Colorado PERA's program won the GFOA's Award for Excellence in Finance in 2013.
In 2009, a change in state law made the Colorado Public Employees' Retirement Association the new plan sponsor for a $428 million 457 plan. With this addition, PERA was responsible not only for its original 401 (k) plan, but now a 457 plan and an additional mandatory defined contribution plan. These three DC plans had combined assets of $2.4 billion under two separate record keepers with 34 different investment options. (See Exhibit 1 for details on plan sizes.) An internal committee recognized that the plans were inefficient. Furthermore, participants weren't making the best investment decisions for their accounts, and the committee acknowledged that participants may not have the resources to make better choices.
PERA therefore embarked on a project to determine best industry practices for participant-led investment plans. The information gathered set the foundation for the program that solved a variety of problems facing plan participants, as described below.
Problem: Too many investment options confused participants, and participants were incorrectly diversified among the options available.
Solution: The number of investment options was altered to be the same for all three plans and reduced to 17, with 26 underlying portfolio strategies. (See Exhibit 2 for an investment option example.) Featuring a single investment option with several underlying portfolios added complexity that the plans had not faced previously, when each plan offered single-manager investment funds. Under the new plan, the record keeper reports to PERA on an investment option level, the custodian bank reports to PERA on an underlying portfolio level, and the investment options, by way of the underlying options, hold assets for three separate plan trusts.
For example, income reporting for interest, dividends, and realized and unrealized gains (and losses) must be gathered from the custodian bank, allocated to three plans, and then reconciled to the record keeper where contributions and distributions are reported on an investment option level for each of the three plans separately. To reconcile the reports and allocate the income and assets across the three plans, new journal entry and reporting templates were created and tested in PERA's general ledger program.
A self-directed brokerage window was also added for participants who sought greater fund choices.