On November 18, 2016, the Colorado PERA Board of Trustees voted to amend the
actuarial investment assumption rate (“Assumption Rate”) from 7.5% to 7.25%. In connection
with this change, it is necessary to revise Colorado PERA Rule 2.90C., which states the current
assumption rate. PERA submits the amended Rule 2.90C. as an emergency rule and
respectfully requests that it is approved as such. The purpose of this memorandum is to
explain the reasoning behind this request.
The Assumption Rate is the percentage that Colorado PERA assumes it will earn on its
investments, and is used to perform the calculations that determine each member’s benefits as
well as determine the overall financial status of the trust fund. Because the Assumption Rate is
a crucial aspect of operation, the Board of Trustees continuously monitors the performance of
the trust fund to determine whether the Assumption Rate is comparable to the trust fund’s
actual investment returns.
On October 28, 2016, the Board of Trustees participated in a comprehensive actuarial
assumptions workshop. The workshop included presentations from not only the Colorado
PERA actuaries and consultants but also from outside firms (Goldman Sachs and Blackstone)
that provide their analysis about the current state of the market and offer predictions about the
short and long term performance of investments. The next scheduled Board meeting after the
workshop was held today, November 18, 2016. During the meeting, the Board took action to
lower the Assumption Rate to 7.25%, which was based upon the information received at the
workshop.
For purposes of financial reporting as well as benefit calculations, it is critical that the
lowered Assumption Rate approved by the Board of Trustees take effect as of January 1, 2017.
Because the actual Assumption Rate is set forth in Rule 2.90C., Colorado PERA must update
that Rule to adjust the Assumption Rate to 7.25%. Due to the critical nature of the Assumption
Rate in the operation of the trust fund, the Board of Trustees found that it is imperatively
necessary to immediately adopt an emergency rule amending the Assumption Rate in Rule
2.90C. The Board of Trustees motion is as follows:
I move that the Board find it imperatively necessary to approve and adopt the proposed
amendment to Rule 2.90.C as an emergency rule to reflect the revised actual
investment assumption rate of 7.25% and with an effective date of January 1, 2017 and
that the Board direct staff to proceed with the statutorily required rulemaking process
regarding the permanent rulemaking for Rule 2.90.C.
The Colorado PERA Defined Benefit Plan is a qualified plan under the Internal Revenue
Code, which requires plans to be a “definite written program.” (Treasury Regulation 1.4011(a)(2)). The Rules are part of the written plan document. The operation of the Plan must follow
the written document—therefore the Assumption Rate must be kept current so that the
operation follows the written plan. Pursuant to C.R.S. 24-4-103(6), Colorado PERA may pass
an emergency rule if it is imperatively necessary to comply with federal law or federal
regulation. Therefore, to comply with federal law and federal regulations, Rule 2.90C. must be
amended, and the amendment must be effective January 1, 2017(the date the Assumption
Rate takes effect).
Colorado PERA will begin the permanent rulemaking process in November 2016 for this
rule to ensure that the necessary opportunity for public notice and comment is forthcoming.
The permanent rulemaking hearing will be noticed for the January 2017 Board meeting.
Colorado PERA is also prepared to publicly notify its members of the change to the
Assumption Rate and the impacts of that change prior to the effective date of January 1, 2017.
For these reasons, Colorado PERA requests that Rule 2.90C. be approved as an
emergency rule pursuant to C.R.S. 24-4-103(6) with an effective date of January 1, 2017.