This action will combine the assets and liabilities of two plans, the Statewide Hybrid Plan and the Statewide Defined Benefit Plan, making them individual components of a new plan, the Statewide Retirement Plan. This provision will take two separate plans with multiple components and combine them into one plan with four components, as shown below:
Once merged, the individual components will function mostly the same as they do now. Benefits will remain the same, features like DROP and Deferred Retirement will still be available, and the Hybrid Defined Benefit component will even see the addition of the Rule of 80, a popular feature of the Defined Benefit Component (formerly the Statewide Defined Benefit Plan)
In order to ensure the Plans are merged equitably, the funding status of the Statewide Hybrid Plan will be intentionally reduced to match the funding of the Statewide Defined Benefit Plan, with the excess funding allocated to existing Hybrid Plan members using a modified benefit multiplier. More information about this action can be found on the dedicated provision page.
Additionally, this action will create a new investment option for Defined Benefit Component members. Under the current Statewide Defined Benefit Plan, contributions for each member are capped at the required contribution, without any option to deposit additional contributions to the plan. This provision will give Defined Benefit and Social Security Component members access to the Money Purchase Component of the Statewide Retirement Plan, in the same way that Hybrid members already have access. If desired, members and employers in either the Defined Benefit or Social Security Components will be able to contribute additional funds with each paycheck into the Statewide Retirement Plan (just as many workers elect to contribute to a 457 account). These excess contributions will be deposited into the Money Purchase Component of the Plan in the member’s name, where they will be deposited in a self-directed investment account.
Let’s first look at some basic facts for the plans to be merged, the current Statewide Hybrid Plan and the Statewide Defined Benefit Plan:
Statewide Hybrid Plan
Active Members: 403*
Total fire and police departments: 42*
Funded Status: 129.4%†
Assets: ~$84 Million‡
Liabilities: ~$83 Million‡
Statewide Defined Benefit Plan
Active Members: 10,266*
Total fire and police departments: 221*
Funded Status: 100.0%†
Assets: ~$3 Billion‡
Liabilities: ~$3 Billion‡
The idea to merge two FPPA plans came about in response to concerns regarding the Statewide Hybrid Plan. As shown above, the Statewide Hybrid Plan currently serves approximately 403 members in 42 Colorado fire and police departments. However, only three departments in the Hybrid Plan are actively enrolling new members. This lack of new membership, and by extension, new contributions into the Plan on behalf of those new members, means the Hybrid Plan looks more like a ‘closed’ plan; that is, one that is no longer taking in new membership and only paying retirement benefits until the last member’s benefit ends.
There’s nothing bad about a closed plan, but these plans do need to operate differently from those that are regularly adding new members. Typically, this means closed plans will employ more conservative actuarial assumptions and investment strategies, both of which would make it difficult to support new membership in any meaningful capacity. For the Statewide Hybrid Plan, this might eventually translate to lowered expected returns, funding, and by extension, benefit adjustments.
The good news is that the Statewide Hybrid Plan is not currently facing any of these potential hardships. As of its last valuation, it is a very strong plan at 129.4% funded. This also makes now an excellent time to take preemptive action to avoid potential problems in the future.
In contrast to the Statewide Hybrid Plan, the Statewide Defined Benefit Plan has upwards of 10,266 members and 221 departments, most of which are currently adding new members into the Plan, including new members who are replacing many of the members in the Statewide Hybrid Plan as they retire. The Plan is similarly well-funded and in good position to take action to maintain its long-term stability.
After merging the assets and liabilities of the two plans, both will come out the other end stronger and better prepared for the future. Since both Plans will enter the merger at similar funding levels and collect contributions at a proportional rate to fund their respective benefits, the plans will both pull their own weight, so to speak, and neither will be required to subsidize the other.
* 2020 Annual Report
† 2021 Annual Rates Report
‡ 1/1/2020 Actuarial Valuation
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