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.

Since 1931, Colorado PERA has been providing retirement and other benefits to the public employees who keep our state running. As the workforce and retirement landscape have changed, PERA also has adapted and grown; Colorado’s largest public retirement plan now covers nearly 700,000 current and former public workers.



PERA benefits, including the hybrid defined benefit plan and the option for some members to choose a defined contribution plan, have been valuable in helping public agencies recruit and retain employees for decades. Critics of defined benefit pensions, however, argue that today’s workers would be better served by other types of plans. An upcoming study will help shed light on that debate.



<h4 class="wp-block-heading">Purpose and scope</h4>



During the 2024 legislative session, state lawmakers passed <a href="https://leg.colorado.gov/bills/hb24-1427" target="_blank" rel="noreferrer noopener">House Bill 1427</a>, which&nbsp;calls for the State Auditor, in cooperation with PERA, to enlist an independent actuarial firm experienced with public pensions to conduct a comprehensive study comparing the cost and effectiveness of the PERA Defined Benefit (DB) Plan to alternative plan designs, as well as providing an analysis of certain aspects of PERA’s current&nbsp;defined benefit&nbsp;and&nbsp;defined contribution&nbsp;plans.



The study will be similar in scope and purpose to&nbsp;<a href="https://content.copera.org/key-pera-features-make-colorados-largest-retirement-plan-efficient-and-effective/" target="_blank" rel="noreferrer noopener">a study that took place following similar legislation in 2014</a>. That study compared various facets of the PERA DB Plan—such as cost per member, contribution rates, income replacement ratio, and&nbsp;portability—to other public and private sector plan types, including Social Security. The study is <a href="http://leg.colorado.gov/sites/default/files/documents/audits/1409s_colorado_public_employees_retirement_association_pera_hybrid_defined_benefit_plan_study.pdf" target="_blank" rel="noreferrer noopener">available online here</a>.



Why refresh the study after a decade? In part, things have changed, and state leaders see value in having updated data. Since the last study, Colorado has seen tremendous growth, the public workforce has changed, and various reforms have put PERA on a path to full funding. This new study will incorporate all those changes to provide a more accurate assessment of PERA’s value to employers and the state as a whole.



While a lot has changed in the past 10 years, one thing that hasn’t is PERA’s commitment to providing retirement security to our members. The previous study concluded that PERA’s plan provides a better benefit at a lower cost than other plans, making it the best option for providing retirement benefits to the state’s public employees. We believe an updated study will show the same results.



<h4 class="wp-block-heading">What’s next?</h4>



The State Auditor and PERA have until the end of October to select an actuarial firm to conduct the study. Once a firm is selected, the study is likely to take several months to complete.



When the study is complete, PERA and the State Auditor will provide a report of the study’s findings to the governor, the Joint Budget Committee, the Legislative Audit Committee, and the House and Senate Finance Committees.



We’ll also provide a summary of the study’s findings here on PERA On The Issues. Make sure you’re <a href="https://www.copera.org/pera-on-the-issues/subscribe">subscribed</a> to our biweekly newsletter to receive all the latest updates.

Why the State is Commissioning a Study on PERA’s Plan Design

<h4 class="wp-block-heading"><a href="https://spanberger.house.gov/posts/spanberger-graves-file-discharge-petition-for-social-security-fairness-act-push-to-force-u-s-house-vote-on-bipartisan-bill-to-eliminate-wep-gpo" target="_blank" rel="noreferrer noopener">Spanberger, Graves File Discharge Petition for Social Security Fairness Act, Push to Force U.S. House Vote on Bipartisan Bill to Eliminate WEP &amp; GPO | Rep. Abigail Spanberger</a></h4>



Congress is back from recess, and the two main sponsors of a bill that would repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) say they’re going to attempt to force a floor vote on the bill. Representatives Abigail Spanberger (D-VA) and Garret Graves (R-LA) filed a discharge petition, which will need 218 signatures to force a vote. The bill, The Social Security Fairness Act, has received the support of more than 300 members of Congress but has stalled since it was introduced in early 2023.



<h4 class="wp-block-heading"><a href="https://www.kiplinger.com/retirement/employee-retirement-income-security-act-erisa-turns-50" target="_blank" rel="noreferrer noopener">Employee Retirement Income Security Act Turns 50: Protecting Your Plans | Kiplinger</a></h4>



It’s been 50 years since the Employee Retirement Income Security Act of 1974 (ERISA) was enacted into law, adding new protections for workers and changing the way many people save for retirement. While ERISA doesn’t govern public pension plans like Colorado PERA, it’s been a consequential piece of legislation in the private sector and paved the way for today’s employer-based retirement plans like 401(k)s.



<h4 class="wp-block-heading"><a href="https://chhs.source.colostate.edu/new-drug-may-improve-memory-in-older-adults-treat-alzheimers/" target="_blank" rel="noreferrer noopener">New Drug May Improve Memory in Older Adults, Treat Alzheimer’s | Colorado State University</a></h4>



Researchers at Colorado State University say they’ve been testing a drug that shows promise in treating memory loss associated with aging and neurological conditions like Alzheimer&#8217;s disease. The researchers teamed up with a local biotech company to test the drug, which targets two specific proteins in the brain. The team hopes to get approval for human trials soon.



<h4 class="wp-block-heading"><a href="https://coloradosun.com/2024/09/10/colorado-taxes-pilot-program/" target="_blank" rel="noreferrer noopener">Colorado Department of Revenue to Help 100,000 Residents File Their Taxes | The Colorado Sun</a></h4>



State officials are working to implement a new law that will help many Coloradans claim tax credits they may know they qualify for. Under the law, the Colorado Department of Revenue will help up to 100,000 households file or amend their tax returns to claim state and/or federal earned income tax credits and child tax credits, which could help many lower income families in the state.



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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: Lawmakers Push for Floor Vote on WEP/GPO Bill

<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">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

A digest of news from publications around the nation about finance, investing, and retirement.



<a href="https://content.copera.org/retirement-roundup-how-10-types-of-retirement-income-get-taxed/" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)">How 10 Types of Retirement Income Get Taxed</a> | <a href="https://www.kiplinger.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Kiplinger</a>



During your working years, all of your monthly cash flow might come from one source—your paycheck. But in retirement, you might draw income from a handful of sources. That means filing taxes can become more complex, so creating a plan to minimize your tax burden might become even more important. How should you coordinate a pension with 401(k) withdrawals? Should you withdraw from a Roth IRA throughout retirement or save it for later? Whether you’ve been retired for years and just need a refresher or your retirement is just around the corner and you’re curious about what taxes might look like, this article is a good place to start. 



<a href="https://www.cpr.org/2020/01/27/colorados-public-option-is-the-big-one-of-many-health-care-fights-lawmakers-will-have-this-year/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Colorado’s Public Option Is (The Big) One Of Many Health Care Fights Lawmakers Will Have This Year</a> | <a href="http://www.cpr.org" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">CPR</a>



In the opening weeks of the 2020 legislative session, it’s
already clear that health care will dominate headlines. Of the many issues
lawmakers are discussing, the creation of a public option takes top billing,
according to this article. Insurance Commissioner Michael Conway, said the plan
could save consumers 9 to 18 percent in health care costs. Supports say savings
can be found by limiting hospital charges, increasing the amount insurance
companies spend on patient care, passing rebates from drug companies on to
consumers, and increasing competition in Colorado’s 22 counties where residents
currently only have one option on the individual market. Amanda Massey,
executive director of the Colorado Association of Health Plans warns the plan
“will result in a one-size-fits-all approach replacing market choice and
competition.” She predicts a public option would result in cost increases for
Coloradans who get health insurance through an employer.



<a href="https://www.marketwatch.com/story/dos-and-donts-of-spending-wisely-in-retirement-2020-01-27" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Do’s and don’ts of spending wisely in retirement</a> | <a href="https://www.marketwatch.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">MarketWatch</a>



You spend a lifetime saving. Switching gears into spending mode can be an adjustment. The author of this article says it’s helpful to think of retirement spending occurring in three phases. Phase one: three to five years of jubilation—increased travel, bucket list items, higher spending overall. Phase two: spending decreases as retirement life normalizes. Phase three: you stay close to home, and spending, except health care, typically decreases. For each phase, the author include tips to reduce the risk of running out of savings too soon.



<a href="https://wallethub.com/edu/best-and-worst-states-to-retire/18592/?utm_content=finance-related%20website&amp;utm_campaign=Colorado%20Ranked%202nd%20Best%20Place%20to%20Retire%20in%20the%20Nation&amp;utm_source=ocn_story&amp;utm_medium=website#main-findings" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">2020’s Best States to Retire</a> | <a href="http://www.wallethub.com" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">WalletHub</a>



WalletHub reviewed how each state ranked in affordability, health-related factors, and overall quality of life. WalletHub incorporated 47 different data points to inform their conclusions. Overall, Colorado took silver, finishing behind perennial retiree favorite, Florida. More specifically, Colorado ranked fourth for health care, eleventh for quality of life, and seventeenth for affordability.

Retirement Roundup: How 10 Types of Retirement Income Get Taxed

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



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



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



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



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



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



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



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



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



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



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



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



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



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

Tag Archives:

Why the State is Commissioning a Study on PERA’s Plan Design

News You Should Know: Lawmakers Push for Floor Vote on WEP/GPO Bill

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

Retirement Roundup: How 10 Types of Retirement Income Get Taxed

Good news for millennials with access to retirement plans

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