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46AD42451A1AFE41872587440052C9A8 Hearing Summary


Date Sep 2, 2021      
Location HCR 0112

Review Final Report of Independent PERA Audit - Committee Discussion Only

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:
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 “funding period”, especially being distinct from the amortization

Mr. Newton and Ms. Wolfrey answered several committee questions about their

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 “doing nothing” 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.

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