Presentation by PERA
COMMITTEE ON JOINT FINANCE
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12:05 PM -- Briefing by the Public Employees' Retirement Association
Mr. Meredith Williams, Executive Director, Public Employees' Retirement Association (PERA), began his presentation by discussing PERA's mission and services. A copy of PERA's presentation is provided as Attachment A. PERA mostly provides a defined benefit plan for Colorado public employees. However, it also offers defined contribution plans as well as health care, life, and long term care plans. PERA manages the largest pension fund in Colorado and the 32nd largest in the United States. Mr. Williams continued by discussing PERA's fiduciary standard of conduct. PERA is required by law to carry out its function in the sole interest of its members.
Mr. Williams continued by discussing PERA's financial status. Its defined benefit plan had $43.2 billion in assets at the close of 2007. However, the economic downturn has reduced net assets to $30.0 billion as of November 30, 2008. Mr. Williams continued by discussing the total number of members and benefit recipients in PERA and the economic impact created by the payment of benefits. PERA serves more than 400,000 current and former employees. Mr. Williams continued by saying that PERA's investment returns, which is the largest factor impacting the funding status of its pension plan, is seeing investment losses of about $11 billion for 2008. However, the numbers are not yet final because roughly 20 percent of the portfolio is in real estate and private equity assets that are difficult to value. Mr. Williams also noted that demographic changes, retirements, and salaries also impact the funding level of the pension plan.
Ms. Jennifer Paquette, Chief Investment Officer for PERA, provided information on the allocation of PERA's investments, including its investments in renewable energy. She stated that the PERA Board of Trustees sets PERA's investment policy. She also provided information on PERA's investment performance and closed by discussing the regular actuarial valuation for 2008.
Mr. Williams discussed PERA's funding ratio. The pension plan has exceeded a 100 percent funding ratio in 2 of its 75 years. He commented on the decline of the funding ratio due to the recession and benefit changes. Mr. Williams discussed prior year's legislation that was enacted to improve the funding status of the plan. Senate Bill 06-235 raised contribution amounts, created a new tier of benefits for employees hired after 2007, and changed the formula for determining benefit amounts, including changes in the retirement age. The legislation also impacted the composition of the PERA Board of Trustees, including requiring that three members be appointed by the Governor and approved by the State Senate.
Mr. Williams continued by providing information on the actuarial projections for the state plan. As of December 31, 2007, the funded status was 73.3 percent but is expected to drop significantly at the close of 2008.
The committee engaged in a brief discussion regarding whether PERA would propose legislation for the 2009 session. Mr. Gregory Smith, General Counsel, responded.
Mr. Gregory Smith, General Counsel, briefly discussed the consolidation of retirement plans under PERA and the Denver Public Schools (DPS). Inclusion under PERA as a separate division will provide portability under specific rules for DPS employees and all other school districts. He closed by briefly talking about the consolidation of administration of State 457 and Defined Contribution plans.
The committee continued the discussion on proposed legislation for the 2009 session. Mr. Williams noted that the current economic downturn has left PERA in uncharted waters and PERA will not ask the legislature for any changes to its structure this legislative session. He continued by saying that the economic markets must stabilize first before a plan of action can be taken. Mr. Williams continued by saying that PERA needs to model a number of options that will make sense for PERA members and advised against acting too quickly. He continued by saying that options could include both increases on the contributions side as well as reductions in benefits.
The committee discussed whether benefit reductions were possible. Mr. Williams responded saying that benefit reductions are questionable because of a recent ruling that indicated that any PERA member with service in the pension system cannot take a reduction in benefits without an offsetting reduction in the amount that the member pays into the plan.
Mr. Williams closed by saying that PERA had made great progress in coming back from its funding challenges caused by the last recession in 2001-2001 when it had a funding gap of $13 billion by the close of 2007. As the market plunged in 2008, PERA has tried to shelter its portfolio by backing away from certain investments such as real estate and hedge fund securities.
The committee closed the discussion by discussing a possible course of action for 2009 and whether another update by PERA in the near future would be valuable.