Ben Moultrie Testimony Against SB80

Good afternoon senators.

My name is Ben Moultrie. I’m a recently retired financial planner and Investment Advisor Representative. I’m also an AARP volunteer advocate. I am here to testify in opposition to SB 80.

The AARP believes strongly that Americans are faced with a crisis where the goal of achieving adequate and secure retirement income is becoming increasingly difficult. SB 80 adds to that difficulty for Coloradans.

SB 80 makes the PERA contribution plan option available to all PERA members, with the provision that selection of this option is irrevocable. This greatly increases the retirement risk for members who select the option, as well as increases risk to the benefit plan trust funds.

Towers Watson (a global professional services company) has been analyzing the investment performance of benefit plans versus contribution plans since 1995. It has consistently found that benefit plans annually outperform contribution plans over that history with very few exceptions. Some of the reasons for the underperformance of contribution plans can be linked to the typical higher cost to individual investors for contribution accounts, and the behaviors of individual investors who bear the performance risks for their accounts. Towers Watson notes that defined plans perform better than contribution plans over the long-term with lower risks.

Numerous studies over decades have detailed how the average investor receives only a fraction of the long-term market index investment results due to poor decision-making. One such annual study is Dalbar’s Quantitative Analysis of Investor Behavior. Dalbar is a global professional services firm that has conducted an annual analysis of individual investor behavior since 1995. Its study is used as a standard of reference across the financial services industry. In an April 2014 commentary for Forbes, Sean Hanlon — CEO and Founder of Hanlon Investment Management — highlights the tepid success of the average individual investor. To quote Mr. Hanlon, “According to the latest 2014 release of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB), the average investor in a blend of equities and fixed-income mutual funds has garnered only a 2.6% net annualized rate of return for the 10-year time period ending Dec. 31, 2013. The same average investor hasn’t fared any better over longer time frames.  The 20-year annualized return comes in at 2.5%, while the 30-year annualized rate is just 1.9%. Wow! The average investor exclusively investing in just fixed-income funds has had an even worse experience.  The annualized return is 0.6% over 10 years, 0.7% over 20 years, and 0.7% over 30 years.” I ask the committee to consider these results in comparison to the long-term rate of inflation, and the long-term investment returns for PERA’s DB trust funds.

Aside from the retirement savings risk posed by contribution plans for the average investor, PERA’s contribution plan carries significant risks to members and their survivors. Contribution plan participates are not eligible for survivor benefits, disability retirement benefits, nor some retirement healthcare benefits. Loss of the associated income for families can be especially acute for PERA members in high risk positions such as state troopers.

According to a 2011 economic analysis of PERA by Pacey & McNulty, the economic and fiscal impact of PERA on Colorado demonstrates that for each $1.00 of benefits paid to Colorado residents, more than $1.42 in economic benefits were generated across the state. SB 80 puts that state-wide economic benefit at risk as well.

In conclusion, it is clear that SB 80 is bad policy … it is bad for individuals and families … it is bad for the state and local communities. I urge this committee to vote No. Thank you. I welcome questions that committee members may have on this matter.