February 26, 2020
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PERAtour Public Webcast (2017)

Hello everybody and welcome to Colorado
PERAtour, I’m Terry Campbell I’m a member of the retiree group in Colorado
PERA. I’m a past board member and currently a member of the lobby team.
Today’s meeting is part of a long process that began over a year ago. We’re
here today to learn about the tough decisions that have to be made. I would
encourage each of you to listen and be open about the facts you’re about to
take in. This is a difficult but important conversation to have in order
to ensure the that PERA continues to play a role in your communities as a
stable and important role we all share the vested interest in keeping PERA
viable and stable and I would like to at this time turn the meeting over to our
facilitator and Chris Adams we’ll take it from here and I appreciate the
attendance today and Chris take it away thank you very much Terry good afternoon
everyone my name is Chris Adams and I have been working with the PERA team for
the last six months or so to help facilitate some of these these
large-scale meetings and I want to just quickly go over the agenda for today’s
meeting if you go to the next slide please okay so the next slide is right here so
we’re gonna start at the very simple agenda we’re going to review the
principles priorities and process and in a moment I’m going to say a little bit
more about the process and then Tara Mae is going to give a presentation on the
funding status and the current board recommendations from moving forward and
then Greg Smith is going to come up and answer all your questions just quickly
before we go over to Tatara let me just discuss the process a little bit this
has been a very thorough process it’s been going on for over a year
it started in September of 2016 with a pair of board assessment
moved into a community education and discussion phase last March where the
PERA team went around the state discussing folks there were telephone
town halls there were really thousands of people who who had some input in in
both making sense of what was going on and helping to shape what would go how
to go forward and then just last month some recommendations have been developed
and we are currently in that green circle area the community review and
that’s what we’re going to be doing today and then next year early next year
January through May the board and PERA staff and the legislature will be
working on coming up with some actions so with that let me introduce Tara Mae
the chief communications oh sorry excuse me I’ve got a video first when the
economic crisis hit in 2008 PERA had a choice wait or act, we chose to act and
were one of the first states in the u.s. to do so Senate Bill 1 and its major
reforms reversed the course and returns PERA to stability but time doesn’t stand
still conditions are always changing PERA must respond to these changes
people are living longer that means on average retirees get benefits for a
longer period in addition markets aren’t generating the same returns they have in
the past and because of those changes PERA’s funded status has taken a hit
the amount of time until PERA becomes fully funded has increased that
increases PERA’s risk level making it less likely that PERA could withstand
another economic crisis PERA’s stability is important to everyone PERA
members are in every part of Colorado they live work and support the economy
in communities across the state with so much at stake the PERA board started
taking steps to address the funds long term health to start PERA embarked on a
statewide outreach effort called parrot or we talked about how we improve PERA’s
funding and reduce PERA’s risk how do we ensure the long-term health of PERA
how do we ensure PERA can always provide retirement benefits while strengthening
Colorado’s economy PERA held these conversations online on a telephone town
hall and in person tens of thousands of PERA members and employers join the
public to talk about PERA they share their opinions and provided input on key
principles guiding future changes to the PERA plan those principals state that
PERA should be a retirement plan that calculates retirement benefits in line
with career paths and contributions the input of contributions and service
credit must have a direct relationship with the output or retirement benefits
the plan should allow retirees to maintain their standard of living
throughout their lifetime the plan should be fair and attractive
to future public employees in other words future generations shouldn’t
shoulder all the burden it should also serve as a tool for employers to recruit
and retain top talent a defined benefit plan levels the playing field with the
private sector finally the plan requires shared responsibilities among members
retirees and employers we all have a stake in PERA and should participate in
the solution the PERA board takes these guidelines seriously changes are needed
to lower the risk profile and ensure the long term financial health of PERA
these changes include increases to contributions adjusting benefits and
changing the benefit calculation formula these would impact everyone from current
members to future members retirees and employers but they are not final
they are recommendations of the board only the state legislature has the
authority to adjust the plan if passed these changes will improve
PERA’s risk profile and funded status but they are not easy PERA members know
this and still understand the urgent need
when asked more than 80% of PERA members said that PERA should act now before the
situation gets worse and pension reform advocates won’t wait these parties are
dramatically changing defined benefit plans in other states and want to do the
same in Colorado the PERA board with support from its membership must lead
changes that are in the best interests of public employees in the state of
Colorado today and in the future let’s get started now okay I’m Tara Mae I’m the chief
communications officer at Peres and I wanted to before we get into sort of the
heart of what the board is recommended to the legislature I do want to just
back up and echo some of the themes that you heard in the video just now they get
support to know where we’ve been especially with in recent history and
there’s probably not a lot of folks who are in the room or online that don’t
remember the economic crisis which is sort of the starting point for how this
story begins the funding lines that you’re looking at right now in that
purple line oh I need to pull it up there we go oh there it is okay the red
line that you’re looking at behind me is what what we’re Paris funded outlook was
after the 2008 economic crisis and what you see there is PERA essentially
running out of money within a foreseeable future and that simply was
obviously not an acceptable pathway forward and so the parent board was one
of the first in the country to really take significant reform action and
changed the plan to return it to solvency and that’s what was manifest in
Senate bill 1 which was passed in 2010 Senate bill 1 had a lot of significant
changes to our members and retirees plans but it did return PERA to full
funding within a 30 year time horizon and that is the purple line that you’re
looking at right now now as the video said if time had stood still since 2010
we would still be very closely tracking on that purple line returning PERA to
100% funding within 30 years but things have changed significantly two big
changes that we want to talk about that if you’ve been attending our meetings or
reading any of our materials over the past year you’ve heard about but the two
big changes are the fact that people are living longer and we know that it’s not
just the general population that may be living longer a shorter period of time
but it’s actually the PERA membership that’s living longer and we know that
because every five years the PERA board Commission’s an independent experience
study to look to see how accurate are we projecting life expectancy for our total
membership on average so we take a look to see how well our
predictive tools are and this year when we looked at our life expectancy across
the membership we actually found that people were living an average of a
couple of years longer and that may not sound like a whole heck of a lot when
you aggregate it over hundreds of thousands of employees throughout the
state those numbers add up and it the essence is the expense of the plan goes
up it becomes more costly because we’re paying benefits for a longer period of
time and what that does is it extends that period of time to full funding so
where you saw that purple line going up that line got pushed out because we’re
paying benefits for a longer period of time and the longer time it takes for
PERA to be fully funded a greater risk there is greater risk for our members
our retirees and for the taxpayers of Colorado so we really need to look at
those levels to make sure that we’re operating at a manageable risk level
okay so the second big change that’s happened since 2010 is that the markets
are simply not returning what they used to on a regular and consistent basis I
know there’s been a run on the stock market lately we’re seeing a lot of
record highs but as the parent board consults with experts and it reflects
and it decides to project out how much we think we can make on our investment
portfolio in the years ahead thirty years out they want to make sure
that they’re being judicious with that prediction so the PERA board has lowered
the assumed rate of return which is the amount of money we project that we’re
going to make on your investment portfolio of forty six billion dollars
they lowered that number it started off in 2010 at 8% it was lowered in 2013 to
7.5% lowered again last November to seven point two five percent and again
I’ll say 0.75% may not sound like a large reduction when you aggregate
that over 45 plus billion dollars that is a lot of money so we had a one-two
punch we have people living longer with which increase the cost of the program
and then we expected we were going to be making slightly less money on that
investment portfolio and as a result it impacted
our funded status and increased our risk profile specifically what happened is
that in the school division which is our largest division that period of time to
100% funding was pushed out to 78 years 78 years is far beyond our 30 year
target in the state division it’s 58 years so why is 30 years our goal why
does it matter if we strive toward a 30 year period of time to full funding
which is also called our amateur ization period a couple of reasons so one the
General Assembly has deemed that 30 years is an acceptable tolerance level
for a fun to be deemed financially sound so their statute that supports the 30
years based on the opinions of experts in the field and second the Peres Board
also realizes that that’s the tolerable risk level they are willing to
experience on behalf of the membership and acting as a fiduciary for our
members and so there’s a there’s a pair of policy that dictates that our goal is
also a 30 year period of time to 100% funding I want to also mention that it’s
not just the length of time to full funding that’s important for us it’s
also what happens during that length of time that matters and I’m going to show
you a chart here that shows the funding levels for our current for our five
divisions we operate five different divisions and this is over a period of
40 years so what you’re seeing here is an excerpt of it’s a period of time
until we get to full funding because our actuaries don’t predict out past the 40
years on these charts that they’ll give us and so if we were to extend this
chart a little bit further over you would see eventually peril returning to
full funding so we are still predicted to return to full funding that length of
time just got much much longer but in the next 40 years what are you seeing
here especially in the state and school division our two largest divisions
you’re seeing our funding levels going in the wrong direction they are going
down instead of ultimately rising back up there is a
very long period of time at which we are below 60% funding we’re below 60%
funding for 20 to 27 years and that’s simply too long a period of time with
not enough resilience to be able to withstand another 2008 economic crisis
and in fact if you look at these lines you can see that we actually dip
underneath a 20% funding again that risk level is simply too high so when we look
at these graphs when the PERA board looked at these graphs they decided that
they not only wanted to improve the length of time it takes to be fully
funded but improve the trajectory or the slope of those lines so that we are not
dipping down into that sub 60 territory for such a long period of time and
hovering around 20 so as a result that said in September the PERA board I was
able to reach consensus on a group of changes to the plan and that I’m gonna
review that for the rest of the time here and then Greg is gonna take your
questions those changes fall generally under three different categories the
first is aligning contribution service credit with retirement benefits that was
the first principle that you saw in the video we really want to make sure that
there’s a that the contributions and time put in to Paris support the
retirement benefit paid out the second category of changes are to increase
contributions for employees and employers and the third recommended
category of changes is to modify the benefits so that we can continue to look
at the cost of the plan before I go into detail about the elements inside of each
of those three categories I want to show you where we’re headed what’s the goal
we are able to achieve the board’s package and the General Assembly decides
to pass this legislation here’s where we will be so what you see on your slide
and in behind me is the funded status of PERA dramatically improves so not only
are we shortening that period of time 100% funding but the entire time the
number the lines are going the right direction they are moving progressively
up to improve the funded status year over year so it becomes not only it
falls within our goal but this is a plan that has resilience this is a plan that
can tolerate and withstand another 2008 economic crisis these kinds of funding
lines are our goal and why we’re going to talk about the changes that have been
put forward so let’s dive into each of those three categories of changes so the
first category is aligning contributions with the benefits and the first change
that recommend that’s recommended it’s a little bit complicated so bear with me
but right now numbers papera contributions on almost all of their
salary except for one carve out which is the deductions or the contributions that
they make to tax advantaged plans that are classified by the IRS as section 125
and 132 now these are the cafeteria plans they’re flexible spending accounts
they’re transportation accounts they can cover dependent costs or healthcare
premiums but our members do not paint parent contributions on that portion
that small that small in some cases portion of their salary so what happens
is that if you’re participating in one of these plans which is great for you
because you’re not paying taxes on that portion of your salary and you’re able
to cover some of your healthcare expenses and some of your dependent care
expenses but you are also reducing your parrot eligible salary so you’re paying
essentially a lower contribution and you are your highest average salary
calculation is also lower because your salary has sort of been deflated because
those contributions don’t count so you may be it as people near retirement our
members are probably advised or are just savvy enough to understand that if they
discontinue participation in that program it’ll essentially increase their
PERA eligible salary so sure their contributions go up but also their
highest average salary calculation goes up which is a key determining
factor in calculating one’s retirement benefits so there’s a little bit of a
disproportionate relationship there because throughout your career you’ve
been contributing on a much lower salary and then further your highest average
earning years there’s an inflation of salary that may not be commensurate or
may not support the benefit received at the end and as we’ve said your
contribution has to support the retirement benefit in order for the plan
to remain fully healthy so this provision would apply to current members
to future members and to employers because what we would do is include
those section 125 and 132 deductions as we calculate what is deemed is sort of
PERA includable PERA eligible salary the next change that we’re proposing to
ensure that alignment is about the accrual of service credit
so right now service credit is accrued based on a salary minimum threshold and
that minimum is tied to federal minimum wage an employee has to earn eighty
times the federal minimum wage in order to accumulate one month of PERA service
credit now for some folks that may only require that they work as few as six
days a month of the standard is 580 dollars a month you have to earn in
order to earn one month service credit so you’ve got someone who’s maybe at a
salary level where they’re working five or six days a month you’ve got someone
else who’s working 20 days a month both earning equal amounts of service credit
as one month so what the board is proposing is that we set the standard
for earning service credit to an hourly standard so folks who are working
part-time will earn part-time service credit regardless of the salary folks
who are working full-time we’ll learn full-time service credit now certainly
there are norms within different positions for example teachers may only
be working nine months technically out of the year in the classroom those norms
would be factored in so that whatever is considered a full-time job would receive
full-time credit the second big category of changes is
really about the contribution level so I want to go into how those contribution
levels would be increased for a couple of different couple of different parties
first is that our current membership current members who are in the system
active PERA members they would be asked to contribute an additional 3% of pay
into PERA so the current level of contribution is 8% of pay that would go
up to 11% of pay while this is definitely a significant step up I do
want to assure our active members that it does continue to keep them in line
with other peer pension plans across the country that are also social security
replacements we studied a lot of them and on the 8% side we’re a little bit
low 11% is still incredibly competitive when we look across the country at what
others are contributing the next section of changes would be to increase future
members contributions by 2% of pay this is 2 percent of current levels so it
would go from 8 percent to that for them to 10 percent of pay so why the
difference why are we asking future members to pay less or current members
pay more so the reason is because our future members are going to be receiving
a slightly lower benefit for reasons I’m going to go into momentarily while our
current members will continue to receive the current level of benefit and that
discrepancy justifies the difference in terms of contribution levels so again
current members would would experience a 3% increase from today future members
would experience a 2% increase from today and finally because of the
principle of shared responsibility the PERA board is also asking that employers
contribute an additional 2% over what they’re contributing today and we know
that budgets are tight and understand that this is going to be a challenge but
we also the board also believe that it’s important for the responsibility the
contribution to the solution of ensuring PERA’s long term health is equally
shared and we’ve got to ask the same of
employers the next big category of changes I want to talk about is the
final category which is the modification of the benefits so the first change in
that category is to increase the age of eligibility for full service retirement
to 65 so today most of our members have a eligibility age for full service
retirement of 16 it’s 58 and school division this proposal really reflects
the board’s actions back in November that I just talked about in terms of
adopting those new mortality tables to reflect longer life expectancies so if
we know that people are living longer the way that we’re able to afford to
take them through their retirement years is to require that they work a little
bit longer as well this is also very much in line with national trends we see
at the federal level Social Security is now increased to age 67 to receive full
benefits there as well there’s a lot of pressure on Peres for us to reflect some
of the national trends but also just to really incorporate into our calculations
about expectations for working life that go up to reflect those longer life
expectancies this change would impact future members that have not yet entered
the system but hired after January 1st 2020 the next big change would be to
increase the highest average salary or haes calculation from 3 years to 5 years
so this change would impact all non-vested employees and future
employees so any employee who has not earned 5 years of Paris service credit
by January 1st 2020 would also fall into the bracket of employees that are going
to have a five-year calculation of their hasn a three-year calculation this is
one of the ways that the benefit is being slightly reduced especially for
future members and why we’re asking them to pay a slightly lower increase in
contributions in the future on average the impact of this is about a
three to five percent reduction in the retirement benefit
the next change is a difficult one to discuss it was definitely a big part of
the Senate bill one conversation and changes that happen but it is a
reduction in the annual increase by 0.5% so that would take the current cap from
the annual increase from two percent down to 1.5 percent on an annual basis
that cola continues to remain compounded when we looked across the country again
other peer pension plans we see a lot of a lot of them that favor simple interest
rate pair of members will still have the benefit of some inflation protection it
will also continue to be compounded the next change is that in addition to a
reduction in that annual increase the board is also recommending a two-year
suspension on the annual increase for current retirees so how this would go
into effect is that if the legislation is passed this session in 2018 and 2019
there would be a suspension of the annual increase it would resume in 2020
at a 1.5 percent and there’s a rationale behind these two changes that I just
wanted to mention from the PERA board because I think it’s important so one is
that the PERA board really recognizes that retirees need inflation protection
as they looked across the country at other pension plans that are facing
similar funding challenges what they are seeing what we are seeing is that a lot
of those plans are taking the Cola to zero and the PERA board was committed to
preserving a level of inflation protections because they understand that
our members are not also receiving Social Security they wanted to make sure
there was continued to be a mechanism in there they also took a look historically
at what inflation levels have been nationally they looked at a national
index called the CPI W and over the last eight years what it told us is that arm
our retirees who are currently experiencing at 2% on their annual
increase they are about 4% ahead of the federal CPI W or that national index of
inflation so the two-year suspension will actually
put them back in line with national inflation projections for our members
who haven’t yet retired they will also experience similar suspensions currently
they have a one-year waiting period upon retirement before they receive their
annual increase and in the end as they retire as current members and future
members in the system as they retire they will experience a three-year
waiting period before their annual increase goes into effect why is that
it’s because our current retirees many of them already experienced a one-year
suspension following the passage of Senate bill 1 and then the board is
recommending another two years on top of that so in order to assure equity they
decided that they would ask future retirees to also experience a three-year
waiting period before their annual increase kicks in so those are the core
components of the changes to the plan the last thing I want to talk about is
more of a structural change that’s being recommended as part of the plan that
would allow PERA to stay within that goal of a 30-year period to full funding
it’s it’s an auto adjustment provision that could allow PERA to respond quickly
and effectively to some of these condition changes that I talked about at
the beginning if we experience another demographic shift if we experience
another market condition change PERA would have the opportunity to respond to
that automatically this provision acts sort of like a circuit breaker so if we
fall outside of that target of 30 years period of time to full funding it would
automatically kick in a couple of changes those changes are threefold one
employer contributions to employee contributions and three the annual
increase those elements would work all together in tandem at the same time to
correct PERA’s funding status should it fall above the 30-year period or below
that 30-year period so what do I mean by that so for example if our investment
outlook is too negative and we outperform we overly outperform
our expectations it would allow us to return back the annual increase that we
have previously decreased it would allow us to reduce some of those increased
requests for contributions if our investment performance is worse than
we’ve projected or if there’s another huge demographic shift that impact that
negatively impacts our time horizon to 100% funding these components would move
in the other way we would increase those contributions again and we would
decrease again the annual increase it would never fall below a certain
threshold and it would never exceed a certain threshold so there are barriers
on either side to prevent us from going into orbit in either way so this
provision would allow the legislative body in 2018 to eliminate the unfunded
liability in 30 years and not require that we keep going back to seek modest
Corrections to make sure that we stay moving towards that 30-year amortization
period goal line I do want to recognize and the board
really wants to make sure that we’re communicating to the membership and to
all stakeholders the sacrifice that’s involved in this recommended package of
changes these changes are not easy nor were they take in with any sort of light
touch Kris talked to you before Terry talked
to you before about the process that the board has undertaken to make sure that
their analysis was rigorous they sought the Council of experts they collected
volumes of data they spoke with a range of stakeholders to make sure that they
had a process that was thoughtful that was factual so that we could start from
the right place it concluded that in order for us to make sure that this
benefit remains sound for all of our retirees today and all of our retirees
in the future these are the changes that are required they also wanted to make
sure that there was contribution coming in or problem solving coming in from all
of our stakeholder groups and so as we look at sort of the overall cost of this
solution of this package of changes we can tell you that about 80% of the cost
is going to be shouldered by our retirees about 19% of the cost of this
solution will be shouldered by employers and about 63% will be shouldered by
current and future members who will one day become retirees themselves the
reason why the board is going down this road is really as I said to make sure
that this benefit remains strong and secure make sure that our resilience
level is high enough so that we can withstand another major economic event
it’s important to us today and in the future I also want to echo something
that we’ve talked about before which is the need for parent to remain in a
leadership position during this process we do not leave the process someone else
will and it’s important that Parham embers are on board with this because we
know what we know what’s best for the organization we know what’s best for
future generations we want to make sure that parents best and
remain at heart and it’s important for us to take that leadership role your
core retirement benefit remain intact the impact I want to make clear because
it’s been confusing in other meetings for retirees today your core benefit
remains intact we’re not clawing anything back it’s
just having to do with the annual increase coming down half of a
percentage I also want to mention in that auto-adjust provision there is
opportunity for up side as well as corrective action for the downside so it
allows us flexibility to make sure that we’re can be responsive to external debt
conditions over which we have no control the Board believes that this package is
fair its sound and it is absolutely necessary so right now Chris is gonna go
through a little bit of how we’re going to run the Q&A session but I thank you
all for your time thank you very much sir and while Greg is making his way up
here we have an awful lot of people who are here today in addition to the people
in this room there are another 160 people live watching online and they
have the ability to to ask some questions so we’re gonna set this up so
that we can have as many people as possible have a chance to get their
questions asked and anybody who has remaining questions if you’re in the
room you can come out after we we in the broadcast you can come up and talk to
Greg about that and he will take every question and then if you ask a question
online that doesn’t get answered the pair of staff will make sure to reply to
that and get an answer to you so let’s go ahead and go forward then so first
request is just to please feel free to ask questions is the complicated set of
proposals and it’s a complicated time so please seek the clarification that you
need second since we are broadcasting this please only speak when you have the
mic so if you want to ask a question just raise your hand and I will come
over to you and then we’ll probably alternate between people outside the
room and inside the room so that everybody gets a chance and then the
last one is that we’ll get priority in the speaker’s queue to those who have
not already asked a question so we’ll definitely try to make sure that
everybody gets a first question before we give people a second bite at the
Apple so with that let’s go ahead and take your questions we made the Apple yeah get out of the core core of the
issue I know I just say that all right anybody have any questions about what’s
going on and we’ll go right here to you since you’re right in front and then
we’ll go to Greg because he has a question I’m offline totally one I have
a question about some of the other states that have gone away from their
PERA-like benefits and are now having funding issues with that you
mentioned Kentucky all their other states and will we have some access to
those so that we go to our representatives to try in and talk to
them about para to say hey these things have already been tried and they’re not
working excuse me excuse me boy bad timing all around heavens great question
you’re exactly right some of these systems that claim to have fixed their
issues by changing plan designs migrating to hybrids are migrating to
401k plans have done so in a way that didn’t address the unfunded liability
and despite a body of information that’s out there that the temple that if you
close your defined benefit plan your costs go up and if you shift everybody
into a different plan design shutting down your own plan is a very expensive
proposition not because you need that old money not because you need everybody
else’s money but because you’re closing the system and now you’ve got an
investment program that no longer has new people coming in and it grows older
and older and must become more and more conservative over time so they haven’t
taken those considerations or taken those issues into consideration in how
they modified their plan design and now they’re looking around and saying gosh
we didn’t lower our cost in fact our costs went up and it’s really one of the
reasons that it’s so important for the pair of board to be leading this
conversation with factual information so that we’re not looking at just one
piece of the puzzle we’re looking at the entire puzzle how it interacts how those
pieces are intertwined and coming to a thoughtful solution rather than kind of
a piecemeal let’s go fix that this you know change it this way without regard
to what it does to what you have going great question thing they’re doing thank
you Jeff let’s go to one of the the folks out of the room sure we have Bob
with a three-part question he wants to know when the 11 percent contribution
will take effect for pair of members he’s also going to be have 30 years of
service credit at age 55 does he now have to wait until he’s 65 to retire and
finally with the highest average salary going to five years does that apply to
everyone in 2020 or just new hires okay let me go backwards through those the
five year highest average salary change taking it from a three year calculation
to a five will only apply to people who are hired after January 1 of 2020 and
those who are not yet vested as of January 1 of 2020 vesting you have to
have five earned years of service credit in the system to be vested so all of our
existing members that are going to get to that five year point before January 1
of 2020 would not be impacted in any way their highest average salary calculation
would remain the same when they get to that retirement eligibility for the
change in the age eligibility that moved to 65 that only applies to new hires in
2020 after January 1 of 2020 so even if you’re not vested by 2020 that that that
finish line of when you’re age eligible to draw benefits does not change does
not change for anybody in the system today as for the contributions the
contribution increased by 3% in the board’s package is scheduled to occur on
January 1 of 2020 it is currently scheduled to be a
single move on that 3% there are conversations going on I’ll tell you
that and the board has had these prior to the community feedback segment of our
process where we might be able to phase those increases in contributions in 1% a
year over a three-year period and a two-year period for the employers
we’ve had some employers come to us and feel that they could start earlier than
2020 the board chose January 1 of 2020 because we were concerned about from the
budgeting process whether our employers could actually get ready for that change
and in the feedback process we’re hearing that perhaps it can be started a
little sooner so conversations like that are ongoing
but I hope that clears up who’s impacted by this because it really raises the
point I want to make and it’s a critically important point it’s
something I would ask assistance from everybody online and here in the room
and helping us with and that’s the rumor mill and the rumor mill in the public
employment arena is strong and intact and one of the concerns that we have
about that is people will hear that there’s change coming and they’ll say
well boy I’m eligible to retire right now I’m gonna race to the to the window
and turn in my application and retire today none of these changes should drive
that response none of these changes can impact somebody who’s currently eligible
to retire in terms of what the calculation of their benefit will be we
don’t want to drive that behavior one because it’s economically not
advantageous to the system but honestly more importantly it’s has it’s driving
people to make decisions about the rest of their lives the course of the rest of
their lives over an element that one really isn’t even final yet and to
probably isn’t even impacting the individual nothing about the cola
suspensions or reductions in the cap is dependent on when you retire regardless
of when you retire you’re going to have three years without in
protection if the General Assembly adopts the board’s recommendation you
might experience as a suspension you might experience it as a weight before
you’re eligible for the adjustment but you’ll have three years of no inflation
protection just like our retirees experience so please you know talk to
your friends and neighbors and people in the system and let them know that it’s
it’s not something that they should respond to by changing their work plan
or their career plan because it’s really not something that that is driving that
and it’s not impacting any change in their benefits thank you very much I’ve
got a question I hear in the front row you know would we be stepping on the
toes of our paid lobbyists and people that represent us too with this
developing relationship our legislators to have a rendezvous with the
legislators when they come in the new ones that come in every new legislative
session and meet them here with ambassadors and give them a tour of what
we do so that question is is from one of our ambassadors and for those of you on
the line we have an ambassador program or we have people who have signed up and
asked to be a part of our efforts in communicating with our legislators
across the state and we have representatives in our ambassador
program and every congressional district in the state of Colorado and we ask them
to develop a relationship with their local legislator to express the
importance of Perak what it means to the individual what it means to their
community the PERA be a solid economic driver and add advantage for Colorado
communities and part of that program is to encourage a relationship with those
local legislators by our ambassadors and in response to your question absolutely
encourage that interaction with the new ones as they come along even as
candidates will often reach out to two candidates who are engaged and are
interested in PERA some of them have misinformation
that we want to correct so that they don’t put themselves in a position of
asserting something that really factually isn’t isn’t sustainable so we
want you to to be that communication device and if we can support you and we
do have meetings with legislators here in our buildings so that we can give
them a tour of the facilities we used to do briefing is five or six briefings
during the legislative session so we’ll look at whether that’s productive as
well so appreciate the question and and as as I often say on the talking head of
Perak they’re not surprised when I say positive things about PERA or positive
things about the pair of board it’s more important that they hear from their own
constituents about what PERA means not only to them but to their communities
and really an important piece of the puzzle so thanks for the question we
have several questions Kate and Kathy are both asking about who’s affected by
the change in definition of service credit accrual and Maggie’s also asking
if current retirees would be affected by the service credit change okay so our
retirees are not affected by the service credit change there would not be any
recalculation about looking backwards and and changing somebody’s service
credit that service credit accrual changed where it would be more aligned
with what a person’s actually working as as a part of a full-time equivalent type
of an employee will apply to people who are hired as of January 1 2020 so we
don’t think we can change that rule for anybody that’s in the system today we
know we have teachers that worked for 20 years and decided that they they wanted
to go into substituting or something else intending to earn their last ten
years to to earn a benefit through substituting so that won’t change
they’ll still be able to do that but we will set new expectations in terms of
how you can accrue that service credit going forward
with those new hires in 2020 okay thank you let me let me replace repeat that
one for you John the question was how many other systems across the country
are social security replacement plans and how are we competitive with them
what do they look like versus what we look like and there are 13 states that
have their own state pension plan as a replacement to Social Security and
that’s something that the board spent a lot of time studying is what are those
plans look like how do they compare to our plan one of the conversations we’ve
been having around the state a lot is gosh how are we going to attract that
next set of employees with the reduction in benefits that that is being suggested
with this program and and you know we’ve spent a lot of time struggling with that
it because it’s critically important that we continue to be a tool for our
employers to attract that next quality talented individual into public service
so when we look at that it’s really easy to fall into comparing tomorrow’s
benefit with today’s PERA benefit and I’d suggest that that’s not really the
comparison we need to pay attention to the comparison we need to pay attention
to is what other choices around the country will that talent have that will
compete with Colorado Paris package and how does our pear package look compared
to Ohio’s package or Pennsylvania’s package or the many other systems that
our security social security replacements including some of those in
California so the board once they really got their their head around the fact
that’s the right comparison if we are looking at whether we’re continuing to
be a good tool for our employers what we need to look at is whether we compare
against others we’ve spent a lot of time on that and what we found was out of
those 13 the majority are no longer providing a guaranteed or a fixed Col
amount by statute they’re allowing boards the discretion to pay it if they
feel like they can afford it or not pay it if they don’t feel like they can
afford it of some of the others that do still have a statutory annual increase
or Cola cost-of-living adjustment there are most of them are in simple interest
not compounding interest and we’re seeing deterioration really across the
board on inflation protection not only in our Social Security replacement plans
but in our non Social Security replacements meaning our Social Security
supplement plans around the country as well so one of the reasons that the
board really feels like this proactive stance to protect some level of
inflation protection it’s critically important to the long-term
sustainability of our retirees thanks for your question John thank you I
wondered if we could hear a little bit Paris investment possibilities do they
have limitations but the legislature said if we could just hear more about
how they decide what to invest great thanks for that question responsible for
your forty seven billion dollars that we’re investing on your behalf it’s it’s
quite a challenge it’s quite a task let me start with the the statutory
limitations there are limitations as to how much of any one company public
company we can own so we have they’re called concentration risks so we can’t
own more than a certain percentage of any one public company in addition we
can’t have more than a certain percentage in equities and those so
there’s a limitation on that of the allocation to stocks
and we’ve never come close to having any restriction impact us in that respect
there are also a couple of statutes that prohibit us from investing in certain
types of companies like companies that are actively conducting business in the
Sudan this was a statute to pass some years ago because of the genocide
occurring in the Sudan and an attempt to ensure who are that genocide we have a
similar restriction on investments in Iran and particularly the oil and gas
and energy and weapons sector was a bill passed that prohibits us from investing
in certain companies that are participating in a boycott against
Israel and it’s called the BDS movement and our statute prohibits Peres from
investing in any companies that are supportive of the BDS movement against
Israel other than that the board manages the investment portfolio in terms of
what’s our risk tolerance what’s our asset allocation to stocks to bonds to
private equity to real estate to hedge funds to the various other opportunities
that are out there for the Peres portfolio Peres board is viewed as one
of the most sophisticated boards in the country in terms of how we run our
operation and the the core of that is that they hire expertise they hire an
investment consultant that’s a national well-respected organization that serves
in that capacity to a number of pension plans and that consultant reports
directly to the board they don’t come through me they don’t come through the
CIO they monitor our performance compared to others that are doing the
same thing we are and they report directly to the board so that the board
knows that it’s not getting filtered or altered in any way in addition to the
expertise they hire the staffs expertise and we have people that we’ve hired from
Wall Street we have people that have the highest credentials in the investment
world that work right here in this building for you all day every day and
those individuals manage about 60% 55 to 60% of your assets here in this building
where we’re not paying Wall Street we’re not paying any outside consultants but
we have this independent body that’s insuring that our performance measures
up to those outside providers if we wanted to pay them we look at this as
saving us between 25 and 50 million dollars a year just in in management
costs by managing those dollars internally and the dollars that we still
manage externally are those portfolios that we don’t believe we can retain and
and keep the expertise in-house to really manage like emerging markets
where you’re all over the world in the smallest countries and the countries
that are just getting up to being the level that we would normally invest in
or have large investments in so there’s a lot of those types of portfolios that
are kellyo real estate investments in private equity investments that we have
staff that are responsible for hearing we’re really hiring what are called
really hiring Washington and California and going out and buying private
companies in portfolios in and buildings for instance so rather than us go out
and buy a single building and own the whole thing we’ll put our money together
with five other pension plans and go out and own ten buildings instead of just
owning one building it’s really diversification it’s really an effort to
make sure that all your eggs aren’t in one basket to go back to the old sayings
and that diversification is king if you will
Modern Portfolio theory and with 47 billion dollars we can diversify like
like nobody else and and we really do do that globally as well as across the
asset classes our portfolio is performed well historically as I say it’s it’s
measured by an outside agency or entity and we continue to be pleased with how
that performs for us I’m going to tell one quick story one of the things I like
the most about the fact that we have our money largely managed internally here by
investment professionals in this building is the the feedback that I get
from those individuals when I ask them why do you work here why
you know why’d you let us pull you off of Wall Street or why do you continue to
pass up other opportunities to work here and we pay them well you know we don’t
pay them state wages we pay them competitive wages and the aunt but the
answer to that question is what I love the most I mean when they say Colorado
is a great place to live all the things that we all all have experienced in our
lives but what I love about their answer is they say when I work for Colorado
peres I don’t have to worry about what
Commission’s I generated I don’t have to worry about what paper I sold that day I
don’t have to worry about whether the house had a supporting position or
didn’t all I have to do every day is practice my craft my profession to make
money for the people of Perak and I just love that story because one of the
biggest conflicts in paying Wall Street is who are they working for are they
working for us are they working for somebody else who’s getting all that
money where’s all that money going to and how much money is it even because
even tracking how much you’re paying them is very challenging so to have
those investor to have loyalty only to our members sleep to our members Greg we
have a question from Barbara asking what are the chances that the Legislature
will approve PERA’s recommendations Wow very hard with a number of legislators for months working throughout the summer
understanding the package understanding why the package is the aisle in both
houses so you know I’m sure we have a Republican Senate and a Democratic House
that makes for a partisan viewpoint in order to get about the conversations
we’re having conversations we’re having indicate there are legislators there
they’re very interested in the board’s package and we’re continuing to
cultivate those opportunities obviously it’s premature for me to come forward
with what that lineup looks like at this point in time and there are plenty of
hurdles on the horizon in terms of actually getting to the finish line a
lot of people have raised with me why are you doing this in the middle of the
governor’s race why don’t you wait a year and see how the house or the Senate
looks like after the next round of elections this conversations gonna
happen with or without us and it’s gonna happen in the 18 session I’m very
confident we went to the legislature last year and told them we’re coming to
you next year with a comprehensive package about how to get back to that 30
year funding schedule and and the legislators looked me in the eye and
said okay Greg I expect you to come with something that works and as a as a
result of that they they didn’t go forward with a number of bills that were
introduced last year and and others that were on the wings weren’t introduced as
a result of that commitment by PERA it’s not about the commit
as much as it is about the fact that the time has come we need to try and turn
those lines you saw the lines we can’t defend being in a declining funding
position for 25 years before we were before we recover even though we can see
the recovery we can point to it we can project it I just don’t believe that’s
good enough and we need to be taking action one because there’s other voices
but – because we’re fiduciaries PERA board is your fiduciary and we can’t
look at these these circumstances and say let’s sit on our hands for 20 years
because if you look at those lines in 20 years we are Kentucky in 20 years we are
Illinois and and fixing it then is going to be a whole different kettle of fish
so that proactive stance that the board has taken I think is is is the
responsible if the douchey Airy position to obtain cane mine is a little
similar to that I just really like the automatic adjustment provision but I was
wanting to know according to the legislators do you think that’s going to
be able to stay in the package or your bill great question the variable
component that really the heart puts us on a path to truly getting to the finish
line what I love about the the variable part of the package is it allows the
2018 legislature to take the reins and actually set the course for this system
to eliminate those unfunded liabilities in a 30 year period or less and that’s
something that that we critically need it’s a structural change it’s automatic
it’s no discretion by the PERA board it’s not oh do we want to do this or not
want to do this it’s absolute statutory triggers that keep us on track to
eliminate that unfunded liability that is the road to loosening up dollars for
use elsewhere in the state of Colorado whether it’s education or transport
or whatever else you want to be focused on we need to get out from under this
unfunded liability before those dollars become available and there’s only one
way and that’s paying it off it doesn’t go away it is best protected obligations
that the state has to our members so really getting on course setting that
path to truly retiring that unfunded liability I think is critically
important and there are legislators who have expressed a real level of
excitement about actually getting there and and setting that course and one that
can actually get to the finish line you know people talk to me about well gosh I
thought Senate bill 1 was going to do it for us the fact is that conditions are
gonna continually change I get into so many debates about it seven and a
quarter the right assumption for the returns in the future what this does is
if we’re wrong and it’s worse than we think then it’s going to adjust to that
if we’re wrong and it’s better than we think it’s going to adjust to that as
well and that’s really the the magic to
getting on path to eliminate that unfunded liability I hope that we can
the other hard part about it is you’ve got to have a 30-year amortization to
start it I can’t get you know half the package that we’ve designed and then put
the variable on top of it because it’ll immediately trigger the variable
components to to change the benefit structure so to start it and the hardest
part probably in the legislature is getting to the starting line which
really requires the board’s full package okay great Jeff with an online question
yeah Randy has a follow-up to this auto adjustment feature what are the ranges
of adjustments allowable to make changes in the future based on the economy and
PERA beans sound good question it’s important that you look at two things
and that’s the intervals by which they they they move and what I mean by that
the board’s motion says that the cola could never go below a half a percent
and the contributions could not rise by more than two percent for employees and
two percent for employers now that’s all above and beyond the package that that
is the board’s package that we’ve talked about to the other side if it got better
it could restore the cola to the full 2% that we’re paying today and it could
eliminate those additional contributions that are in the board’s package of 2%
from the employers and 2% from the employees it won’t impact that last 1%
that the employees are paying and the way that it would move is if we had an
economic or a demographic event that put us behind that 30-year schedule it would
trigger an automatic increase in all three they have to always work in tandem
that’s the shared responsibility concept that we’ve built into this and it would
automatically trigger an increase in employer contributions employee
contributions and it would lower the cola the intervals being contemplated by
the board is that the contributions would go up by a half a percent for
employers a half a percent for employees and the cola cap would go down by a
quarter of a percent when you look under the hood of that and you you try and
figure out what are those parts really worth what what’s what’s it break down
to very close to a third a third a third among those three components now it
changes a little bit over time it camps like it’s not a precise dollar amount
because there’s some variables in there but the design is for that to be a third
a third a third and that shared responsibility for future changes and
the need to respond to them on the flipside if we had strong investment
returns and and we’ve tested the strength of these things and what
triggers what if we had to 15% sin a row it would put
far enough ahead of schedule that we could fit in an interval so we could
raise the Cola cap by a quarter of a percent and we could lower contributions
for the employers by a half a percent lower contributions by employees by a
half a percent and still stay ahead of our 30 year payment schedule we could
never implement by statute a restoration of any of those things if it would push
us behind our thirty-year schedule we’d always have to be either on the 30-year
schedule or are ahead of the 30-year schedule so it could build us a little
bit of cushion there as well but it would be responsive both on the
upside and the downside we’ve tested this we’ve stressed tested it if you
will we know what it can can handle and if we got an event if we lost 26% which
has only happened once in Paris 30-year 3080 year history we would have a 32
year amortization period after we maxed out the PERAmeters of that variable
model even if we had an eight event so pretty darn extreme and the objective is
to stay out of the Statehouse and allow this legislature to chart a course so
that we actually reached the desired finish line and as I say we do have some
legislators that find that possibility exciting and and really what they feel
is is a responsibility they’d like to take on so we’re hopeful that we’ll keep
some momentum and go in that direction great question right here hi Greg first
of all I have just a couple of comments before you get to my question because
you almost answered it just now but one thing I wanted to say was I’m very
pleased that the board decided to keep a cola that is so important because once
you lose something it’s hard to get it back
appreciate their recognition of that one of the things that
I guess maybe this is just personally for me is a little bit difficulty with
accepting the cola fries this year when in all likelihood unless there’s some
catastrophic event between now and December 31st Paris earnings could be
north of 15 percent this year accepting the cola freeze for next
year’s you know it doesn’t get much better than 15 percent for you know for
returns and finally the the mechanism that is going to trigger the
reinstatement of the two year freeze for current retirees on the cola
that’s going to be triggered by something similar to era has to make at
least one dollar for us to get a our cola back or lose $1 for us to lose it
just a little bit more than that great question and it shows how complicated
this animal is nothing in the variable model is going to trigger suspension
years would never the two years of suspension are set in the package to get
us to the starting line and they would never the variable model would never
trigger another year of suspension all it would do not all it would do like oh
it’s nothing but it’s only impact would be on the cap of the cola and to lower
that cap by a quarter of a percent per interval so it it doesn’t impact that
the variable model doesn’t impact the suspension to your point about what are
our earnings in 2017 and and do they change this need you know we got into
that that conversation when we did Senate bill 1 if you go back and you
look at what the board actually recommended in connection with Senate
bill 1 it was a two-year suspension of the cola it was an indexing of the cola
for everybody it was a five-year highest average salary calculation for everybody
unvested so there were components in the package and they were taken out of the
package because we thought that the earn well shouldn’t say we thought the the
political process determined that our returns in 2009 in
the recovery from the o8 crisis were enough to offset those differences and
therefore we could give up those portions of the package and still get to
the goal line that lack of indexing in the cola has cost us significant money
since the o8 event or since the Senate bill one so you know I I hear you you’re
exactly right if I take a snapshot and we got a 15% return in 17 does it change
some of those lines yes but it’s also one of the components that we’re relying
on to make seven and a quarter for the next 30 years and if we barter it all
away if we we trade it away to avoid some of the benefit impacts that we’re
talking about doing then it’s really not there anymore for us to use as a part of
the averaging over 30 years to really get to that seven and a quarter so I
expect to have more conversations along that line and we are having a good year
there’s no doubt about it we’re not looking to cut benefits any more than we
have to we’re not looking to increase
contributions more than are needed so that conversation is one the board will
continue to have but I just want to make the point that a one-year snapshot
doesn’t tell you the 30-year story very effectively and I know I’m using
snapshots so I’m not meaning to talk out of both sides of my mouth I understand
that there’s there’s gains to be harvested and and maybe that can reduce
some of the pain but understand that once we use that that strength to reduce
some of the pain then it’s not there for the rest of the purpose which is to
maintain that seven and a quarter over a 30-year period great question thanks
very much Mike thank you online question John Robie is asking why are all changes
being considered in a blanket fashion for all divisions rather than tailoring
solutions by each division since different divisions have differing
financial situations very good question and I appreciate the question as you can
see from those lines that were projected earlier there are divisions in different
status the two big divisions that make up about ninety five percent of the
total population are those two lines at the bottom the state division in a
school division the judicial division is 600 members the DPS division is very
unique in that they have debt outside of the pension that is also a part of the
picture for them or they issued certificates of participation and put
money into the system so that lines got some different components to it the
local government line has some assets that reflected in it that are the result
of the Memorial Hospital dis affiliating from the system and making a large
payment into that division on their way out the door
so there’s anomalies in all of those that have to be considered but the most
important answer to a very good question is portability among our different
divisions for our members has always been one of our most important strengths
it allows teachers to go to work for a community college it allows government
workers to go be teachers and not disrupt their pension and the
accumulation of their pension in PERA you can carry your pension without
impact from one division to another throughout the state of Colorado and
government employment throughout the state of Colorado so in order to have
that you have to have a consistent benefit structure across those divisions
you can have differences in employer contributions but you can’t have
differences in retirement age highest average salary calculations employee
contributions because if you get to there then I can no longer effectively
an F and in an equitable manner maintain the benefits for people who are moving
from one division to another so that portability has always been
PERAmount in how PERA works and it’s one of the components that the board wanted
to maintain now what does that mean local government division from those
lines is scheduled to get to the hundred percent funding much quicker than
everybody else part of that is because they’ve got money in there that is going
to be used for for liabilities that were left behind by Memorial but the fact is
that under the package they will get to that hundred percent finit the finish
line faster than the other divisions and that will kick in the Senate bill one
provisions and nothing’s simple in our world Senate bill one had corridors in
it where if we any division that reaches a hundred and three percent funding
begins to experience a reduction in the contributions that are required from the
employers and from the Saed component of the contribution so the reduction of
those will will make dollars available some to the employees and some to the
employers so local government division will get the benefit of those corridors
more quickly than the other divisions under that projection that you saw as
well judicial and the DPS division and will be able to maintain portability
through that strategy thanks for that good question thank you there questions
Jeff I know you’ve got a cure there but so Patrick is asking if PERA board
members are going to have their pay cut yep we’re gonna take the pair of boards
pay of zero – zero – ten no the PERA board are all volunteers the very board
do not get paid we have three governor appointees that are paid like a I think
$100 of meeting stipend and I can assure you they put in a whole lot more time
and work that those board members who are members
of the system which are the majority will suffer exactly the same
consequences from this package as our members will those that are retired and
will retire in the future will have the cola impact those that are active
members will be paying higher contributions I don’t know that we have
any board members that will be unvested in 2020 but we have one that’s pretty
close so I don’t know the answer for sure to that question but the bare board
members are not in any way insulated from this and because of their perhaps
marginal judgment in running for the pair of board they get to do this for
nothing so and I appreciate they’ve been an
incredible resource as this process goes forward and continue to be so thanks
very good question keep them coming Jeff sure Steve asks and always starts with a
portion of the proposal will require an increase in contributions by employers
assuming there will be a great deal of political blowback to that is there a
plan B should employers not be required to increase contributions I like it when
people ask the right questions and that’s another one of the right
questions absolutely going to be a battle to get the employer contribution
increase we had a bill passed last year out of the Senate that said there shall
never ever again be an increase in the employer contributions to PERA now that
died in the house and later in the year the Senate passed a bill that increased
employer contributions into the system so don’t think consistencies you know
paramount or anything but the direct answer to the question is if we can’t
get that 2% in employer contributions we don’t make the 30 year goal and if we
want to make the 30 year goal without those increased employer contributions
you can put another two percent on the employees and that’s pretty close to the
same thing but then you’ve increased employee contributions by more than 50
percent or you can turn back to the cola and the equivalent of that 2% increase
in contributions taken in the form of Cola is take the cola cap to one percent
if you don’t want lower the cola cap and you still want to get to the goal line
and you can’t get two percent of employer contribution then you’ve got to
suspend the cola for five years those are the those are the equivalents and
those are the interchangeable parts and it’s what led the board to the the
balance that it has struck in trying to have shared responsibility for the
solution but there’s a fighter coming and we need everybody that’s a member in
the system as well as our taxpayers and community leaders across the state of
Colorado to get behind a solution that actually gets us to the finish line of
paying off this unfunded liability and loosening those dollars up for other
purposes in the state of Colorado Carol is asking a clarifying question on when
does the retiree part start now or in 2020 on the annual increase the annual
increased suspensions would be in 2018 and 2019 and the cola or the annual
increase would we we start in 2020 at one and a half percent well I can keep going with question from
Cindy she’s asking if she leaves Peres employment for a couple of years and
then returns does her previous membership date keep her a current
member or does she become a new member and thus potentially impacted by these
changes that’s a great question so as long as a person doesn’t take
their money out of the system take a refund and take their dollars with them
they maintain the tier that then their hire date that they originally had so a
person that needs to leave for a couple years for whatever purpose and leaves
their money in the system will be able to come back to that same benefit
structure that they left from here in the room what questions there’s two
questions in the room I just want to ask if the package passes all school
districts would have to do the increase they have to budget accordingly then yep
there’s no exceptions for rural schools or urban schools or any of our employers
it is uniform across the board in the state and school division now I’ll tell
you that I’ve had some local government employers come to me and say well why
don’t we not give us a 2% increase so that we’re a little closer to the same
finish line that everybody else is at we don’t really need to put another two
percent of employer contribution in and that’s certainly a perspective the pair
of boards package currently does require it from the local government employers
and that’s because we want that shared responsibility and for the employers to
have some some impact in this process and we think the solution of their
finishing faster and getting to a hundred percent faster is those
corridors in Senate bill one that will start to lower contributions for them
when they get to that finish line right here my question is about a recent
Denver Post article and I’ll just quote directly from it the government agencies
that employ public employees chip in as well for the
two largest divisions being twenty point one five percent of an employee’s pay
I heard you answer something about this in Greeley the other night but that that
kind of a figure is rather startling I didn’t understand that employers were
paying twenty percent and I don’t know that that’s typical but when it comes
out I’m just concerned about the story that’s reaching the public a great great
point and and when we spend a lot of time on and I wish I didn’t spend as
much time on it as I do first of all let me say that the board in terms of
developing the package again looked at our competitive organizations across the
country the ones that are doing the same thing we’re doing the replacements for
Social Security primarily but all the public pension plans and when we looked
across that population employer contributions vary from about eight
percent to forty five percent so the spectrum is incredibly dramatic at
twenty or twenty two percent that we would be trying to to get our employers
to in this package we’re not dramatically out of the middle
of that pack probably on the upper end of it though or the upper side of Midway
if you will but the 28% the twenty point one five
percent is really a characterization that I take issue with and the reason
for that is and you’re exactly right I mean when you’re talking to people and
you say well the current contribution structure is eight percent from
employees and 20 percent from employers they kind of look at you like and that
seems a little off and what’s under the hood of that is in Senate bill one we
created a special category of contributions and it can it makes up 10%
of the 20% that the employers are paying in so there’s a 10% base contribution
from the employers and an 8% base contribution from employees then there’s
another 10% of contribution that comes to us from the employer but under the
Senate bill one structure 5% of it so half of it was supposed to be funded by
them taking salary that would have otherwise gone to employees and funding
that contribution so they if they had a salary survey and it said well we should
be paying a 2% increased cost of living to our employees they would only pay one
point five percent and they’d take a half a percent and they would fund that
year’s increase in this this form of contribution so our employees are
members very much like to point out that really the breakdown is that eight
percent of employee contribution plus the five of forgone salary that they
have so they’re in for thirteen and the employers in for their ten plus the
additional five or fifteen now if you think you can get to the end of that
conversation I wish you more luck than I have because it is a very difficult
thing to not have people just gloss over and say wow this guy probably knows what
he’s talking about but I can’t follow it so it’s a real challenge in that respect
but I can’t ignore it the board can’t ignore it we have members in the
system that have absolutely given up salary to fund some of the employer
contributions that are being made and that can’t be lost in the shuffle so
when we apply our change here that three percent and 2 percent and you accept
that breakdown of the contributions it really gets us to a 16 versus a 17
percent contribution with the employees versus the employers very equitable very
legitimate split let me just tell you quickly why in the heck did you do that
why did you create that thing two reasons one is because of the corridors
that I mentioned the corridors reduce those those additional contributions
that are coming from the employer and they do it half a percent in in the
salary funded part from the employees and half a percent from the employers as
that starts to ratchet down when they get to 103 percent so we wanted a
mechanism where our employees would be able to recover those lost salary
dollars when we return to full funding so that was one of the reasons that we
created that mechanism and the other is that employees when they contribute
directly to us that goes in their member account and we pay them interest on
those dollars and when they leave the system they take those dollars with them
and we wanted to create these contributions that were going toward the
unfunded liability and didn’t leave the system when our member happened to leave
employment so those are the two reasons for the Saed or the salary funded
portion of the contributions I know we’re about to run out of time on our
webcast I think we have one more question from on Dave thanks Greg just
to follow up on your response and the question previously there in addition to
shifting that cost essentially to the employees it also lowered their hasl
long way and has a very significant impact on their
retirement and on the funded status of the pension plan and that should not be
lost on people who are looking at that 20s Damon’s 20 yeah yes absolutely
you’re exactly right when they gave up that 5% in salary to fund that form of
contribution those are dollars that don’t appear in their salary anymore and
therefore not a part of the highest average salary calculation and they lost
that 8 that 5% for their lifetime in terms of the benefit calculation at the
outset so thanks for that one yeah there’s been other instances where the
state has played games on on where the contributions came from for sure
everybody out there thanks for being with us today I hope this has been
helpful if you had a question and it didn’t get answered please follow up
with us we’ll be happy to get you the answer and I appreciate everybody’s
participation in the conversation and I hope we’ll get your support as we come
into the 18 session have a great day

Robin Kshlerin