Date: 01/19/2006
Final
PERA
COMMITTEE ON JOINT FINANCE
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10:50 AM -- Presentation by Public Employees' Retirement Association of Colorado
Mr. Meredith Williams, Executive Director, distributed an information sheet on proposed legislation for the 2006 session (Attachment C) and a presentation overview (Attachment D) to committee members. Mr. Williams began by discussing PERA's total membership including active members, inactive members, and benefit recipients. PERA's total membership as of November 2005 was nearly 380,000 members. Mr. Williams briefly discussed PERA's benefit programs and member contributions. PERA members contribute 8 percent of their pay for benefits. Employers are required to pay 10.65 percent of an employees pay to a designated pension fund and health care fund.
Mr. Williams continued by discussing PERA's investment asset allocation and mentioned that the largest portion of the $35 billion market asset value is made up of domestic equities (44.1 percent). PERA started off the 2005 year with about $1.3 billion in contributions, $2.2 billion in investments, and paid out about $2.1 billion in benefits to beneficiaries.
Mr. Williams briefly discussed historical PERA funding levels. During the 1970s, the funding ratio reached a low of 57.4 percent. This resulted from a multiple-year decline in the marketplace. The funding ratio reached a high of 105 percent in 2000. Mr. Williams discussed the factors that resulted in a lower funding ratio, such as the recent large number of employees who took early retirements, the changing market demographics, and the price charged by PERA for service years.
Mr. Williams commented that PERA's funding ratio has varied over the years. Mr. Williams discussed the actuary's statement and a funded ratio of 71 percent based on the actuarial value of assets.
Mr. Williams discussed the 30-year projection for asset value. Mr. Williams commented on Slide 19 and pointed out that the blue line, or the operative line, assumes PERA's $35 billion fund receives a 8.5 percent rate of return. For the past 25 years the fund averaged a 10.9 percent rate of return. If the fund earns 10 percent over the next 30 years, PERA's liabilities can be met. If the rate of return is 8.5 percent or less, there may be concerns over the next 30 years because the unfunded liability may make it difficult for PERA to meet its future liabilities.
The committee discussed the rate of return used by PERA to determine the funding ratio. Mr. Williams commented that the rate of return used on the portfolio must reflect a true rate of return that will allow PERA to meet its future pension liabilities. Mr. Williams commented on PERA's diverse portfolio and the rate of return on private equities that can often be significant for PERA. Mr. Williams reiterated that PERA's Board is very comfortable using the 8.5 percent rate of return to calculate the 30-year unfunded liability. Mr. Williams closed by saying that a 9.91 percent rate of return would enable PERA to meet its long-term pension obligations.