walk us through the most recent developments here at PERA, one of Colorado's

Transcription

1 Thank you, everyone, for joining the Colorado PERA telephone town hall. Today we're going to be covering a range off issues faced by PERA, one of Colorado's best investments. Specifically, we're going to be talking about our upcoming community outreach effort that we're calling the PERAtour. Right now you're in listen-only mode which means you can hear us, but we can't hear you. Make sure that if you have a question you dial zero on your phone. We'll try to get to as many questions as possible, but in the event we don't get to your question, you can certainly leave us a message at the end of the call, and someone will get back to you individually. Again, if you'd like to ask a question just dial zero. We're really looking forward to the conversation today. You've joined the Colorado PERA telephone town hall. We'll get started with our program momentarily. Right now, you're in listen-only mode which means you can hear us but we cannot hear you. If you have a question for PERA, please feel free to press zero on your telephone keypad, and you'll be connected with someone who can speak with you and direct your call to the live audience, and we'll take your call then. If we don't make it to your phone call, you can feel free to leave us a message, and we'll respond to you individually. Thank you, everyone, for joining the Colorado PERA telephone town hall. My name is Tara May, and I'm the Chief Communications Officer. I'll be helping to walk us through the most recent developments here at PERA, one of Colorado's best investments. Specifically, we'll be covering our upcoming community outreach tour that we're calling PERAtour and some of the reasons why we're undertaking that effort. Right now, you are all in listen-only mode which means that you can hear me, but I can't hear you. We want to make sure that you have a chance to ask any questions you might have, so if you would like to ask a question, simply press zero on your phone, and you'll be connected with someone on the line. You'll then wait and hold until you hear your name at which time your phone will come off listen-only mode, and you can ask your question for everyone to hear. We may not get to everyone's question today, but we will do our best to answer as many questions as we can. For those we can't get to, you can leave a message with your question at the end of the call, and we'll respond to you individually. Keep in mind that a full recording of this conversation will be posted next week on our website, copera.org. Just look under the about tab for the telephone town hall section. Again, if you'd like to ask a question, just dial zero. We're really looking forward to having a good conversation that will help you understand what's happening at PERA and what it means to you. Again, if you have a question, please press zero. Thank you, everyone, for joining the Colorado PERA telephone town hall. My name is Tara May, and I'm the Chief Communications Officer. I'll be helping to walk us through the most recent developments here at PERA, one of Colorado's best investments. Specifically, we'll be covering our upcoming community outreach tour that we're calling PERAtour and some of the reasons why we're undertaking this effort. Right now, you are all in listen-only mode which means April 27, 2017 Telephone Town Hall for Retireees Page 1 of 17

2 you can hear me, but I can't hear you. We want to make sure that you got a chance to ask any questions you might have, so if you would like to ask a question just dial zero, and you will speak with someone on the line. You can then wait until you hear your name at which time your phone will come off listenonly mode, and you can ask your question for everyone to here. We may not get to everyone's question today, but we'll do our best to answer as many as we can. And for those we can't get to, you can leave a message with your question at the end of the call, and we'll respond to you individually. Keep in mind that a full recording of this call will be posted next week on our website, copera.org. Just look under the about tab for the telephone town hall section. Again, if you'd like to ask a question, just dial zero. We're looking forward to the conversation today that we hope will help you understand what's happening at PERA and what it means to you. Again, just dial zero if you have a question. Let's go ahead and get started. Seated next to me is Greg Smith, he's Executive Director and CEO of Colorado PERA. Welcome, Greg. Would you mind taking a minute to introduce yourself? Thank you, Tara. I appreciate the opportunity to speak with this group today. My name is Greg Smith, I'm the Executive Director and CEO at the Public Employees' Retirement Association of Colorado. I've been with PERA since 2002 where I first began as the general council, later became the Chief Operating Officer as well as the General Council. And in 2012 had the honor of becoming the sixth Executive Director of Colorado PERA. It's truly an honor to work for all the people that are on the line today, and I really look forward to hearing your questions and trying to be as responsive as we can. Thank you, Greg. [inaudible 00:05:04] I hope you can start us off by setting the stage for why we're on this town hall today and what has prompted the PERA board to ask staff to embark on the upcoming outreach tour. I'm happy to do that, and it's an important conversation to have. I'm excited we've got over 7,000 people on the line with us at the moment, and it's really an exceptional opportunity to be able to reach that many people with this conversation at once. The short answer to the question of why we're reaching out to you today and having this conversation is that conditions are ever-changing. The situation when you're running a pension plan and you're responsible for the retirement security of 565,000 people is you have to watch all of the moving parts and see whether they're changing. And there are things that are changing that are impacting the funded level of Colorado PERA. The good news is that a lot of people are living longer. That's great news for a lot of people. Unfortunately, it's not great news for the pension plan which pays lifetime benefits, so if people live longer we're in the position of needing to pay out for a longer period of time. In addition, the changing the landscape and the geopolitical conditions of the financial markets continue to raise concerns. And when we look at that landscape and we assess what the future looks like, we just don't believe that the potential for the returns in the future is as strong as it was five and 10 years ago. And these issues significantly impact PERA's funding. When people live longer, April 27, 2017 Telephone Town Hall for Retireees Page 2 of 17

3 obviously we have to pay them for longer, and that's an important part of having a secure retirement and a lifetime benefit, but we have to be realistic about those life expectations and the mortality tables and so forth that are used in assessing our funded status. So that's one of the things that our actuaries have studied significantly over the last year and something that the PERA board has taken a hard look at. In addition, those changing return environments make the outlook over 30 years going forward different that has been historically. So in response to these changes and these changing conditions, the PERA board took action last November by adopting new mortality tables for each of the divisions. All of the mortality tables were adjusted throughout the organization, but in the judicial division and the school division, they moved the tables more significantly. And they determined that based on our own population's experience, it was appropriate for us to look at a different set of tables, what are called white collar tables, in assessing the long-term life expectancies of our participants in the school division as well as the judicial division. In addition to that, the board determined that it was necessary to lower our assumed rate of return looking forward at our investment return potential, and they lowered that from a 7.5% to 7.25%. That's always a controversial topic, and everyone has a view of what the outlook of investment is in the future. We've been at the forefront of being conservative in that number among our peer pensions across the country, both public sector and private sector, and those numbers continue to become more conservative by our board as well as others that are doing the same thing across the country. So when we look at those increased cost that are presented by the longer lives of people and the potential for less income from the investment program, what it does is cause us not to be back to a situation like 2009 where we project ourselves to potentially run out of money in 20 or 25 years. We're projected to be able to pay benefits in perpetuity, and there's not a shortfall or an exhaustion of the assets, but that's a long period of time before we can recover and become fully-funded again. That risk profile of how long is the mortgage, how long is it going to take you pay off those unfunded liabilities is an important measuring stick for what we call the risk profile. And the risk profile that the board would like to see is 30 years or less for that mortgage to be paid off. And at this point in time, we're in the 55 and 60 and even higher in the school division. That risk profile is one we need to be having a conversation about, and we need to talk about how do we shorten that risk profile. When I talk about it, one way of looking at it is it's a more likely that we're going to have another 2008 financial crisis type of an event in a 60-year period than it is that we're going to have one in a 30-year period. And while we're not in a crisis situation, we need to be having a factually based conversation about how we can reduce that risk profile, not just for our members, not just for our retirees, but for our employers, for the communities that we support through our distribution, and for the taxpayers who are obviously the financial source for all of the government payments and salaries and total compensation. So the PERA board believes it's time to have that conversation. We've embarked on that conversation, it's going April 27, 2017 Telephone Town Hall for Retireees Page 3 of 17

4 to be a broad outreach, and we'll talk quite a bit more about that as we go along here this afternoon. Another way of looking at it, back in 2015, we agreed with the legislative audit committee that we would start using some newly created technology that really is only in effect here in Colorado. It's called signal light technology, and it gives us a warning as to when our funded status has reached a condition that we should be formulating a plan to improve that status or to address that status. We've been reporting under that technology for a couple of years, we've monitored that. And our divisions, a majority of our divisions have now reached the orange category in the classification. That category means that we need to be formulating a plan to address that funded status, and that certainly is what the board is committed to doing. That doesn't mean that we just sit down in a vacuum and start deciding what we think is right. We need to have conversations with our members, our employers, with all of the stakeholders throughout the state of Colorado to engage in that conversation, identify priorities, identify the principles that are important. Can we continue to let people retire at age 60? Do we need to extend that, that working career? What other components do we need to be looking at and that people think are the right place to be working or to be looking? So that's the conversation that we think is important the board is committed to having and that we've represented to the legislature as recently as this morning when I was testifying on a bill that we're committed to bringing that info forward in the 2018 session. Again, this isn't the 2009 situation where we were in crisis and can see a point in time in the future that we would potentially run out of money, but the projections are simply too long into the future on that mortgage, and we need to be having a conversation while we're not in crisis. So that's sort of the issue in a nutshell. Right. Thank you so much for that context. For those of you who are just joining us, I'm Tara May with Colorado PERA, and we're talking with PERA CEO, Greg Smith, about the upcoming PERAtour and all issues PERA. I think before we get any further, I think it's important for folks to understand a little bit of what's happening maybe behind the headlines. I know that people open up their newspapers or listen to AM radio, and they've heard some of the stories that are out there. I wonder if you can give us a little bit of background on what you're hearing out there and what we think about it. One of the most difficult things about the pension system and ensuring its financial viability is establishing the facts, and the misinformation that swirls around PERA oftentimes is one of our significant challenges. Sometimes it's intentional misinformation, and other times it's a disagreement about what the future outlook of our society is, of our economics are, and what those mean to Colorado PERA. So it's important to get down to the real numbers. We have our numbers audited independently under the supervision of the state auditor, we make those numbers available to everyone. April 27, 2017 Telephone Town Hall for Retireees Page 4 of 17

5 Our tour and our outreach is engaging not only, as I've mentioned, with our members and retirees but business communities throughout the state, community leaders throughout the state, legislators throughout their districts. And of course, the businesses in it, all the communities that are retirees are spending their retirement savings in. All those things are critically important. All of those conversations are important because it's so easy to sit back and say, "Well, we're going to move the age to 65," but when you go out and talk to people about whether they want 65-year-old teachers in their classrooms with their children, you might get a different answer. When you talk to people about whether we should have 65-year-old prison guards and whether that's a safe situation, that might be something that you have to evaluate and take into consideration. So that's what the conversation in the tour's all about, and ultimately it will lead us to a better understanding of the landscape and what's important to our employers and those communities as we try and come forward with solutions to lower that risk profile. Thanks, Greg, so much. Greg, we have a question from one of our audience participants, and they want to know why there's so much interest in PERA. Why is there always something that, why is PERA the topic for politicians and the media? And I think you alluded to it earlier with the footprint of PERA across the state. That's certainly where it starts. 565,000 people directly participating in PERA, and when you consider their family members, they have significant reliance on that financial system as well, and that'll be their friends and neighbors as well will have interest on their behalf. It's a very broad footprint and a very important economic tool and opportunity within our communities. And people want to protect that and ensure that it continues to exist while balancing that against the cost and the best interest of the state of Colorado. The other part of it is when you talk about retirement, it's an emotional topic. When we look at the [surveying 00:16:52] whether in Colorado or across the country, the [disconcern 00:16:56] and the discomfort that people have about their ability to retire, their financial preparation for retirement ranks as one of their highest concerns in their lives. That's why PERA is always at the forefront and you can generate emotions very quickly, and it's just critically important to so many different people. Katie: Thanks, Greg, and for everyone on the phone. If you're just joining us, I'm Tara May, and you're participating in a live telephone town hall discussion with Colorado PERA CEO, Greg Smith. If you have a question, just dial zero on your phone, and we're going to open up our lines to our first caller. We're going to talk to Katie. Katie, if you're on the line, please go ahead and ask your question. Thank you. Hi, Greg. Thanks for taking my call. My question is, can you tell me a little bit more about the PERAtour? Thanks, Katie. I appreciate your call and participation in this call. The PERAtour is going to have a number of different components to it. We have meetings across nine cities throughout the state. There will be a number of meetings in April 27, 2017 Telephone Town Hall for Retireees Page 5 of 17

6 several of those locations so that we can accommodate both our working population as well as our retiree population and the public at large. So that will be broadly publicized, those nine cities will be covered before the end of June. Those conversations will include a little bit of PERA 101 and some background on how we got to where we are and what are the significant mechanisms that impact our funded status. And then a real conversation, we hope, and one that's going to be facilitated by professionals to try and really get out what are the important considerations as we look at how to impact that funding, what principles should we keep at the forefront as the board tries to develop its outlook and its view of changes that may be appropriate to address that timing. And in addition to that, very importantly, we'll have a dedicated microsite to the outreach. It's called the PERAtour.org. And there, we will be posting information on a regular basis about these meetings. Right now, there is just the meeting dates and where those are going to be across those nine cities. I encourage you to take a look at those and get them on your calendar. We'd love to see as many people as possible engaged in this conversation. That website will continue to be a tool for us to update our participants, update our members and our stakeholders about how our progress is coming along, what principles are developing, what priorities are being addressed or identified through our process and a variety of other tools as we go along to provide input in the process by anybody who wants to visit that microsite. So that's PERAtour.org. Great, Greg. If you're just joining us, I'm Tara May, and you're participating in a live telephone town hall discussion with Colorado PERA CEO, Greg Smith. I want to make sure everyone knows that a full recording of this conversation will be available on a copera.org website. You just go to the about tab at the far right, and there you'll find the telephone town hall section. And as I think you probably know, if you've got a question, just dial zero. We're going to go ahead and take our second question of the day with Ruth. Ruth from Greeley. You're on the phone with Greg Smith. Ruth: Hi, Greg. I have a real concern. You speak of a secure retirement. I retired 10 years ago, and at that time I had a promise of the 3.5% COLA increase, and I based my retirement and my ability to have a good retirement on that. In 2010, I got no COLA, and then it was reduced to 2%, and now my fear is that, again, my benefits will be greatly reduced. As a result of that one reduction, my overall retirement can be expected to be reduced by about $165,000. I'm just wondering if that's just where we're headed again. Ruth, thanks very much for the call and the question because those are exactly the kind of conversations that we want to have as a part of this outreach. That concept of where changes can legitimately be made without impacting people in a way that they can no longer sustain themselves in retirement are critically important part of the conversation. I encourage everyone that's out there in those circumstances to let us hear your thoughts. In a direct answer to your question, I don't anticipate that we will have the kinds of benefit changes that we had in Senate Bill 1. That's not to say that I think the COLA is going to be untouchable. There are some people out there who we've April 27, 2017 Telephone Town Hall for Retireees Page 6 of 17

7 already heard from that think that is an appropriate place to look, we've also had a board member publicly express that she feels that it would be completely inappropriate to again touch the COLA in light of the amount of contribution to the funded status that's been provided by our retirees already through the Senate Bill 1 one process. Also in direct answer to your question, our situation is not like it was in In 2009, after the financial crisis, we projected ourselves to run out of money in 25 years. That's a situation that we had never faced before in Colorado PERA, we hope to never face again. We're not back into that situation, we're at a higher risk profile than we should be with the 55 and 60 amortization period. We need to reduce that, but to reduce that back to 30 years and back to a tolerable risk profile, whatever the policymakers determine that to be, it does not involve the kinds of reductions that were imposed in It also goes to the question of who do those changes apply to? Part of the issue is that future generations are living longer, and that doesn't mean that our current population is living that much longer necessarily, but as you look further down the road, those ages are going to get more significant. So looking at future hires, looking at whether or not we want to raise that age, not for our current population but for people who are hired in the future, I think is a significant part of the conversation and what promises are going to be made to that future generation that will commensurate with their career patterns, with their priorities in terms of what they need out of the pension system. So I hope that's helpful in understanding where I think we're heading. But I don't want to say that the people's benefits aren't going to be impacted because there's only a few levers that make a difference, and that is certainly one of them. Thank you, Greg. I want to turn now to our first polling question. You can use the keypad on your phone to vote for the polling question. As Greg just mentioned, the current situation with PERA's not a crisis, but PERA is definitely interested in exploring options that would reduce its risk profile. So the polling question for everyone on the phone is this. Do you believe we should be addressing PERA's funded status now while we are still stable and not in a crisis? So if you believe we should be addressing PERA's funded status now, press one. If you do not believe we should be addressing PERA's funded status now, press two. And if you are unsure whether you believe we should be addressing PERA's funded status now, press three. Again, the question is, do you believe we should be addressing PERA's funded status now while we are still stable and not in crisis? If you believe we should be, press one, if you do not believe we should be, press two, and if you are unsure, press three. We'll share the results of the polling later on in this call. So Greg, let's go ahead and turn to our next question. I think we've got one queued up from Reg. Reg is from Centennial. Reg, you're on the line. You are here with Greg Smith, CEO of Colorado PERA. Reg: Hi, Greg. I very much appreciate the opportunity to speak with you and pose my question. I appreciate all that PERA has done for our retirement, and I have been retired for many years now. You've addressed part of what I was going to ask April 27, 2017 Telephone Town Hall for Retireees Page 7 of 17

8 already which is what the different issues are that you might be looking at to resolve the unfunded liability for the future. What are the different possibilities there besides the extension possibly of age which you've addressed a little bit of that already. Thanks, Reg. I appreciate you being with us and appreciate your question, and thank you for all the work you've put into Colorado to be a long-time retiree. Thanks for your service. In addition to potentially moving to like an age 65 or something in that range to be able to retire, other things that have long been a focus or the period of the highest average salary right now we use three years to average and come to that benefit determination. That still lives the door open a little bit to people who can spike their salary or increase their salary through legitimate means, but it impacts their benefit and make it so it's not commensurate really with the career pattern that that individual's had or the contributions into the system that that person has made. So aligning those better or removing those inconsistencies are an important part of the funding model for PERA, so some of that can be accomplished through extending the highest average salary periods. There's also consistencies in terms of our definition of salary and how that could be modified to prevent some of the deviations from a funding model. I don't want to get too technical here, but those are important things on how we could improve, and one other that's important is increased contributions. Now, I can assure you that when I wander over to the legislature or when they ask me to come over and talk to them, I'm not getting a lot of indications that their long bill or their budget process has a lot of additional contribution dollars from employers in the future and got some strong indications that coming for more employer contributions is not a likely path that's going to be successful. But there's employee contributions are a part of it, and there's a real positive to increasing employee contributions. I know it obviously impacts people's takehome pay, but when we increase employee or member contributions, they always go into that member account. The member never loses those dollars, those dollars earn interest at a fixed rate commensurate with the savings type of an account. Little bit higher, little bit higher, it's currently at 3%, and those dollars are there for that individual at their point in retirement or if they want to leave and take all the dollars they ever put into the system with them along with that interest. Those are always available to them. So that's another tool to address funding that is beneficial both in terms of the system's funding as well as individual's savings for retirement. So those are some of the things that are on the table as well. Thanks, Greg. I think that's so helpful for everyone to understand. If you're just joining us, my name is Tara May, and you're participating in a live telephone town hall discussion with Colorado PERA CEO, Greg Smith. If you have a question for Greg, just dial zero. We're going to go ahead and take another question. Right now we've got [Sherma 00:29:52] from Arvada, Colorado on the line. Sherma, if you are there, go ahead and ask your question. You're here with Tara and Greg. April 27, 2017 Telephone Town Hall for Retireees Page 8 of 17

9 Sherma: My original question, I believe, has been answered. I'd forgotten that at one time we had gone without the COLA increase, but that was going to be... My question is have we considered, like one year, those of us who have been on this for a while, just going without the COLA increase? I'm more interested in the long-term viability of PERA than I am in the amount of money that I'm getting right now, so I would just say that I am in favor of that, and as far as that, put up against, say, the people who are working now actually contributing more. Just from my own experience, I needed the money back when I was working more than I do now. In other words, I think it would almost be unfair to people who are working now to have to pay more, but anyway, so I'm making a comment rather than a question because I think you answered my question. Sorry. I appreciate it, Sherma. I really appreciate your long-term outlook, and it's always refreshing to talk to our members, everybody. People have the propensity to tribute that, "Oh, nobody's going to be willing to forgo any of their own benefits for the betterment of the system," and I consistently find that's not the case. That our members are really more focused on that long-term viability, not only for themselves and for their retirement but for the people that came behind them in important jobs that contribute to the quality of life across Colorado, so thanks for that long-term perspective. It's always refreshing to hear. And the question about whether a one-year suspension of the COLA is something that's been talked about, it has been talked about. When we look at what inflation has done since Senate Bill 1, there has been periods where there was no inflation, social security has not paid a COLA during those years, so there is a possibility that that would be a part of the conversation, certainly. So there's people that look at this, and the board is responsible for looking at all of the options, and those options that have been posed by some do include a new cap on the COLA and things that are more significant than another one-year suspension of the COLA, so I want that to be understood. But again, there's certainly a variety of views as to whether it's appropriate to further impact the inflation protection of our current retirees, which is obviously also an impact on our future retirees as they come into that status. Sherma, thank you very much for your question. I hope that was helpful. I'll knock one other out for you because I know a lot of people on the line care about this. We do believe there will be a COLA paid. The legislature hasn't left town yet, so they could do something between now and May 10th that would disrupt that, but in current law today, we will be paying the annual increase for our retirees this summer so at the end of July there. In case that was of concern to anybody, our returns has been positive in 2016, and therefore, we will be paying the statutory COLA. That's great, Greg. I'm sure a lot of people appreciate having that news. We've got a couple of questions on the line about pending legislation, so let's take a call from Eva from Fort Morgan, who I think has got one of those questions. Eva, if you're on the line, go ahead and ask your question. April 27, 2017 Telephone Town Hall for Retireees Page 9 of 17

10 Eva: Yes, could you expand anymore about after returning to work, after retirement we're limited to 110 days per calendar year? Has that been increased to 140 or not? Eva, thanks for your question. Nothing's ever simple about PERA. The general rule is that it's a 110-day limit, and last year or two years ago, I can't remember which it was, there was legislation passed that allowed districts to identify 10 individuals that would be allowed to work a 140 days without a negative impact on their benefits in order to try and address shortages of workers within those districts and employers. So that actually did go into effect, but it wasn't across the board. There was just a limited of people that couldn't be identified in each employer's list of working retirees that would be alleviated from the 110, and that increased to 140. Now that said, we had new legislation that is still pending at the legislature that has been through both houses. It's currently in a conference committee to reconcile a small amendment that was made to it in the senate. This would allow rural school districts to designate themselves as a shortage or as having an employee shortage in teachers, bus drivers, or kitchen workers. And if they so designated themselves, they would be able to hire retirees to an unlimited number of days with no impact on those individuals' benefit payout, so they'd be able to work full-time and draw their benefit if they were working in a rural school district that had declared its shortage. So that's an effort to try and address the rural school teacher shortage, and there's been a lot of testimony in the legislature about it this session. PERA has, our board opposed that legislation because there's a cost to that, and we have to pay out money that we wouldn't otherwise have paid out under that new law, but we certainly support the principle and the issue and the mission of trying to ensure that our rural school districts can fill all of their teacher slots. But we did have to oppose the bill because it has a cost to it, and there was no new funding to address that cost, so hopefully, we were an informative resource to the legislature as they addressed those challenges and those policy challenges. Thanks very much for your question, Eva. And thanks, everyone, who's on Colorado PERA telephone town hall. I wanted to share the results of our first listener poll. We asked everyone on the phone whether you believe we should be addressing PERA's funded status now while we are still stable and not in a crisis. 81% of you said that we should be addressing PERA's funded status now, 4% said we should not be addressing PERA's funded status now, and 15% of you were unsure whether we should be addressing PERA's funded status now. We really appreciate the participation of everyone on the line, and we've actually got a second polling question for you all. Our second polling question, and again you can use the keypad on your phone to vote, is just this. Do you plan on attending a PERAtour meeting in the upcoming months? If you plan to attend a meeting, press one, if you do not plan to attend, press two, and if you haven't decided yet, press three. Again, the question for you is, do you plan on attending a PERAtour meeting in the upcoming months? If April 27, 2017 Telephone Town Hall for Retireees Page 10 of 17

11 you are planning to attend, press one, if you are not planning to attend, press two, and if you haven't decided yet, press three. Thanks so much. And we're going to get back to the phone and to some questions from the people out in the audience. Let's go ahead and move to Phillip. Phillip, if you're on the phone, you're here with Greg Smith, CEO of Colorado PERA. Phillip: Yes, thank you. First, I want to thank you for attempting to deal with this problem early. Some states are basically driving their plans off a cliff. New Jersey, Illinois, and I'd much rather take action now. My question is, are you considering going to a PERA benefit based on one's entire working history with PERA like social security does? It seems this final average salary whether it's three or five years is fairly unfair because people who got promoted during their careers get a substantially large benefit that doesn't reflect their working history. Thanks for the question, Phillip, and it's an astute question. The issue of how many years you include in that calculation obviously directly drives the benefit. If you've got a normal progression through your career and you're just stair stepping your way up through salary, whether it be promotions or just increases that recognized the cost of living and merit increases and those kinds of things, the theory is and the actuarial design is that that career path supports your benefits at the end and that the savings that you put into the system, along with some of what your employer has put in, really substantially or not substantially fully funds the benefits that you receive over a lifetime. And then there's some pooling concept in there in terms of life expectancy and the fact that you might live longer than the chart says you're going to and how we smooth those things out. But going to a career highest average salary, which is similar to what social security does, although there's some other complexities to that, dramatically impacts the benefit amount. And in light of the fact that that compensation and retirement really is a part of total comp and when our employees or public workforce is analyzing their total compensation versus other opportunities that they have, are they going to still be motivated to undertake public employment and then be retained in those positions effectively as is the purpose of the pension system is to attract and retain a quality workforce? So that, the board has looked at exactly the issue of a career average salary. They are in the process of calculating, and our actuaries are in the calculating what would that mean in terms of the average beginning benefit for a career employee in the system. So certainly that's a conversation, but I will say that has a dramatic impact on the benefit, which obviously means also it has a significant impact on our funded status because it would reduce the dollars that we needed to pay out. There are complications and complexities about what we can do to existing population and what the constitution allows us to change, but what promises can be made in the future and how we can modify those changes to be commensurate with the career path are certainly ones that the board is undertaking. And I appreciate your call, Phillip. A great question. April 27, 2017 Telephone Town Hall for Retireees Page 11 of 17

12 Jill: Terrific. Thanks, Greg, for that information. I think we're going to go ahead and move to the next caller on the line. Greg, one of the things you've talked about is sort of PERA's funded status and its level of risk, and I think that Jill from Lakewood has got a question about risk profile. Jill, are you there? Yes, I am. Thank you for taking my call, and I do appreciate Colorado PERA addressing this issue now. I am wondering if you could more fully explain the risk profile and if there's a way for those of us who are retired to know where we fall on that risk profile. Absolutely, Jill. Thanks for the question. I'll try to expand on the concept of the risk profile because it is a complicated one. We try to explain it in terms of how many years under existing circumstances and under the existing law, meaning the number of dollars that are being contributed into the system versus the number of dollars that are being paid out based on the benefit formula. Based on all those factors, how long is it going to take us before we have all the money in the bank that we need to pay benefits in the future? Right now, we're at a 60% funded level when we average all of our divisions together, which means that we need to make up that 40% over the period of time between now and when those payments have to be made. And the period of time that it takes us to fill that gap is what we call the amortization period, and that's expressed in number of years, sort of like a 30- year mortgage paying off that unfunded liability, that debt that you have or that the system has. You can equate that to sort of what a mortgage looks like, and rather than have a 30-year mortgage today, we have a 55-year mortgage in the state division, and that doesn't mean that we can't pay benefits. We can pay benefits for the entire 55 years until we reach full funding based on the expectation that the various experts have come to. But the problem with that is that nobody predicts in those equations another 2008 event where we lost 25% of the portfolio and the markets worldwide were in crisis. What we have to do and what we the board is committed to doing is saying, "What if we did have one of those? What would it do to us?" And the answer to that is right now, it would be very detrimental. We would need to come in and do dramatic impacts on benefits, not only for future hires but for everybody in the system. We'd be back into a 2009 situation. So in hopes of not ever being into that circumstance, we want to shorten the period of time before we're back to that fully funded status. We've been there before. In 2000, we were what was called over-funded. We had about 110% of the assets in the bank that we needed to pay benefits in the future. Unfortunately, market cycles then turned to the other direction, and we have been losing that advantage over this past 15 years. So the risk profile that I referred to is all about the funding of the system and our ability to meet those obligations. When I talk about risk profile, I'm not talking about your investments on your behalf or how we're generating those market returns. That risk profile, how much risk are we taking in the marketplace is something that's a very important issue, one that relates to what's called asset allocation. How much money are we going to have in bonds, how much are we going to have in stock? Those decisions are April 27, 2017 Telephone Town Hall for Retireees Page 12 of 17

13 made with a very long-term outlook. We are not a system that after the financial crisis said, "Oh my goodness, we're going to need to go out and double down on our risk, in our investment portfolio so that we can generate bigger returns and fill this hole through the investment market." The PERA board refuses to take that path because when you try to chase returns you're taking the risk of the downside as well, and you're increasing the likelihood that you're going to lose assets rather than gain assets. So we have not changed your risk profile or anybody's risk profile in our system from an investment portfolio perspective. When we talk about risk profile, we're talking about the funding risk of our system and its ability to meet its obligations in the future from a funding perspective. So I hope that's more clear and helpful, and thanks for your call, Jill. Mary: Right, and we're getting ready to take another call, and if you have a question, please dial zero on your phone. Greg, you mentioned, and it seems our retirees certainly agree that now is the time for us to be looking at all options to reduce the risk level which is really the reason why we're undertaking the PERAtour, and for anyone on the phone who missed it, the PERAtour is a series of community meetings in nine cities throughout the state between now and June as well as a online resource at PERAtour.org, which you can go and find lots of information. It will fully launch next week. Right now, it's just a series of times, meeting locations, and dates for our community meetings. We hope everyone on the phone will be involved in that conversation. I wanted to go ahead and move into a phone call from Mary from Aurora. Hi, and I just want to echo everyone else's compliments to PERA for this process and for the system that is currently in place even though it is going to have to change. Without oversimplifying, it does seem like we need to either increase contributions or reduce benefits. Greg, it does sound like what you said, the legislature does not currently have an appetite for going back to employers as they had to do through Senate Bill 1. Has there been any outreach to larger organizations, and I'll just pick Colorado Education Association, to bring them into this conversation? Find a place for them to maybe be a hero whether it is in communicating with employees in school districts about this is part of a benefit package, and that's piling up on, I think it was the last thing you talked about as a possibility, and that was increasing member contribution. Mary, thanks for the question. It's an important one. And absolutely CEA is a part of these conversations. We've gotten really good willingness to sit down and be a part of the conversation, not only by CEA but a number of other employee organizations as well as retiree organizations throughout the state, so they are very much a part of this conversation, a part of the PERAtour. We've been sitting down with those organizations' leaders for a number of months in anticipation of this effort, so they are very much a part of the conversation and an important part of the conversation. And they're bringing ideas to the table which is really what we think is going to happen. I'd like to believe I know it all, and a lot of people accuse me of thinking I know it all, I really believe that we will have some great suggestions. Not only from our employers and stakeholders like that but our members and our retirees much like we've heard today. April 27, 2017 Telephone Town Hall for Retireees Page 13 of 17

14 The issue of increasing member contributions I talked a little bit about, but I'll talk a little bit more about it. One of the things you have to do as you look at changing the system is continuing to recognize that you're still in competition with others that are seeking the same types of employees you are that are using some of the same tools. So when we look across the United States at other teacher systems or state systems, particularly those that are exempt from social security like our participants are where they're not paying into social security, when we look across that population, the average contribution rate from employees is closer to 10% and ours is at 8%. So we're little bit of an outlier when we look at our peer comparables across the country in terms of those individual savings, those individual contributions into the system. So that's a significant part of what the conversation's going to be about, pinning down those kinds of comparables, looking at that kind of data, looking at the realities of what it would be like for our teachers to need to contribute more and have more individual savings as a part of their retirement planning. Those are an important part of the conversation, and I think the right players are at the table to really participate in that. And hopefully have another, like we had in Senate Bill 1, we were the only system in the country, to my knowledge, where we had bipartisan support, we had labor at the table primarily supportive of the bill. It wasn't we were 100% in lockstep, but the vast majority of what was in Senate Bill 1 was a consensus package from a very broad set of stakeholders, and that's certainly our goal again in the next session. So thank you very much for your call, Mary. And I wanted to provide everyone on the phone with an update on the polling results of the second question we asked. And the question we asked was, do you plan on attending a PERAtour meeting in the upcoming months? And we had 23% of folks say they planned to attend, 34% said they will not attend, and 44% have not yet decided. And since this is probably the first that you're hearing about this, if you haven't received a retiree report lately, then let me just be one of many voices to encourage you to attend a meeting. As I mentioned, we're going to be holding meetings in nine cities across the state, and yes, we will be on the western slope including in Grand Junction, we'll also be down in Durango as well as Pueblo, Greeley, Fort Collins, Aurora, Denver, Colorado Springs. So please check out PERAtour.org for a list of cities, days, and times. We would love to have all of you attend, and if you're not able to attend a meeting, then we do hope that you'll visit us at PERAtour.org. Right now it's just a listing of the meeting locations, but soon enough, there will be plenty of opportunities for you to weigh in and submit your questions, concerns, and ideas using that website. Again, it's PERAtour.org. Let's move on with a couple more calls that we've got. Let's go to Kenneth in Denver, Colorado. Kenneth, you're on the phone with Greg. Kenneth: Yeah, thank you very much. Good afternoon, Greg. I'm just seeing with the summer cutback, now I can understand with the funding. As far as our salary, will we see any salary reductions as to what I'm earning now or will it remain the same? That's kind of what my concern was. April 27, 2017 Telephone Town Hall for Retireees Page 14 of 17

15 Thank you, Kenneth. I appreciate you calling and being a part of our call today. It's possible that if the employee contributions were increased, such as taking it from 8% where it is today to 9%, that would be an actual reduction from your paycheck. That would be a 1% of pay that you were no longer taking home and it was dedicated into your retirement system, and in order to access those dollars, you would have to either get age-eligible to retire and draw those dollars or there will be significant tax ramifications and other ramifications for removal of those dollars. There's another place that your question might be directed, and that is the every dollar that you pay into the system as an employee goes into your member account meaning, all those dollars are accumulated and accounted for under your name. And we pay you interest on those installments or those contribution, and we pay you that on a monthly basis. The current rate is 3% annually and those contributions. It's really designed to have people who are no longer working leave their dollars in the system and allow those dollars to continue to grow in a very secure environment. I don't anticipate that rate to change. Currently, it's a 3% rate. By statute, it's limited to 5%. The board has a formula, and they just set that rate for 2017 back in November, so I expect that rate will remain in effect, certainly for the year of So hopefully that's helpful, and I appreciate your call, Ken. Susan: Great. Thank you so much, Greg. Thank you, Kenneth, for calling. We've got Susan on the phone for our next call from the audience. Susan, you're on with Greg Smith, CEO of Colorado PERA. Hi, Greg. Thanks for holding this call for us. Question that I have is kind of answered, but I have another one that's related. I hear a lot of bad press about PERA. A lot in the news and also with people that I worked with have this negative idea of this giant unfunded liability. I just retired at the beginning of this month and I'm hearing, I don't know, resentment almost from people. What I'm trying to figure out is how can I be an ambassador for PERA and talk about it in an informed way and educate people on some of the bad press is not necessarily true or exaggerated press? I just want to have my facts right and be able to, maybe all of us retirees and PERA employees might want to have a better way to be able to address those kind of possibly exaggerated concern. Wow, what a great question. I'm going to be accused of having planted this question because it allows me to talk about our ambassador program, and we have a lot of people that have exactly the concern that Susan has just expressed, and I appreciate you calling and being a part of this conversation. The press that we receive and the conversation that goes on across the state from a number of different organizations is really a challenge to PERA. And as I said earlier, it's not that the misinformation is always intended to mislead somebody, it's oftentimes just a disagreement about what the future looks like. Other times it's just a complete lack of understanding about how the system really works, and we see that at a national level. This isn't just individuals who don't understand it. We have interactions with national publications that will not April 27, 2017 Telephone Town Hall for Retireees Page 15 of 17