PERA’s Finances Sobering; Board Looks at Options
At the end of June, PERA publishes its 143-page 2008 Comprehensive Annual Financial Report. Filled with numbers and charts, Report this year contains all “the bad and the ugly." While certain to win an award for full disclosure as PERA has received for previous reports since 1986, for those who take the time to delve into the details, it will relate troubling information.
Changes are absolutely necessary. The Board of Trustees is receiving several studies to help make some proposals to the State Legislature in November. They want to inform you and then hear your thoughts at meetings throughout the state in August and October.
In the Report’s transmittal letter, Meredith Williams, PERA's Executive Director, states: "PERA was not exempt from the unprecedented market declines in 2008" and is "developing a plan to present to the Colorado General Assembly that will address the impact of the downturn in the economy on the...trust fund."
- The fund’s net investment loss in 2008 was $10.5 billion.
- The fund paid out about $2.7 billion in benefits.
- Employers and members (active employees) contributed about $1.5 billion.
- The rate of return was -26% compared to a benchmark of -27.7%, so PERA didn’t do as badly as many plans.
To make matters worse, the first part of 2009 also saw negative returns but this has slowly turned around since March and the fund’s return is on the positive side – even if small – as of now. However, remember that the Fund expects to make an 8.5% rate of return and if it doesn’t, it goes deeper in the hole. While the average annual rate of return over the last 25 years has been 9.0%, it has only been 3.4% over the last 10 years as a result of this economic downturn.
The actuary reports that the actuarial assets of the fund are 69% of the actuarial Liabilities. The funded ratio on market value of assets is 52%. This is not good news! PERA has said that “we can’t invest our way back to long-run sustainability”. In other words, something other than hoping for a big bounce in the investment return must be done. The options are to increase employer and/or member contributions (at a time that the State, schools and other employers cannot afford it) or to decrease future (or maybe even current) benefits. Retirement eligibility could be adjusted and COLA increases could be shaved or eliminated. PERA’s portfolio must be able to pay benefits for those employees who began work last week and won’t retire for 30 years or more, as well as for those who receive a monthly check today.
For retirees, the question is: Can they cut my benefits? The answer to that has been in the past that benefits are guaranteed. But, there is some evidence that if there is an actuarial emergency, which is loosely defined as the pension fund cannot pay benefits, a reduction of benefits could occur. PERA isn’t broke but it isn’t as sound as it was a year ago.
All PERA members and retirees should keep watching the news, attend the various meetings PERA holds, read the summary of the financial report that will be sent to you in mid-July, keep an eye on this Web site and PERA’s site for latest news, and communicate with your legislators as to how important PERA is to your financial well-being.
The full report may be ordered from PERA or reviewed on-line at the web site.
