Originally published on June 23, 2017. Graphic added June 26, 2017.
Net investment income tops $3 billion during the year with 5,579 new retirements
Colorado PERA returned 7.3 percent adding $3 billion in net investment income in 2016 according to its Comprehensive Annual Financial Report (CAFR) released today by the PERA Board of Trustees. The total fund has matched or outperformed the policy benchmark for the one-, three-, five-, and 10-year time periods, net of fees. The long-term investment return for 35 years is 9.8 percent, gross of fees. The total fund benchmark represents the Board’s policy allocation to broad asset classes in the PERA portfolio.
The PERA Board lowered the long-term return expectation to 7.25 percent from 7.5 percent, reflecting their expectations for future market performance. Additionally, the Board conducted an experience study, which showed that PERA members are living longer—meaning PERA is paying benefits for a longer period of time than previously expected. The combined impact of the Board’s action of reducing the long-term return expectation and adopting new mortality tables increased PERA’s liabilities and the time it is expected to take to reach full funding. The numbers reported in this year’s CAFR reflect these changes.
By law, the Office of the State Auditor oversees an audit of PERA and retains an external auditor, CliftonLarsonAllen (CLA). On Thursday, June 22, 2017, CLA reported to the PERA Board’s Audit Committee that they anticipate an unmodified “clean” opinion that the financial statements are presented fairly, in all material respects, for the seventh straight year.
PERA has a long history of excellence in financial reporting, including the receipt of the Government Finance Officers Association Certificate of Achievement for the last 31 years. The award is the highest form of recognition in the area of governmental accounting and financial reporting, and is given to governmental entities that publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a one-year period and PERA will be submitting the 2016 comprehensive annual financial report to determine its eligibility for another certificate to continue the lengthy tradition of financial reporting excellence and disclosure this honor represents.
“The 2016 financial report includes robust information about the fund’s status as of year-end, and provides PERA and other stakeholders with a snapshot of our financial standing,” said Gregory W. Smith, PERA Executive Director. “As the report shows, PERA is able to pay benefits for the foreseeable future, but the combined impact of longer life expectancies and a more conservative investment return assumption has had an impact on our risk profile, which is too high. Over the past several months, PERA has been engaging with all stakeholders about PERA’s long-term future and will be working toward reducing the fund’s risk profile to improve funded status,” Smith concluded.
The Governmental Accounting Standards Board (GASB) reporting requirements applied to the trust fund’s liability resulted in the presentation of two distinct numbers for total pension liabilities. The first unfunded liability number, $32 billion, is a funding calculation using the Board’s assumed long-term rate of investment return. The second number, $50 billion, is an accounting calculation that is based on a rate of return prescribed by GASB. GASB requires the accounting calculation to be disclosed on PERA-affiliated employer financial statements.
PERA’s Comprehensive Annual Financial Report is available here.