PERA Benefit Security
PERA Benefit Security
You likely are reading this message out of concern about the security of monthly benefits paid from one of PERA’s retirement funds as a result of the economic impact of COVID-19. Pension funds are generally structured to be able to withstand market fluctuations with minimal or no impact on member’s benefits. Only if there are more permanent market adjustments, sustained economic slow-downs, or changes to future assumptions will there be adjustments made through legislation that would require shared sacrifice among all stakeholders.
The purpose of this message is to provide you with facts as they relate to the PERA funds that may help address some of your uncertainty.
Fact #1: If you are a current retiree, State law prevents us from reducing your benefit. In the long run, if investment losses are sustained, there could be a change to how future Cost of Living Adjustment (COLA) increases are granted. If you are an active member, your accrued benefit may not be decreased. Your accrued benefit is the amount of benefit you have earned to date based on past salaries and past service. For active employees, depending on the impact of the investment losses, future benefit accruals or COLAs could change. However, any changes made to COLAs, future accruals, or other benefit adjustments require legislation, which has historically taken years to develop, pass, and enact.
Fact #2: Employee and employer contributions are expected to continue to flow into the fund without interruption.
Fact #3: Since its inception in 1931, PERA has never had a deviation from regular monthly benefits to our retirees. Nor has there been a benefit reduction to retiree benefits. The certainty of monthly benefit payments has endured other crises, including wars, major market adjustments, and economic recessions.
Fact #4: The PERA funds have assets available to meet ongoing benefit obligations. As of July 1, 2019, our most recent valuation date, the General Employees Retirement Plan was 80% funded, the Police & Fire Plan was 89% funded, and the Correctional Plan was 98% funded.
Fact #5: The above-mentioned funding ratios have declined since July 1, 2019, due to asset losses in the fund. However, the fund’s returns since that measurement date reflect less in losses than what is often cited in news reports for market indexes. News reports often cite drops in market values from their recent highs. When the funds are measured from their last valuation date (July 1, 2019), the fund losses are about 10% less than index losses from more recent high points.
Fact #6: PERA’s funds are managed by the State Board of Investment using a diversified portfolio. Diversification helps dampen volatility and can mitigate losses. As of the end of February, the funds returns were a positive 2%. By comparison, both the Dow Index and S&P index were slightly negative at that time.
Fact #7; PERA’s fund has rebounded from extremely poor investment occurrences before. In fiscal year 2009, the fund had a negative 19% return. In the following ten years, the fund experienced nearly an 11% annualized rate of return.
As stated above, pension funds are generally structured to be able to withstand market fluctuations with minimal or no impact on member’s benefits. However, there are no guarantees that the impact from the COVID-19 crisis will fall into the category of “normal” volatility. Determining the future of the plan in the post COVID-19 world will require expert analysis and time to evaluate. Any changes that come as a result of shared sacrifices among all stakeholders will require legislative action.
Please continue to monitor the PERA website for updates. We will keep you informed of facts as they change.