46AD42451A1AFE41872587440052C9A8 Hearing Summary CLICS/CLICS2021A/commsumm.nsf PUBLICBILL SUMMARY For REVIEW FINAL REPORT OF INDEPENDENT PERA AUDITINTERIM COMMITTEE PENSION REVIEW SUBCOMMITTEEDate Sep 2, 2021 Location HCR 0112 Review Final Report of Independent PERA Audit - Committee Discussion Only Attachment Tag File Name Attachment A http://www2.leg.state.co.us/CLICS/CLICS2021A/commsumm.nsf/0/0FA72C41A948...$File/21PensionSubComm0902AttachA.pdf?OpenElement 21PensionSubComm0902AttachA.pdf Attachment B http://www2.leg.state.co.us/CLICS/CLICS2021A/commsumm.nsf/0/9B0EC51C4716...$File/21PensionSubComm0902AttachB.pdf?OpenElement 21PensionSubComm0902AttachB.pdf 09:04:20 AM Mr. Joe Newton and Dana Woolfrey, representing GRS, came to the table to discuss their initial results of their independent audit of the Public Employees' Retirement Association (PERA). A copy of the independent audit and their presentation may be found in Attachment A and Attachment B, respectively. Copies may also be found here: https://leg.colorado.gov/content/ipensionrevewsubcomm2021acommdocs. 09:08:04 AM Ms. Woolfrey continued by discussing the audit report's technical and communication recommendations. The technical recommendations include: request from PERA for the currently scheduled 2024 Experience Study be accelerated into 2022, for use in the December 31, 2022 valuation, and request PERA shorten amortization periods used for future layers to align with the goal of reaching full funding by 2048. The communications recommendations include: request the signal light report include a historical reconciliation of gains/losses by source; request the valuation and signal light report include a clearer statement towards the front of the report on the main goal(s) of the funding policy and the progress towards achieving those goal(s); and request more consistent messaging/definitions of the âfunding periodâ, especially being distinct from the amortization period. Mr. Newton and Ms. Wolfrey answered several committee questions about their recommendations. 09:13:54 AM Ms. Woolfrey continued by discussing the scope of review for the independent audit that were discussed at the subcommittee's last meeting on August 19. Ms. Woolfrey also discussed the impact of the recent strong investment performance for several divisions and the projected growth of market and actuarial assets. Mr. Newton responded to several committee questions. 09:25:19 AM Mr. Newton continued by reviewing PERA's signal light report and the probability of PERA's state and school divisions achieving full funding by 2048. Mr. Newton answered several committee questions and summarized the non-investment sources of variance. 09:44:23 AM Mr. Newton continued by discussing when a scenario is discussed as a success in the signal light report. Mr. Newton noted the current conservative model approach and that some success' may not be counted as a success in the signal light report. He noted that this may have change some probability of success by 2048. Mr. Newton answered several committee questions. 09:55:07 AM Mr. Newton continued by discussing GRS's estimates of the probabilities of PERA achieving full funding by 2048. Mr. Newton said that PERA as a whole achieving full funding is 59 percent. 09:57:04 AM Mr. Newton continued by discussing several data points and scenarios from the independent audit. Mr. Newton explained some additional considerations including shorter amortization periods and some additional steps. 10:09:07 AM Mr. Newton continued by noting that the $225 million annual direct distribution should continue and stressed the importance of continuing that contribution. He noted that discretionary contributions holidays ultimately leads to benefit reductions. In response to a committee question, Mr. Newton stated that paying back a missed distribution will help, but that ultimately the distribution should not be missed. 10:15:19 AM Mr. Newton continued by discussing the results of several outside reports and studies that have implications on the subcommittee's work. Mr. Newton stated that retirement systems whose plan sponsors have discretion, or control, over the contributions struggle to be successful. He also noted that Senate Bill 18-200 was a strong step in the right direction in this regard, but continues to have long term limitations. 10:18:41 AM Mr. Newton noted that PERA's funded ratio did not improve due to a combination of the demographic assumptions underperforming and not receiving an actuarially appropriate contribution for most years. He noted that a situation where the contribution levels are not expected to sustain the plan âdoing nothingâ can not be an option and there has to be a mechanism to force appropriate change at the appropriate speed. 10:21:32 AM Mr. Newton answered several questions about the option to bond to make the $225 million direct distribution. He also discussed pension obligation bonds in response to a committee questions. He continued to answer questions about the $225 million direct distribution. Committee discussion ensued. 11:15:29 AM The committee recessed. 11:29:21 AM The committee came back to order. 11:32:13 AM Mr. Newton stated that the probability of full funding is not over 65 percent for PERA achieving full funding prior to 2048. However, the probability is PERA is currently on a path towards full funding. He stated that for PERA to be successful, the plan sponsors have to be committed to appropriate and consistent funding, and that the assumptions and the contributions have to be reliable.
