Retirement insights from a Colorado PERA perspective

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



<a href="http://www.bizjournals.com/denver/blog/finance_etc/2015/12/pera-changes-to-the-states-pension-plan-over-5.html" target="_blank" rel="noreferrer noopener">PERA: Changes to the state pension plan over 5 years have saved billions</a>&nbsp;|&nbsp;<a href="http://www.bizjournals.com/denver" target="_blank" rel="noreferrer noopener">Denver Business Journal</a>



By most accounts, Colorado’s state pension plan is healthy and on track to solvency in the wake of a massive overhaul by lawmakers five years ago.



PERA executive director Greg Smith <a href="https://www.copera.org/puerto-rico-and-pensions" class="broken_link">reported Friday to the Joint Finance Committee</a> that in the past five years, SB 1 reforms have saved PERA about $15 billion in unfunded actuarial accrued liability. Most of the savings, he said, is from decreasing the Annual Increase provisions for current and future retirees – which accounts for 90 percent of the $15 billion in savings.



<a href="https://www.copera.org/retirement-roundup-pera-on-the-path-to-full-funding" target="_blank" rel="noreferrer noopener" class="broken_link">Fighting inflation in retirement</a>&nbsp;|&nbsp;<a href="http://www.morningstar.com/" target="_blank" rel="noreferrer noopener">Morningstar</a>



The news that Social Security beneficiaries won’t receive an inflation adjustment next year has renewed debate about how we measure the cost of living for seniors. A strong case can be made that the current formula driving Social Security&#8217;s cost-of-living adjustment (COLA) is out of whack.



The COLA is tied to the <a href="https://www.copera.org/retirement-roundup-pera-on-the-path-to-full-funding" target="_blank" rel="noreferrer noopener" class="broken_link">Consumer Price Index for Urban Wage Earners and Clerical Workers</a> (CPI-W), which gauges a market basket of goods and services of working people – who tend to be younger and spend less on health care than seniors. What can you do to hedge against the negative effects of future inflation in retirement?



<a href="http://www.investmentnews.com/article/20151210/BLOG05/151219997/rethinking-retirement-income-replacement-rules" target="_blank" rel="noreferrer noopener" class="broken_link">Rethinking retirement income replacement rules</a>&nbsp;|&nbsp;<a href="http://www.investmentnews.com" target="_blank" rel="noreferrer noopener">Investment News</a>



Some research suggests that the traditional target for retirement income is too high, based on 80 percent of gross earnings in prime career years before retirement. Others say it is too low, given rising out-of-pocket health care costs. But a <a href="https://www.transamericacenter.org/docs/default-source/retirees-survey/retirees_survey_2015_report.pdf" target="_blank" rel="noreferrer noopener">new study</a> from the Transamerica Center for Retirement Studies shows that planning to work longer as a way to forestall retirement and minimize savings needs may only be wishful thinking.



<a href="http://www.fool.com/investing/general/2015/12/06/the-average-american-is-woefully-unprepared-for-re.aspx" target="_blank" rel="noreferrer noopener">The average American is woefully unprepared for retirement</a>&nbsp;|&nbsp;<a href="http://www.fool.com" target="_blank" rel="noreferrer noopener">Motley Fool</a>



This year’s results from the annual Retirement Confidence Survey conducted by the <a href="http://www.ebri.org" target="_blank" rel="noreferrer noopener">Employee Benefit Research Institute</a> (EBRI) are sobering. Only 22 percent of Americans are very confident that they’ll have enough money for a comfortable retirement. And more than a quarter of working Americans have set aside $1,000 or less for their golden years.



<a href="https://content.copera.org/retirement-roundup-pera-on-the-path-to-full-funding/" target="_blank" rel="noreferrer noopener">Tips for people who will retire in 2016</a>&nbsp;|&nbsp;<a href="https://www.copera.org/retirement-roundup-7-reasons-to-volunteer-during-retirement" target="_blank" rel="noreferrer noopener" class="broken_link">U.S. News &amp; World Report</a>



Retirement is a transition into a new phase of life that requires changes to your finances and lifestyle. Taking care of a few preparations in the months leading up to retirement can make that adjustment smoother.



<a href="http://www.cnbc.com/2015/12/10/what-the-looming-fed-rate-hike-means-for-your-retirement.html" target="_blank" rel="noreferrer noopener">What the looming Fed rate hike means for your retirement</a>&nbsp;|&nbsp;<a href="http://www.cnbc.com" target="_blank" rel="noreferrer noopener">CNBC</a>



An interest rate hike from the <a href="http://www.federalreserve.gov" target="_blank" rel="noreferrer noopener">Federal Reserve</a> looks to be on the horizon this season. A recent survey found more than half of American investors say the economy is their top financial concern, fueled in part by worries over market volatility and interest rates.



Experts say the first increase in interest rates since 2006 might not have much of an impact, but if interest rates continue to climb seven or eight times in the next three or four years, you’ll start to notice it in your wallet and your investments.



<a href="http://www.nytimes.com/2015/12/14/business/economy/in-denver-worries-that-the-fed-will-chill-a-sizzling-recovery.html?ref=economy" target="_blank" rel="noreferrer noopener">The little guy feels anxious as the Fed is set to lift rates</a>&nbsp;|&nbsp;<a href="http://www.nytimes.com" target="_blank" rel="noreferrer noopener">The New York Times</a>



Around Colorado and across the nation, decisions made by the <a href="http://www.federalreserve.gov" target="_blank" rel="noreferrer noopener">Federal Reserve</a> in Washington have large consequences. William Harris tapped his retirement savings to open <a href="https://www.copera.org/retirement-roundup-pera-on-the-path-to-full-funding" target="_blank" rel="noreferrer noopener" class="broken_link">A-Town Pizza</a>, a Neapolitan pizzeria, in Aurora three years ago. On a good Friday, his shops sell 1,200 pies. In such stories, the Fed finds evidence that its seven-year campaign to reboot the American economy is succeeding. But Mr. Harris is not ready.

Retirement Roundup: PERA on the Path to Full Funding

After five years of shared sacrifice, PERA is making progress toward becoming fully funded. That’s according to a new <a href="https://www.copera.org/new-report-compares-inflation-to-annual-increase" target="_blank" rel="noreferrer noopener" class="broken_link">report PERA released</a><a href="https://www.copera.org/new-report-compares-inflation-to-annual-increase" class="broken_link">&nbsp;</a> as required by Senate Bill 10-001.



Known as SB 1, this landmark legislation was a response to the Great Recession that required sacrifice from members, retirees, and employers alike in order to return PERA to long-term sustainability.



The report shows that PERA has saved about $15 billion to date in unfunded liability as a result of SB 1 changes. Over 90 percent of that savings is a result of the reduction of the Annual Increase. But even with the reduction, PERA benefit recipients have kept up with inflation over the last five years.



For PERA’s two largest member divisions, the State and School Divisions, the actuarial funded ratios, or the ratios between PERA’s assets and promised benefits, are slightly ahead of the original projections made when SB 1 went into effect five years ago.



Take a look at a brief <a href="https://www.copera.org/five-years-after-the-great-recession-pera-continues-progress-toward-full-funding" target="_blank" rel="noreferrer noopener" class="broken_link">fact sheet</a>&nbsp;explaining how SB 1 has allowed PERA to continue delivering the benefits earned by Colorado’s public workforce, making Colorado stronger for everyone.

Five Years After the Great Recession, PERA Continues Progress Toward Full Funding

In 2010, PERA was one of the first public retirement plans in the country to proactively recommend responsible reforms based on the concept of shared sacrifice – where all members gave up something – in order to ensure PERA’s long-term sustainability. In a bipartisan fashion, the Colorado General Assembly enacted SB 1 to make PERA stronger for everyone.



SB 1 also required that PERA report to the General Assembly on the effectiveness of SB 1 every five years. PERA will release the first report before January 1, 2016.



A few key legislators reflect on this landmark legislation five years after its enactment. <a href="https://youtu.be/WlCmdghXdqI" target="_blank" rel="noreferrer noopener">Watch video.</a>


<a href="https://www.youtube.com/watch?v=WlCmdghXdqI">https://www.youtube.com/watch?v=WlCmdghXdqI</a>

SB 1 Report Due to General Assembly by Year-End

In 2010, PERA was one of the first public retirement plans in the country to initiate responsible reforms based upon an approach of shared sacrifice to ensure PERA’s long-term sustainability. Former Senate Minority Leader Josh Penry called Senate Bill 1 &#8220;a leadership moment&#8221; where the Colorado General Assembly, in a bipartisan fashion, enacted this legislation to protect PERA’s financial stability for past, current, and future public workers.



A few key legislators reflect on this landmark legislation five years after its enactment. <a href="https://youtu.be/WlCmdghXdqI" target="_blank" rel="noreferrer noopener">Watch video.</a>

Video: A Leadership Moment

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

Retirement Roundup: PERA on the Path to Full Funding

Five Years After the Great Recession, PERA Continues Progress Toward Full Funding

SB 1 Report Due to General Assembly by Year-End

Video: A Leadership Moment

What Detroit Could Have Learned from PERA

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