I am pleased to present Colorado PERA’s Popular Annual Financial Report (PAFR) for the year ended December 31, 2016.
This PAFR is a reader-friendly summary of information derived from PERA’s Comprehensive Annual Financial Report (CAFR), but it is not presented in a manner which conforms with generally accepted accounting principles (GAAP). PERA’s CAFR is produced to conform with GAAP and is available on our website or by requesting a copy from PERA’s Customer Service Center.
The measurement of liabilities and funded status are a top concern for the PERA Board of Trustees (Board) and management. Two types of actuarial valuations are required to be performed to measure liabilities for PERA’s five Division Trust Funds: one for funding purposes and the other for financial reporting purposes. The results of both actuarial valuations are included in this PAFR. The actuarial valuation performed for funding purposes resulted in an unfunded liability of $32.2 billion which was calculated using the Board’s assumed investment rate of return. The actuarial valuation for financial reporting purposes resulted in a net pension liability of $50.8 billion which was calculated using a rate prescribed by governmental accounting standards.
Throughout the past year, the Board embarked on a thorough and rigorous process in consultation with actuarial, economic, and investment experts about PERA’s financial condition and the assumptions that serve as a foundation for measuring future obligations. While we had a very successful effort in 2010 with Senate Bill 1 to significantly impact PERA’s funded status, the world is not static. To ensure our sustainability going forward, it is essential that we recognize and adapt to changes that impact PERA now and in the future.
Emerging from the Board’s process were two key factors—life expectancies are increasing and financial markets remain challenging and uncertain. Because PERA is a long-term investor with a long-term outlook, we need to keep our eye on the future to project how conditions may change. When data shows that conditions are changing, PERA has to respond.
In recognition of these facts, the Board took two significant steps in November 2016 to ensure that assumptions remained appropriate. First, new mortality tables were adopted to reflect that people are living longer, which means PERA will be paying retirement benefits longer. The second step was to lower the assumed investment rate of return from 7.50 percent to 7.25 percent.
Both of these changes increased the time PERA needed to become fully funded, and therefore also increased the risk level of PERA’s funding. PERA measures funding risk using a reporting methodology developed in 2014 and adopted by the State Legislature in 2015. This methodology was developed exclusively for Colorado and uses a “signal light” color framework that allows PERA to more simply categorize our funded status and communicate the current risk level experienced by the fund. Today, the majority of PERA divisions are in the orange category indicating that we should be formulating a plan to address and reduce that risk profile. The Board has directed PERA staff to undertake a statewide educational and outreach process to engage members, employers, taxpayers, policymakers, and others in a dialogue about the plan’s funded status.
We are committed to providing accurate and fact-based information to PERA’s stakeholders, and we are receptive to all ideas to ensure we are best serving our members and the state of Colorado. The information we receive will then be consolidated and reviewed by the Board to inform any deliberations about changes to the PERA plan design.
The extended period of time for PERA to reach fully funded status increases the risk profile not only for our members, but for all taxpayers throughout the state of Colorado where our members live and work in our communities, and support our economy. As noted in the 2016 Colorado PERA Economic and Fiscal Impacts report, PERA retirement distributions are a sustainable source of reliable, predictable income not only for PERA retirees, but for communities across Colorado. These distributions add critical value and stimulus to the economy. The report, prepared by economic and business analysis firm Pacey Economics, shows that the billions of dollars PERA pays in distributions to the more than 98,000 Colorado residents has a dramatic benefit to local economies in every corner of the state.
While PERA is an important driver in the Colorado economy, it is also a strong recruitment and retention tool for employers because of the value it offers to employees regardless of the length of time in a public workforce career. PERA has evolved to serve both long-service employees and those who only work for a short time in public employment.
From the peaks to the plains, PERA members provide services essential to the state and all its citizens. In tribute to the thousands of public employees across Colorado, we are highlighting in both the CAFR and the PAFR some of these members and employers who often go unrecognized and unnoticed for their tireless efforts to enhance the quality of life for all Colorado residents. There are more than 560,000 Coloradans who rely on PERA to be there for them in retirement. Thus, it’s critically important to pay attention to the viability and sustainability of PERA given the importance of PERA to the financial futures of our membership and their families.
We honor all of those who provide public service in Colorado—it is our privilege to work for them and ensure they have a sustainable retirement.
Gregory W. Smith
Colorado PERA Executive Director
One of Colorado’s Best Investments