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.

Two bills <a href="https://peraontheissues.com/2024-proposed-legislation-status/" target="_blank" rel="noreferrer noopener">making their way through the Colorado Legislature</a> would expand the number of PERA retirees who can return to work in school districts without facing a reduction in their benefits.



While the bills are intended to address an important staffing shortage in school districts across the state, there are potential financial implications to the trust funds that provide benefits for PERA members.



<h4 class="wp-block-heading">Why limit how much retirees can work?</h4>



Public pension plans like Colorado PERA place limits on working after retirement in order to balance two competing priorities: The staffing needs of employers and the financial health of the retirement plan.



Generally speaking, allowing retirees to return to work, either for the same employer or a different employer covered by the same retirement plan, can encourage workers to retire earlier than they otherwise would have, since they can collect a salary in addition to receiving a monthly retirement benefit. Because plans project their finances based on factors such as workers’ expected retirement age, early retirements add to the plan’s cost due to a longer-than-expected period of benefit payments. Even if those retirees continue to contribute to their plan, like PERA retirees do, the contributions aren’t always enough to make up for the member’s extended retirement.



In most cases, PERA retirees can work for a PERA-affiliated employer for up to 110 days or 720 hours per calendar year without affecting their benefit. School districts and colleges/universities can designate a limited number of workers who are allowed to work up to 140 days or 916 hours per year, and some school districts can hire retirees to fill certain positions for which there is a critical need for qualified workers, and those “critical shortage” hires are not subject to <a href="https://www.copera.org/working-after-retirement" target="_blank" rel="noreferrer noopener">working after retirement limits</a>.



PERA regularly reports on the impact of working after retirement exemptions for <a href="https://content.copera.org/understanding-the-financial-impact-of-working-after-retirement/" target="_blank" rel="noreferrer noopener">rural school districts</a> and <a href="https://content.copera.org/understanding-the-financial-impact-of-working-after-retirement/" target="_blank" rel="noreferrer noopener">boards of cooperative services (BOCES</a>) to the Legislature.



<h4 class="wp-block-heading">Estimating the financial impact</h4>



Calculating how much it would cost to expand working after retirement provisions is difficult because it ultimately depends on how many workers take advantage of the proposed new rules.



As it’s currently written, <a href="https://leg.colorado.gov/bills/sb24-099" target="_blank" rel="noreferrer noopener">SB24-099</a> would add superintendents and principals to the list of qualified positions under “critical shortage” provisions. <a href="https://leg.colorado.gov/bills/hb24-1044" target="_blank" rel="noreferrer noopener">HB24-1044</a> would allow larger school districts to hire more retirees under the 140-day/916-hour rules. To estimate the bills’ cost, PERA’s actuaries modeled several scenarios in which different percentages of eligible workers retire early and return to work. The models showed that if eligible employees retired two years early, it could result in millions of dollars in added costs and potentially extend the amount of time it would take PERA to reach full funding.



The PERA Board of Trustees is committed to protecting the integrity of PERA’s trust funds for the benefit of all members. It has taken an “amend” position on the above bills, encouraging lawmakers to include provisions that would offset the potentially negative effects on PERA’s funding.



PERA On The Issues will continue to track these and other PERA-related bills throughout the session and <a href="https://peraontheissues.com/2024-proposed-legislation-status/" target="_blank" rel="noreferrer noopener">post any updates here</a>.

Understanding the Financial Impact of Working After Retirement

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



<a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://content.copera.org/retirement-roundup-how-all-50-states-tax-retirees/" target="_blank">How all 50 states tax retirees</a> | <a href="http://www.kiplinger.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Kiplinger</a>



Retirees relocate for lots of different reasons, from the weather to proximity to grandchildren. Moving from a pricey part of the country to one with low housing prices could also lower your expenses and make your retirement savings last longer. But as you consider the cost of living in potential retirement destinations, don’t overlook the impact of state taxes on your bottom line. Spoiler alert: <a href="http://www.kiplingers.com/tool/retirement/T055-S001-state-by-state-guide-to-taxes-on-retirees/index.php?map=&amp;state_id=6&amp;state=Colorado" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Colorado</a> is in the middle of the pack.



<a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.cnbc.com/2019/11/29/tips-to-make-required-minimum-distributions-easy-and-tax-penalty-free.html" target="_blank">These tips can help retirees make required minimum distributions easy and tax penalty free</a> | <a href="http://cnbc.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">CNBC</a>



If you’re 70½
or older and have, or inherited, a retirement account, you need to take your
required minimum distribution (RMD) by December 31. Miss that deadline, and
you’ll face a tax penalty. RMDs are the minimum amount that must be withdrawn
from retirement funds, such as an individual retirement account (IRA) or
employer-sponsored plans like 401(k)s. The amount you need to take out varies
from year to year and is based on specific calculations. But simple tips, like
getting paperwork in order and double-checking your math, can make the process
easier.



<a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.nextavenue.org/dont-tell-me-how-to-retire/" target="_blank">Don’t tell me how to retire</a> | <a href="http://www.nextavenue.org/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">NextAvenue</a>



The traditional definition of retirement – stop working at 65, full stop – is outdated. An episode of <a href="https://friendstalkmoney.org/">Friends </a><a href="https://friendstalkmoney.org/" target="_blank" rel="noreferrer noopener" aria-label="T (opens in a new tab)">T</a><a href="https://friendstalkmoney.org/">alk Money</a>, a podcast on personal finances after 50, looks at examples where retirement in 2019 looks very different from that traditional picture.



<a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.plansponsor.com/help-needed-curtail-gen-xs-anxiety-retirement/" target="_blank">Help needed to curtail Gen X’s anxiety about retirement</a> | <a href="http://www.plansponsor.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">PlanSponsor</a>



Generation X investors are less confident about their financial future than Millennials or Baby Boomers, according to E*TRADE’s quarterly <a href="https://content.copera.org/retirement-roundup-how-all-50-states-tax-retirees/" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)">StreetWise survey</a>. Not having enough saved for retirement tops the list of worries for Gen X (ages 35 to 54), with nearly one-third (32%) choosing it. 



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In October,
the discount brokerage Charles Schwab announced a new policy of commission-free
stock, ETF and option trades. Following that announcement, rivals E*Trade,
Fidelity and Ameritrade quickly followed suit. Schwab, which&nbsp;agreed in
November to purchase Ameritrade&nbsp;for $26 billion,&nbsp;recently said it signed
up&nbsp;142,000 new customers in October, up 30 percent from the number it
signed up in September. When it comes to investing, costs do matter. And
anything that promises to lower investors’ costs is worth applauding. But your
investment horizon should also be long-term. Making trades free seems to run
counter to that, encouraging people to trade more.

Retirement Roundup: How All 50 States Tax Retirees

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



<a href="http://money.com/money/5654244/this-man-spent-decades-teaching-retirement-planning-heres-what-he-learned-from-planning-his-own/" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)" class="broken_link">This man spent decades teaching retirement planning. Here&#8217;s what he learned from planning his own.</a> | <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="http://money.com/" target="_blank">Money</a>



Like many on the cusp of retirement, David Littell felt excited and little nervous. But the 65-year-old differed from his peers in one key way: He spent the bulk of his career teaching retirement planning to financial advisors. He’s a pro at turning a lump sum of savings into a reliable income stream that will last for life. And as he approached retirement himself, Littell discovered some key differences between what the textbooks say and the way things play out in real life.



<a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://smartasset.com/retirement/457-vs-401k" target="_blank">457(b) vs. 401(k) plans: What’s the difference?</a> | <a href="http://www.smartasset.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">SmartAsset</a>



When saving for retirement, your employer may offer a tax-advantaged savings plan, such as a 401(k) plan or a 457(b) plan. Both allow you to contribute money toward retirement on a tax-deferred basis. And while there are similarities between plan types, there are also key differences to keep in mind that can affect how a plan will work for you and your retirement. 



<a href="https://content.copera.org/retirement-roundup-what-one-financial-planner-learned-while-planning-his-own-retirement/">Saved Enough for Retirement? Well, That Depends</a> | <a href="http://www.kiplinger.com/">Kiplinger</a>



People frequently ask how much money they’ll need to retire, as if there’s a one-size-fits-all dollar amount. But they’re asking the wrong question. Instead of starting with how much should be saved for retirement, start with how much you expect to spend.



<a rel="noreferrer noopener" label=" (opens in a new tab)" href="http://money.com/money/5655458/what-retirement-people-over-65-are-launching-encore-careers-and-finding-fulfillment-like-never-before/" target="_blank" class="broken_link">What Retirement? People Over 65 Are Launching Encore Careers and Finding Fulfillment Like Never Before</a> | <a href="http://money.com/" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">Money</a>



A growing number of older Americans are challenging the idea of traditional retirement, as more retirees decide they want to keep working or pursue passions after leaving the rat race behind. The number of Americans age 65 and over who continue to work has doubled since 1985, according to a <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://unitedincome.com/library/older-americans-in-the-workforce/" target="_blank" class="broken_link">study</a> by <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://unitedincome.com/" target="_blank">United Income</a>.



<a href="https://www.marketwatch.com/story/more-americans-are-leaving-their-money-in-401k-plans-after-retirement-should-you-2019-10-31" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">More Americans are leaving their money in 401(k) plans after retirement. Should you?</a> | <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.marketwatch.com/" target="_blank">MarketWatch</a>



Millions of workers contribute to
a 401(k) plan so they can have more money when they retire. But some don’t
touch those accounts for the first years of retirement. More than half of workers
choose to leave their assets in their former employer’s 401(k) plan for a year
into retirement, compared to 45 percent four years ago, according to Fidelity
data on its workplace retirement accounts.

Retirement Roundup: What one financial planner learned while planning his own retirement

On July 1, 2017, <a href="https://content.copera.org/house-bill-1176-rural-school-districts/" target="_blank" rel="noopener noreferrer">House Bill 17-1176</a>, went into effect in Colorado to address the issue of critical staff shortages in rural school districts. The new law allows rural school districts that declare a critical shortage of teachers, bus drivers, and food service workers to hire retirees to fill these positions.
The PERA Board of Trustees opposed this legislation due to the additional costs associated with allowing retirees to work for an unlimited amount of time in certain situations. The legislation was estimated to add approximately $85 million to PERA’s unfunded liability according to actuarial analysis.
“The PERA Board appreciates the legislative intent of assisting rural districts in Colorado in finding qualified teachers and other support staff. However, the Board must act as fiduciaries and oppose the bill due to the increase in unfunded liabilities presented by the legislation,” said PERA Board Chairman Timothy M. O’Brien in a statement issued after the Board took a position on the bill.
Even though the PERA Board opposed the legislation due to the increased financial obligation, PERA continued to serve as a resource to the General Assembly. PERA staff worked with legislative drafters to ensure that PERA would be able to appropriately implement any potential legislation. During debate on this bill in the House Finance Committee, Representative Gray (D-Boulder/Broomfield Counties) noted, “this [bill] isn’t a free lunch. We’re providing an economic incentive for these folks to teach in rural areas, and it doesn’t come for free….We shouldn’t pretend nobody’s paying for it – PERA’s paying for it.”
Listen to Rep. Gray’s testimony on HB 17-1176:

<audio class="wp-audio-shortcode" id="audio-41469-1" preload="none" style="width: 100%;" controls="controls"><source type="audio/mpeg" src="https://peraontheissues.com/wp-content/uploads/2017/09/HFC_HB1176_03-15-17-1.mp3?_=1" /><a href="https://peraontheissues.com/wp-content/uploads/2017/09/HFC_HB1176_03-15-17-1.mp3">https://peraontheissues.com/wp-content/uploads/2017/09/HFC_HB1176_03-15-17-1.mp3</a></audio>
&nbsp;
<blockquote> 
Path of HB 17-1176 to passage and enactment: 
• HB 17-1176 passed the <a href="http://leg.colorado.gov/committees/finance/2017-regular-session" target="_blank" rel="noopener noreferrer">House Finance Committee</a> on an <a href="http://leg.colorado.gov/content/hfin2017a2017-03-15t095634z-hb17-1176-2-activity-vote-summary" target="_blank" rel="noopener noreferrer">11-1 vote</a>. 
• The <a href="http://leg.colorado.gov/committees/appropriations/2017-regular-session" target="_blank" rel="noopener noreferrer">House Appropriations Committee</a> <a href="http://leg.colorado.gov/content/happ2017a2017-03-31t080158z-hb17-1176-0-activity-vote-summary" target="_blank" rel="noopener noreferrer">voted 12-1</a> in favor. 
• The full House voted <a href="http://leg.colorado.gov/content/hb17-1176vote64ae93" target="_blank" rel="noopener noreferrer">60-3 in favor</a>. 
• The <a href="http://leg.colorado.gov/committees/education/2017-regular-session-0" target="_blank" rel="noopener noreferrer">Senate Education Committee</a> voted <a href="http://leg.colorado.gov/content/sed2017a2017-04-19t110543z-hb17-1176-2-activity-vote-summary" target="_blank" rel="noopener noreferrer">4-3 in favor</a> of the bill. 
• The full Senate passed HB 17-1176 on a <a href="http://leg.colorado.gov/content/hb17-1176vote541cb0" target="_blank" rel="noopener noreferrer">29-6 vote</a>. 
• The Governor signed HB 17-1176 into law on June 6, 2017.</blockquote>
Prior to this law, Colorado PERA benefits were reduced for all working retirees who exceeded the maximum limit of days worked per calendar year (110 days or 720 hours, or in some cases, 140 days or 916 hours). These rules still exist for typical PERA working retirees, however, with the passage of <a href="https://content.copera.org/house-bill-1176-rural-school-districts/" target="_blank" rel="noopener noreferrer">House Bill 17-1176</a>, rural school districts that declare a critical shortage of teachers, bus drivers, and food service workers have the option to hire retirees to fill these positions. Those retirees can then work as many days or hours as needed without regard to the working after retirement limits.
In Colorado currently, 147 out of 179 school districts are considered rural as defined by the Colorado Department of Education (see the Rural Designations list <a href="https://www.cde.state.co.us/ruraledcouncil" target="_blank" rel="noopener noreferrer">on this page</a>). In order to qualify for the exemption to working retiree limits, a school district must first declare a critical shortage and then it will be able to hire retirees in those positions under the “critical shortage retiree” definition outlined by the new law.
A provision of HB 17-1176 requires PERA to report to the Legislature in three years the impact of allowing rural school districts to implement this critical shortage designation. The law sunsets on July 1, 2023, six years after being signed into law. The new law requires PERA to conduct an impact study at the conclusion of this six-year period.
Read more from PERA about <a href="https://www.copera.org/retirees/working-after-retirement" target="_blank" rel="noopener noreferrer">working after retirement</a>.
<a href="https://content.copera.org/house-bill-1176-rural-school-districts/" target="_blank" rel="noopener noreferrer">Rural School District Critical Shortage Fact Sheet</a>

Tag Archives:

Understanding the Financial Impact of Working After Retirement

Retirement Roundup: How All 50 States Tax Retirees

Retirement Roundup: What one financial planner learned while planning his own retirement

House Bill 17-1176: Critical Shortages in Rural School Districts

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