Colorado PERA Update Colorado School Finance Project February 17, 2017 Tara May, Chief Communications Officer. What s New?

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Shon Sullivan
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1 Colorado PERA Update Colorado School Finance Project February 17, 2017 Tara May, Chief Communications Officer What s New? 1

2 Today s Agenda 1. PERA Board Responsibilities and Recent Actions 2. Funded Status & Implications 3. Relevant Legislation PERA s Governance Structure Board of Trustees Oversees investments, benefits administration, and monitors actuarial assumptions and performance General Assembly Sets benefit and contribution structure 2

Investment Asset Allocation Fixed Income 22.3% $43.

Board on June 21, 2016 Cash & Short-Term 2.

2% More than 55 percent of assets managed directly by

investment returns for period ending December 31,

3 Investment Asset Allocation Fixed Income 22.3% $43.0 Billion Market Value As of November 30, 2016 Real Estate 9.0% Opportunity Fund 2.7% Asset allocation policy unanimously approved by Board on June 21, 2016 Cash & Short-Term 2.5% Private Equity 8.3% Global Equities 55.2% More than 55 percent of assets managed directly by PERA staff Investing for Long Term 16% Annualized investment returns for period ending December 31, 2015* 12% 8% 7.25% 7.4% 7.5% 6.0% 7.6% 8.6% 8.7% 9.5% 4% 1.5% 0% 1-Year 3-Year 5-Year 10-Year 20-Year 25-Year 30-Year 35-Year * 1-, 3-, 5-, and 10-year returns are net of fees 20-, 25-, 30-, and 35-year returns are gross of fees 3

Conditions Are Changing People are Living

collar professions Economic Realities are

4 Late 2016 Board Activities Actuarial Impact Analysis Actuarial Workshop September October Discuss Review Experience Study and discuss assumptions Conditions Are Changing People are Living Longer Increase in lifespan an average of a year over hundreds of thousands employees Especially prominent in white collar professions Economic Realities are Changing The market future isn t yielding same returns as just 10 years ago 4

Setting the Rate of Return Assumed rate of return

financial health Projected rate over a 30-year period

rate of return Lowered rate in 2008, 2013, and 2016

November Board Action Adopted New Mortality Tables

PERA is paying retirement benefits longer Lowered

investment income as previously projected Endorsed a

5 Setting the Rate of Return Assumed rate of return Investment return and inflation Helps estimate future financial health Projected rate over a 30-year period 7.25% Board established PERA Board sets the assumed rate of return Lowered rate in 2008, 2013, and 2016 Consultation with external and internal experts November Board Action Adopted New Mortality Tables For several divisions, life expectancy is increasing PERA is paying retirement benefits longer Lowered Rate of Return Changed expected investment rate of return from 7.5% to 7.25% PERA is not expected to generate as much investment income as previously projected Endorsed a Listening and Learning Tour PERA to engage with a range of stakeholders across the state on PERA s funded status 5

6 2016 Board & Staff Activities Actuarial Impact Analysis Actuarial Workshop Board Meeting JBC and SMART Hearing September October November December Discuss Review Experience Study and discuss assumptions Take action on actuarial assumptions, as needed Present Signal Light Report and plan updates 2014 Signal Light Indicator Signal Light Indicator Weighted by Market Value of Assets As of December 31, 2014, for each PERA division, reflecting the SB 1 reforms and applying PERA s set of actuarial assumptions as of the end of 2014 Local Gov t 8.5% Judicial 0.6% School 51.8% DPS 7.4% State 31.7% 6

2015 Signal Light Indicator Signal Light Indicator Weighted by Market

reflecting the SB 1 reforms and applying PERA s set of actuarial

assumption adjustments Local Gov t 8.6% School 51.9% Judicial 0.7% DPS 7.

Amortization period longer than desired 54.

6 years to fully funded in School division Benefits secure Forecasted to

7 2015 Signal Light Indicator Signal Light Indicator Weighted by Market Value of Assets As of December 31, 2015, for each PERA division, reflecting the SB 1 reforms and applying PERA s set of actuarial assumptions at end of 2015, results may change based upon recent assumption adjustments Local Gov t 8.6% School 51.9% Judicial 0.7% DPS 7.3% State 31.5% Where Is PERA Today? Amortization period longer than desired 54.9 years to fully funded status in State division 74.6 years to fully funded in School division Benefits secure Forecasted to pay benefits in perpetuity Different circumstance than 2009, when PERA supported SB1 that reduced benefits for all retirees and members Amortization Period Length of time to achieve full funding 7

2016: Projection of Funded Status 2015 (Post

amortization period for the School is 74.

10% 0% 2010 2015 2020 2025 2030 2035 2040

0% discount rate and assumed LTROR, Run at

11/18/2016] Planning for the Future Address

Plan for the Modern Workforce Leverage best

8 2016: Projection of Funded Status 2015 (Post SB ) 100% 90% 80% 70% School Current amortization period for the School is 74.6 years Funded Ratio % 60% 50% 40% 30% 20% 10% 0% Year Beginning Before SB : insolvent by 2036 A1 [Pre-SB 1, Projections as performed in 2010 at an 8.0% discount rate and assumed LTROR, Run at 12/31/2009] D [Post-SB 1, based on the 12/31/2015 actuarial valuation results considering revised assumptions adopted 11/18/2016] Planning for the Future Address Legacy Issues Reduce the unfunded liability Plan for the Modern Workforce Leverage best practices and efficiencies Update the plan design to reflect economic and demographic realities 8

2017 Engagement Tour Goal = encourage productive and factual conversation about PERA Ensure understanding and reduce confusion around PERA s financial status Fortify and build relationships with key

9 2017 Engagement Tour Goal = encourage productive and factual conversation about PERA Ensure understanding and reduce confusion around PERA s financial status Fortify and build relationships with key stakeholders Develop shared principles upon which any policy changes may occur Tactical Outreach to Ensure Audience and Statewide Diversity» Members/Retirees» Employers» Business Organizations» Taxpayers» Media Fort Collins Greeley Sterling Fort Morgan Denver Grand Junction Colorado Springs Pueblo Durango 18 9

10 Timeline: Key Activities Legislative Update Senate Bill Cap Employer Contribution Rates For PERA Senate Bill Modify Composition Of PERA Board Of Trustees House Bill State Treasurer s Authority To Access PERA Information House Bill PERA Retirees Employed By Rural School Districts 10

11 Join the Conversation PERA on the Issues The Dime 11

Analysis & Background

1 Values shown are June estimates. # # # Analysis & Background Expected Revisions to Colorado Second quarter 2017 Quarterly Census of Employment and Wages (QCEW) results indicate Colorado total nonfarm