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Colorado Senate Passes Pension Reform Bill

Proposed changes aimed at eliminating the unfunded liabilities of the state’s pension plans.

By Michael Katz

The Colorado Senate has passed a pension reform bill that increases employee and employer contributions, reduces cost-of-living adjustments, and raises the retirement age for new employees, among other changes.

The bill modifies the hybrid defined benefit plan administered by Colorado’s Public Employees’ Retirement Association (PERA) with the goal of eliminating the unfunded liability of the state’s public pension plans within the next 30 years. The state’s retirement association said the bill incorporates many of the recommendations put forward by its board in September.

Currently, all public employee pension participants contribute 8% of their salary on a monthly basis, except for state troopers, who contribute 10%. Under the proposed legislation, the monthly member contribution would increase by 0.5% of their salary, and on July 1, 2019, and again on Jan. 1, 2020, the monthly member contribution would increase by 1% of salary. When the increases are fully implemented, the total contribution would be 11% of members’ salaries each month, while state troopers’ contribution would be 13% of their salary.

For members who begin employment in 2020, the bill would also increase the age and service requirements for full-service retirement benefits for most divisions to age 65, with a minimum of five years of service, or any age with a minimum of 40 years of service credit.

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For state troopers who begin employment in 2020, the bill would raise the age and service requirements for full-service retirement benefits to 55 with a minimum of 25 years of service credit, or any age with a minimum of 35 years of service credit.

The bill would also modify the highest average salary calculation for all new members hired on or after Jan. 1, 2020, to be based on an average of the highest annual salaries associated with seven periods of 12 consecutive months of service with a base year, rather than the current three periods of 12 consecutive months of service.

The cost-of-living adjustment for all retirees, members, and inactive members would also change under the bill. Currently, the annual adjustment for benefit recipients who began membership prior to Jan. 1, 2007, is 2%. For 2018 and 2019, the bill reduces that to 0%, and for each year after, the bill changes the adjustment to 1.25%. The bill would also require benefit recipients whose effective date of retirement is on or after Jan. 1, 2011, and who have not received a cost-of-living adjustment on or before May 1, 2018, to receive benefits for at least 36 months following retirement before the benefit is adjusted.

Beginning in 2021, the bill would also require employer contribution rates to be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability.

The Colorado Senate has passed a pension reform bill that increases employee and employer contributions, reduces cost-of-living adjustments, and raises the retirement age for new employees, among other changes.

The bill modifies the hybrid defined benefit plan administered by Colorado’s Public Employees’ Retirement Association (PERA) with the goal of eliminating the unfunded liability of the state’s public pension plans within the next 30 years. The state’s retirement association said the bill incorporates many of the recommendations put forward by its board in September.

Currently, all public employee pension participants contribute 8% of their salary on a monthly basis, except for state troopers, who contribute 10%. Under the proposed legislation, the monthly member contribution would increase by 0.5% of their salary, and on July 1, 2019, and again on Jan. 1, 2020, the monthly member contribution would increase by 1% of salary. When the increases are fully implemented, the total contribution would be 11% of members’ salaries each month, while state troopers’ contribution would be 13% of their salary.

For members who begin employment in 2020, the bill would also increase the age and service requirements for full-service retirement benefits for most divisions to age 65, with a minimum of five years of service, or any age with a minimum of 40 years of service credit.

For state troopers who begin employment in 2020, the bill would raise the age and service requirements for full-service retirement benefits to 55 with a minimum of 25 years of service credit, or any age with a minimum of 35 years of service credit.

The bill would also modify the highest average salary calculation for all new members hired on or after Jan. 1, 2020, to be based on an average of the highest annual salaries associated with seven periods of 12 consecutive months of service with a base year, rather than the current three periods of 12 consecutive months of service.

The cost-of-living adjustment for all retirees, members, and inactive members would also change under the bill. Currently, the annual adjustment for benefit recipients who began membership prior to Jan. 1, 2007, is 2%. For 2018 and 2019, the bill reduces that to 0%, and for each year after, the bill changes the adjustment to 1.25%. The bill would also require benefit recipients whose effective date of retirement is on or after Jan. 1, 2011, and who have not received a cost-of-living adjustment on or before May 1, 2018, to receive benefits for at least 36 months following retirement before the benefit is adjusted.

Beginning in 2021, the bill would also require employer contribution rates to be adjusted to include a defined contribution supplement. The defined contribution supplement for each division will be the employer contribution amount paid to defined contribution plan participant accounts that would have otherwise gone to the defined benefit trusts to pay down the unfunded liability.

However, the bill will likely have to undergo some changes from its current form if it’s going to proceed any further. It was passed along party lines in the Republican-held Senate, and would have to make its way through the state’s Democrat-held House, and then be signed by Governor John Hickenlooper, a democrat, before becoming law.

One of the main aspects of the bill likely to change is an increase in employee contributions that is unaccompanied by an increase in employer contributions. The retirement association had recommended a 2% increase in employer contributions effective in 2020, but that provision was not included in the senate’s final bill. It’s expected that house democrats will call for some amount of employer contribution increases to be included in a revised version of the bill.

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Home > News > Research > Standards and Professionalism Outrank Returns in Trust-Based Survey
Research

Standards and Professionalism Outrank Returns in Trust-Based Survey

Surveyed investors prefer advice from human interaction versus AI, whereas tech is preferred as strategy tool.

By Chris Butera

A new survey from the CFA Institute reveals how the investment industry can boost its credibility and earn the trust of its clients.

The 12-market survey of both institutional and retail investors, The Next Generation of Trust: A Global Survey on the State of Investor Trust, discovered retail investors were largely dissatisfied with their advisers. Of the 800-plus institutional investors surveyed, CFA Institute reported that they gain trust in an adviser who: 1) gives full disclosure of fees, 2)  acknowledges conflicts of interest, and 3) generates returns that outperform a benchmark.

However, less than half of the participants reported satisfactory adviser performance on any of these three things. The institutional investors are more satisfied with advisers than retail investors, by 10 percentage points.

“There’s a lot of possibilities,” Bob Stammers, director of investor engagement at the CFA Institute told CIO in respect as to why trust has gone up.“For one, the market is doing better. You’ve had 10 years since the financial crisis for people to get a little more confident about the market itself. The other is experience. If you think about years past there is not as much engagement with retail investors as there is today, so with experience comes more confidence.”

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“The whole advent of robo-advisers and now the ability for advice to be provided to the mass affluent and even in smaller accounts helps more people understand the investment management business and the markets itself,” Stammers added.

For more than 3,000 surveyed retail investors, trust is a key reason to hire an adviser as well as performance. The survey shows that although twice as many retail investors prioritized trust over performance in their hiring decisions, underperformance (57%) and lack of communication or responsiveness (51%) were the main reasons for terminating the relationship with their financial advisers.

When it comes to hiring an asset manager, 17% of retail investors marked the ability to achieve high returns as a priority. Top attributes among institutional investors for hiring asset managers are the trust that they will act in the client’s best interests as well as high performance (24%).  

As for technology, investors are much more likely to turn to humans for advice. Although combining machine learning and human interaction can help build trust, technology is still seen more of a tool for execution rather than a distributor of assistance. A staggering 72% of investors were more likely to trust human advice over robotic, with 48% deciding that technology will provide more for their strategy implementation than a human in three years. The survey also found that technological interest has increased since 2016 throughout every market and age group.

“One of the interesting parts of this study was not just about trust but how trust is changing,” said Stammers, who added that technology is a way that investment professionals can better communicate with their clients, especially millennials.

Protection against data hacks and breaches was another trust factor among investors, and although 40% of investors noted that the more mainstream use of tech has raised their trust in financial advisers, they were worried about their data’s vulnerability. In fact, 82% of institutional investors agreed that reliable security measures to defend their data is more important than performance and disclosures.

Lastly, standards and professionalism were a huge chunk of what drives trust for investors across the industry. When told their investment firm sticks to an industry-wide voluntary code of conduct, the trust of 64% of retail investors and 70% of institutional investors increases. Three-quarters of investors surveyed also expressed the importance that the firms they choose to do business with hire investment professionals from respected industry organizations.

“In the past…it was all about returns. Now, you’ve got people that are much more worried about ‘are my interests being taken care of? Is the person I’m giving my capital to really got my interests to heart?’,” said Stammers. “We call it the glue in the financial ecosystem but if you think about it, trust is the centerpiece of any social relationship.”

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