secure retirement.

Survey Finds Strong Support for Public Pensions

<h4 class="wp-block-heading"><a href="https://www.ncpers.org/research-pension-expenditures-education" target="_blank" rel="noreferrer noopener">Do Pension Expenditures Impact Education Spending? | NCPERS</a></h4>



Critics of defined benefit pension plans like what Colorado PERA offers often claim that the costs associated with providing the benefit drive up public spending on things like education. But research from the National Conference on Public Employee Retirement Systems finds that isn’t true — education costs have been rising at a far quicker pace than pension contributions.



<h4 class="wp-block-heading"><a href="https://www.copera.org/news-you-should-know-pension-costs-dont-affect-education-spending-study-finds" target="_blank" rel="noreferrer noopener" class="broken_link">U.S. Workers Want Government to Require Employers to Offer Retirement Plans | Pensions &amp; Investments</a></h4>



While not all private sector employers offer retirement plans to their workers, it’s clear there’s an appetite for them to do so. A recent survey found that more than three-quarters of American workers think employers should be required to offer retirement savings plans. Workers also strongly support requiring employers to make matching contributions to employees’ accounts.



<h4 class="wp-block-heading"><a href="https://www.reuters.com/business/healthcare-pharmaceuticals/july-goal-set-final-us-medicare-drug-negotiation-guidance-2023-04-12/" target="_blank" rel="noreferrer noopener">July Goal Set for Final US Medicare Drug Negotiation Guidance | Reuters</a></h4>



The Centers for Medicare and Medicaid are getting closer to finalizing their plans to directly negotiate some prescription drug prices with manufacturers. CMS plans to publish final guidance in July and then select the 10 costliest drugs for negotiations in September. Any lower prices wouldn’t take effect until 2026.



<h4 class="wp-block-heading"><a href="https://www.marketplace.org/2023/04/10/why-aging-in-place-is-a-growth-industry/" target="_blank" rel="noreferrer noopener">Why “Aging in Place” is a Growth Industry | Marketplace</a></h4>



As the costs associated with long-term care continue to rise, the idea of staying put and aging at home has become more attractive. Aging in place often requires modifications to make a home more accessible, and the business market for aging in place now exceeds $150 billion a year, with strong growth expected in the years to come.



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News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

News You Should Know: Pension Costs Don’t Affect Education Spending, Study Finds

The first week of May is <a href="https://ourpublicservice.org/our-solutions/recognition/public-service-recognition-week/" target="_blank" rel="noreferrer noopener">Public Service Recognition Week</a>, a time to celebrate and honor the millions of local, state and federal employees who serve communities across the United States every day.



Supporting Colorado’s public employees is a daily mission for PERA, which provides retirement and other benefits to more than 620,000 current and former teachers, state troopers, corrections officers, snow plow drivers, and other public workers. PERA’s mission is to provide retirement security to its members while ensuring the stability of the fund.



PERA’s membership is split into five divisions, with most members participating in the Defined Benefit Plan (some state and local government employees have the option to choose between the Defined Benefit Plan and the Defined Contribution Plan). In the DB plan, each division has its own trust fund that pays benefits for that division. Member and employer contributions to each fund are pooled and invested to ensure that each division’s members — whether public school teachers, state employees, local government workers, or judges — can rely on regular, monthly income they won’t outlive in retirement.



While each PERA division encompasses a different range of careers, each provides vital services to keep Colorado communities thriving.



<figure class="wp-block-image size-large"><a href=""><img decoding="async" src="https://www.copera.org/pera-on-the-issues/honoring-the-important-work-of-colorados-public-employees"" class="wp-image-4996"/></a><figcaption>PERA&#8217;s membership is split into five divisions: State, School, Denver Public Schools, Local Government and Judicial.</figcaption></figure>



<h4 class="wp-block-heading">School Division</h4>



The School Division is by far PERA’s largest, with more than 128,000 active members in 2022. That’s more than half of the total active membership. It’s also the division with the largest number of benefit recipients — more than 72,000.



School Division members include teachers, bus drivers, cafeteria workers, school administrators and other staff of public schools across Colorado, from Adams County to Yuma County. Public school employees carry out the important work of educating, transporting, feeding and supporting thousands of children every day, helping them learn and develop into contributing members of society.



Employees of Boards of Cooperative Education Services (BOCES), which provide various services to multiple districts, are also members of the School Division.



<h4 class="wp-block-heading">Denver Public Schools Division</h4>



Denver Public Schools, the state’s largest school district, had its own retirement system until 2010, when it merged with PERA. Because of the unique nature of merging the DPS plan into PERA, its members remain in a separate division from other school districts, with some differences in rules and regulations.



The DPS division includes more than 15,000 active members and more than 7,000 benefit recipients.



<h4 class="wp-block-heading">State Division</h4>



The second largest PERA division, the State Division, includes more than 54,000 active members from a wide variety of professions that provide important services in every corner of the state. This division includes lawmakers and legislative staff at the State Capitol, as well as employees of various state agencies, such as the departments of transportation, public safety, military and veterans affairs, and agriculture. The State Division also includes Colorado’s many institutions of higher education, from local community colleges to the state’s major research universities.



State troopers, snow plow drivers, park rangers, social workers, corrections officers, college professors and other State Division employees work every day to keep Colorado communities safe, healthy and vibrant places to live.



<h4 class="wp-block-heading">Local Government Division</h4>



Equally important as the state employees who keep Colorado running are the nearly 13,000 Local Government Division employees who power cities and towns across the state. That includes not only government staff but also employees of various utility and sanitation districts, housing authorities, libraries, health departments and fire protection districts.



Local government workers help build, maintain and protect the quality of life that so many of Colorado’s communities are known for.



<h4 class="wp-block-heading">Judicial Division</h4>



The Judicial Division is PERA’s smallest, with fewer than 400 active members. Most courthouse workers in Colorado fall under the State Division, so the Judicial Division covers only judges. The division includes judges who preside over county courtrooms, the Court of Appeals, the Colorado Supreme Court and the 1st through 22nd district courts.



Judicial Division judges have the important task of administering justice in Colorado by overseeing criminal trials, civil cases, probate proceedings, juvenile offenses and much more.



Whatever their division and employer, every PERA member provides an important public service that supports all of Colorado. And when they retire, PERA will be here to provide reliable income and other benefits to ensure every public employee can enter their golden years with peace of mind.



<blockquote class="wp-block-quote">Follow PERA on <a href="https://www.facebook.com/ColoradoPERA/" target="_blank" rel="noreferrer noopener" class="broken_link">Facebook</a>, <a href="https://content.copera.org/nearly-1700-people-respond-to-reader-survey/" target="_blank" rel="noreferrer noopener">Instagram</a> and <a href="https://twitter.com/ColoradoPERA" target="_blank" rel="noreferrer noopener">Twitter</a> for more on Public Service Recognition Week.</blockquote>

Honoring the Important Work of Colorado’s Public Employees

A <a href="https://www.nirsonline.org/reports/betterbang3/" target="_blank" rel="noreferrer noopener">recent study</a> from the National Institute on Retirement Security found that defined benefit (DB) pensions like Colorado PERA’s continue to offer substantial cost savings over defined contribution (DC) accounts like 401(k)s.



The research affirms NIRS’s findings from 2008 and 2014 that DB plans can provide retirement benefits at about half the cost (49 percent) of the typical DC plan.



The cost savings come from key differences in how DB and DC plans work, the authors state. In particular, they highlight the following three advantages of DB plans:



<ul>
<li>Longevity risk-pooling: Defined benefit plans cover a large number of people, with each person’s benefits coming from the same trust fund. For that reason, DB plans only have to accumulate enough money to fund benefits for the average life expectancy of the group. An individual in a defined contribution plan, on the other hand, has to accumulate enough funds to cover their expenses for the rest of their life, including the possibility of living longer than their life expectancy. That means a DC account needs to have a higher balance at retirement in order to provide the same level of benefits as the DB plan.</li>



<li>Maintenance of portfolio diversification: Individuals in DC plans are typically encouraged to shift their portfolio to a more conservative, or lower-risk, mix of investments as they get older to protect their balance from drops in the stock market. A DB plan, with its shared trust fund, can maintain a well-balanced portfolio over the long term and weather short-term risks in the stock market, ultimately earning higher returns.</li>



<li>Lower fees and professional management: Because of the pooled nature of DB plans, the fees for managing investments are shared by the group and are lower than the typical DC plan, in which each individual pays fees on their account. In addition, DB plan investment managers have a fiduciary duty — they must make decisions to ensure the longevity of the fund — while individual investors in DC plans may not have the expertise to make the right decisions.</li>
</ul>


<div class="wp-block-image">
<figure class="alignright size-full"><a href=""><img decoding="async" src="" alt="" class="wp-image-4804"/></a><figcaption class="wp-element-caption">Image credit: National Institute on Retirement Security (click to enlarge)</figcaption></figure></div>


Simply put, a person saving for retirement in a DC plan needs to save more money than the typical DB plan. Overall, the authors conclude that it is about twice as expensive to save for retirement under a DC plan like a 401(k) than it is with a DB pension plan.



Both DB and DC plans have their advantages, and Colorado PERA offers both, with some members having the ability to choose whichever plans works best for them. PERA offers all of its members a hybrid defined benefit plan that gives members increased flexibility and additional options, whether through a monthly lifetime benefit or complete portability to another retirement plan. PERA members can also supplement their retirement savings with a <a href="https://www.copera.org/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">401(k) or 457 plan</a>. 



It’s a powerful retirement tool that adapts to the many different paths people take in public service: whether working part-time or full-time, whether planning on a long tenure or a short one, and whether near retirement or far from it. <a href="https://www.copera.org/new-members-in-the-defined-benefit-plan" target="_blank" rel="noreferrer noopener">Click here</a> to learn more about PERA’s defined benefit plan.

Study: Defined Benefit Pensions Continue to Be More Cost-Effective Than 401(k)s

Retirees play a vital role in the economy. They purchase goods and services, serve in important volunteer and part-time roles, and pay taxes. Retirees who receive a pension provide a level of stability and support to their communities. A recent PERA On the Issues <a rel="noreferrer noopener" href="https://peraontheissues.com/pera-and-rural-colorado/" target="_blank">story highlighted</a> the impact retirees with a pension have in rural areas of Colorado.



A <a rel="noreferrer noopener" href="https://www.ncpers.org/files/NCPERS%20Unintended%20Consequences_2020_Update_WEB_FINAL.pdf" target="_blank">new report</a> published by the National Conference on Public Employee Retirement Systems examines the economic impact of pensions in a new way. It includes the economic impact retiree spending has while adding the economic impact pension dollars have before reaching retirees, in the form of investment dollars at work.



Here are the numbers, which use 2018 data from public pensions systems across the country:



<ul><li>The investment of pension fund assets contributed $872 billion to the US economy</li><li>These investments led to $178 billion in state and local revenues ($647 million in Colorado)</li><li>Retirees received $335 billion in benefit checks ($5.6 billion in Colorado)</li><li>Retiree spending added $836 billion to the economy ($14 billion in Colorado)</li><li>The benefit to state and local revenues from retiree spending equaled $162 billion ($2.4 billion in Colorado)</li></ul>



Researchers then compared contributions employees and employers make to pension funds to the economic output of pension investments and retiree spending. They state: “Pension funds generated $179.4 billion more in revenues than taxpayers contributed to the pension funds.” In Colorado, the net state and local revenue attributable to public pensions was $1.3 billion.

Pension Dollars: A Net Benefit to State and Local Economies

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



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



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



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



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



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



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



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

Solving pension challenges has not been easy in other states

A digest of timely information and insight about finance, investing, and retirement.



<a href="https://www.nytimes.com/2019/08/02/business/social-security-questions.html">7
of your most burning questions on Social Security (with answers)</a>|
<a href="https://www.nytimes.com/">The New York Times</a>



People
have lots of questions about Social Security. That’s not surprising. No
government program is more important to so many Americans, as it is the largest
retirement income source for a majority of older households. The New York Times
responds to some of the most frequent questions submitted by readers, such as:
Will it still be around when I retire? How does the spousal benefit work? 



<a href="https://www.denverpost.com/2019/07/16/colorado-retirement-savings-plan-poll/">Coloradans
support state-operated retirement savings plan for private workers, poll says</a> | <a href="https://www.denverpost.com/">Denver
Post</a>



More
than two-thirds of Colorado voters support the state creating a retirement savings
plan for private-sector employees whose employers do not offer one, according
to a survey commissioned by a political group that pushes progressive
legislation at statehouses across the nation. The results come after Gov. Jared
Polis <a href="https://content.copera.org/retirement-roundup-seven-of-your-most-burning-questions-on-social-security/">appointed</a> eight people to a study
group created by the General Assembly to consider how Colorado could join a
small but growing number of states that are establishing these types of
programs. Sixty-nine percent of registered voters surveyed were in favor of
creating a plan.



<a href="https://www.cnbc.com/2019/08/02/states-launch-new-programs-to-help-workers-save-for-retirement.html">New state programs, like California’s, make
it easier for workers to save for retirement</a>| <a href="https://www.cnbc.com/">CNBC</a>



CalSavers, California’s automatic individual retirement
account plan, which officially started in July, offers employees of small
businesses and other companies that do not offer a retirement plan the
opportunity to save through the state program. California now requires
employers with five or more employees to either join CalSavers or begin
offering their own retirement plan. That will give an estimated 7.5 million
California workers a retirement savings plan option. About 55 million Americans
nationwide do not have access to a workplace retirement plan today.



<a href="https://www.urban.org/features/nine-charts-about-future-retirement" class="broken_link">Nine
charts about the future of retirement</a>| <a href="https://www.urban.org/" class="broken_link">Urban
Institute</a>



Social Security cuts, shrinking employer-sponsored pensions,
low savings rates, and longer life spans have raised fears of a looming
retirement crisis. But other trends point to better retirement outcomes, such
as women’s increased employment and earnings, longer working lives, and economic
growth that raises wages. The Urban Institute provides some answers using the
best, most recent data available to help sort out how the profound social, economic, and demographic shifts that
are transforming retirement will shape older adults’ future financial security.



<a href="https://www.statesmanjournal.com/story/news/politics/2019/08/09/oregon-government-employee-lawsuit-pension-law/1969937001/">Oregon government employees sue to overturn
new state pension law</a> | <a href="https://www.statesmanjournal.com/">Oregon
Statesman-Journal</a>



Nine Oregon public employees have sued the state, saying
their pension benefits are unfairly reduced by a new law. The lawsuit, filed in
the Oregon Supreme Court, contests Senate Bill 1049, which the Oregon Legislature
passed and Gov. Kate Brown signed into law this year. The lawsuit says that the
legislation amounts to a breach of contract and illegal taking because it
reduces the amount of retirement benefits for the employees. SB 1049 was passed
by Oregon lawmakers in a bid to rein in the state&#8217;s unfunded $27 billion pension
liability tied to the Public Employees Retirement System. Policymakers have
long grappled with how to keep the costs of the pensions of local, state, and
school district retirees under control.



<a href="https://www.plansponsor.com/case-studies-suggest-move-public-pensions-hurts-taxpayers/">Case studies suggest move from public
pensions hurts taxpayers</a> |
<a href="http://www.plansponsor.com/">PlanSponsor</a>



A new series of case studies finds that states that shifted
new employees from defined benefit pensions to defined contribution or cash
balance plans experienced increased costs for taxpayers, without major
improvements in funding. The report, <a href="https://www.nirsonline.org/reports/enduring-challenges-examining-the-experiences-of-states-that-closed-pension-plans/" target="_blank" rel="noreferrer noopener">“Enduring Challenges:
Examining the Experiences of States that Closed Pension Plans,”</a>
published by the <a href="https://www.nirsonline.org/">National Institute on
Retirement Security</a>, also indicates that the move away from pensions
cuts employees’ retirement security and that employers may face increasing
challenges hiring and retaining staff to deliver public services.

Retirement Roundup: Seven of your most burning questions on Social Security

A digest of timely information and insight about finance, investing, and retirement.



<a href="https://www.brookings.edu/blog/up-front/2019/07/15/how-bad-is-the-state-and-local-pension-crisis-really/">How
bad is the state and local pension crisis really?</a>|
<a href="http://www.brookings.edu/">Brookings</a>



State and
local government pension plans hold nearly $4 trillion in assets and provide
retirement income to over 10 million Americans. For most of these plans, the
value of liabilities for future benefit payments exceed the value of plan
assets. <a href="https://www.federalreserve.gov/econres/byron-lutz.htm">Byron Lutz</a> of the Federal Reserve Board, and <a href="https://www.brookings.edu/experts/louise-sheiner/">Louise Sheiner</a> of Brookings focus on the sustainability of pension
plans—whether plans will run out of assets and need to borrow money or be
bailed out to meet benefit obligations. In a paper presented at the 2019 <a href="https://www.brookings.edu/events/8th-annual-municipal-finance-conference/">Municipal Finance Conference</a> at Brookings, they conclude,
in short, that, on the whole, state and local pension systems in the U.S. are
not facing in an imminent crisis.



<a href="https://www.plansponsor.com/calsavers-state-run-retirement-plan-opened/">CalSavers State-Run Retirement Plan Opens</a> | <a href="http://www.plansponsor.com/">PlanSponsor</a>



California State Treasurer Fiona Ma and former State
Senator Kevin de León announced the launch of CalSavers, a state retirement
savings program that will give access to more than 7 million working
Californians who currently lack a workplace plan. State law requires that all
employers with five or more employees who don’t already offer a retirement plan
to either begin offering a qualified plan from the private market or register
for CalSavers over the next three years. 



<a href="http://money.com/money/5649190/you-should-be-saving-at-least-12-of-your-pay-for-retirement-heres-why/" class="broken_link">You
should be saving at least 12% of your pay for retirement. Here’s why.</a>
| <a href="http://money.com/">Money</a>



To
reach retirement in solid financial shape, you likely need to up your savings
game today. Vanguard recommends a total contribution rate of between 12 and 15
percent of salary. But you may want to save even more, depending on your
situation and on how you expect stocks to perform in the future. Researchers’
recommendations vary based on annual income, the age when someone started
saving, and the expected rate of return (after inflation) for a retirement
portfolio.



<a href="https://www.marketwatch.com/story/married-women-more-at-risk-in-retirement-than-singles-2019-06-17">Married women are more at risk in retirement than singles</a> | <a href="http://www.marketwatch.com">MarketWatch</a>



Compared to single women, a greater percentage of married
women are at risk for retirement insecurity, according to a recent <a href="https://crr.bc.edu/briefs/women-marriage-and-the-national-retirement-risk-index/">study</a>
using the National Retirement Risk Index. Forty-six percent of married women
were found to be at risk compared with about 39 percent, on average, for all
single women. The findings highlight the need for two-earner couples to save
more, and the best way to address this issue would to broaden access to
retirement savings plans in the workplace. In addition, plan sponsors could
help educate their married workers about the potential need to save for two.



<a href="https://www.barrons.com/articles/annuities-401k-retirement-savings-51561692333">Annuities in 401(k)s Won’t Solve the
Retirement Crisis. Here’s Why.</a>| <a href="http://www.barrons.com/">Barron’s</a>



Proposed U.S. legislation would make it easier for employers
to offer annuities in <a href="https://www.barrons.com/articles/the-401-k-turns-40-and-like-all-birthdays-theres-good-and-bad-1542404775?mod=article_inline" target="_blank" rel="noreferrer noopener">401(k) retirement plans</a> that provide retirees fixed payments
for as long as they live. The bill, known as the <a href="https://www.barrons.com/articles/house-passes-secure-act-retirement-51558629371?mod=article_inline" target="_blank" rel="noreferrer noopener">Secure Act, passed in the House of Representatives</a> in May and
is now awaiting a vote in the Senate. But since it has bipartisan backing and
is the biggest retirement legislation to gain traction in more than a decade,
it’s widely expected to be approved. While some annuities are low cost, others
come with high commissions and high fees that eat into the benefits.

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