Final
Presentation by Public Employees' Retirement Assn.
COMMITTEE ON
JOINT FINANCE
Votes:
Action Taken:
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10:31 AM
-- Presentation by the Public Employees' Retirement Association
Meredith Williams, Executive Director, Jennifer Paquette, Chief Investment Officer, and Rob Gray, Director of Governmental Relations, Public Employees' Retirement Association (PERA) presented information on PERA to the committee. A copy of their presentation is provided as Attachment B.
Mr. Williams began by discussing the composition of PERA's membership. At the end of November 2004, PERA had 361,317 members. The average PERA retiree is 68 years old, retires at age 58 with 22 years of service, and receives an average monthly benefit of $2,140.
Mr. Williams commented on the benefits that state employees receive and discussed the cost for service years that state employees can purchase to enhance retirement. Members generally contribute 8 percent of their income toward their retirement. The employer's contribution share is over 9 percent. Mr. Williams discussed the voluntary 401 (k) plans that employees can contribute to and also commented on plan policies that govern when an employee can retire.
Mr. Williams discussed the recent surge in the purchase of service credit by members. In 2003, members purchased $772 million worth of service credit which resulted in a $1.2 billion unfunded liability. As of November 1, 2005, members will have to pay the full actuarial cost of service credit. He also discussed PERA portability features. Members may purchase service credit for previous or private employment.
Mr. Williams commented that PERA's pension investment portfolio was $5.6 billion in 2003 and yielded a 24 percent rate of return based on over 7 million trades. The investment portfolio went up by $5 billion in 2003 and yielded $620 million in positive cash flows.
The committee briefly discussed PERA's service credit transactions. Mr. Williams commented that PERA's practice of allowing members to purchase service credit will be closely aligned with annuities that can be purchased on the open market as of November 2005. Mr. Williams commented that the practice of selling service credits has been historically viewed as a member benefit that would encourage talented private sector employees to pursue a job in the public sector.
Mr. Williams closed saying PERA has traditionally taken a long-term view for its investment strategy and believes that this approach is the most accountable and beneficial to its members.
10:49 AM
Ms. Paquette discussed PERA's investments and asset allocation. As of December 31, 2004, the total market value for PERA's investment program was $31.4 billion, of which the largest portion is made up of domestic equities (42.8 percent). Ms. Paquette commented that the unaudited rate of return for equities for 2004 is expected to come in at 10 percent. For 2005, PERA expects a health economy and a good performance from equities, but returns may not be as strong as the prior year.
10:54 AM
Mr. Gray discussed issues regarding PERA's unfunded liabilities and talked about the history of PERA's funding ratio. He stated that the recent unfunded liability is a function of the poor investment performance in the last few years and the large number of state retirements between FY 2001-02 and FY 2002-03.
Mr. Gray continued by discussing the different divisions under PERA such as the State, School, and Judiciary Divisions. Mr. Gray discussed the 30-year projection for funding ratios. A 9.5 percent rate of return would result in a 83 percent funding ratio in 2032. Mr. Gray discussed the employer contribution rate.
Mr. Gray compared PERA's pension contribution rates with other retirement plans. The average costs for private employers with similar plans was 11.75 percent for 2002. In comparison, the state employer contribution rate is 10.5 percent.
Mr. Gray commented on the role of PERA's Board to monitor the pension fund's performance in relation to unfunded liability. He indicated that the unfunded liability during the 1970s was about 70 percent.
Mr. Gray closed by discussing 2005 legislative issues and responded to questions about Pinnacol's conversion to nonprofit status.