Pension guarantee? Did SERS lead their readers astray? CORE's Ryan Holderman reads the fine print in the ORC 3309.661

From John Curry, November 1, 2008

IS SERS OVERSTATING THE CASE WHEN THEY MADE THEIR STATEMENTS RE. A GUARANTEED PENSION DESPITE STOCK MARKET LOSSES?

Yesterday I put out an email re. the STRS website stating the following:

[From John Curry, October 31, 2008]:

This one is taken right from the SERS website! John

[Article below may also be viewed here.]

Amid Latest Market Turmoil, SERS Pensions Are Safe

9/26/08 - SERS wants to reassure its members and retirees that in these challenging economic times, SERS retirees’ pensions are safe and secure for the following reasons:

* A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses.
* SERS’ investments are diversified and investment performance does not hinge on any one investment or on any one firm’s success or failure.
* SERS takes a long-term approach to investments; this long-term approach will help us weather challenging financial times.

SERS’ pension plan is a defined benefit (DB) plan which means that the pension benefit is determined based on a formula of age, years of service, and salary, not investment returns. A defined contribution (DC) plan, or a 401-K, is based on contributions and investment earnings on the contributions.

Recently, you may have heard politicians and financial experts say that during times of economic crisis “pensions are at risk,” with no distinction between public and private pensions. However, your SERS public pension is not at risk.

To find out more about what public pensions are doing during this current downturn, click here to read the National Association of State Retirement Administrators’ (NASRA’s) recent article, “State & Local Pensions Navigating the Storm.”

CORE's Ryan Holderman reads the fine print re. the stated ORC and finds this out! [Below] John

Ryan Holderman to John Curry, October 31, 2008
Subject: Pension guarantee?????

Dear John:

Here's what the ORC has to say in 3309.661:

3309.661 Acquiring vested right in pension when granted

The granting of a retirement allowance, annuity, pension, or other benefit to any person pursuant to action of the school employees retirement board vests a right in such person, so long as he remains the recipient of any of the funds established by section 3309.60 of the Revised Code, to receive such retirement allowance, annuity, pension, or benefit. Such right shall also be vested with equal effect in the recipient of a grant heretofore made from any of the funds named in section 3309.60 of the Revised Code.

Effective Date: 06-30-1991

I don't see anything which addresses reduction in pension amounts.

I found the article below on the OEA website:

OEA Retirement Systems Update

Report to the OEA Board of Directors:

October 2008

Retirement Systems Stress that Pensions Remain Secure

The U.S. financial crisis has dramatically lowered stock prices and generated serious concerns among working Americans. OEA members are certainly not immune to this economic turmoil. However, it is important to note that there should be no impact on the defined benefit pensions of current and future retirees in STRS, SERS and OPERS.

Each of the retirement systems recently issued statements to members regarding the economic crisis and the security of pension assets. These statements are reproduced below:

STRS

STRS Ohio members who are following news reports of the recent impact that the nation’s credit crisis has had on global financial markets might wonder how this affects their pension fund. Times like these are a good time to remind our members that STRS Ohio pension benefits are safe and secure. STRS Ohio is a long-term investor with an extremely diversified portfolio. This design enables us to weather the ups and downs of the market, including the investment-related market losses we have recently experienced due to the credit crisis and the overall general market decline.

The system’s assets, along with contributions from members and employers, are used to pay benefits earned by its members. However, it’s important to remember that not all of those benefits are due at once. Many of our members who are accruing benefits will not retire for many years. In other words, STRS Ohio has the liquidity needed to pay pension benefits when they are due near term, and the accumulated investment assets and income from employer and member contributions (future revenues) to allow us to continue to do so into the future.

The recent events on Wall Street are unprecedented. Nevertheless, it is not time for knee-jerk reactions or to change the disciplined approach to investments that has served STRS Ohio well over the years. We are monitoring how the overall markets respond to discussions in Washington. We hope that steps will be taken that will restore both calm and confidence to the markets. During this period, we will continue to do what we do best as a public pension plan — maintain our long-term focus and only make significant changes after thorough and deliberative discussions.

We encourage all our members to read our newsletters and visit our Web site often to keep abreast of all issues and events affecting their retirement system.

SERS

SERS wants to reassure its members and retirees that in these challenging economic times, SERS retirees’ pensions are safe and secure for the following reasons:

• A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses.

• SERS’ investments are diversified and investment performance does not hinge on any one investment or on any one firm’s success or failure.

• SERS takes a long-term approach to investments; this long-term approach will help us weather challenging financial times.

SERS’ pension plan is a defined benefit (DB) plan which means that the pension benefit is determined based on a formula of age, years of service, and salary, not investment returns. A defined contribution (DC) plan, or a 401-K, is based on contributions and investment earnings on the contributions.

Recently, you may have heard politicians and financial experts say that during times of economic crisis “pensions are at risk,” with no distinction between public and private pensions. However, your SERS public pension is not at risk.

OPERS

Historic changes on Wall Street may have raised concerns about OPERS’ investments and benefits. While the news of the markets can be understandably concerning, it is important for our members to know that their retirement benefits are secure.

A variety of issues plague the economy, including a troubled housing market, credit crunch, and high energy prices, making it a very difficult environment for investors. This is unlike anything we have seen in recent history. Many market watchers predict the markets will not rebound this year, and it remains uncertain when a recovery could begin.

Our fund is strong enough to weather these challenges in the financial market. The pension funds for our 908,000 members are safe. The stability and financing of our pension system is solid.

As a long-term investor, OPERS weathers the ups and downs in the market with a diversified portfolio spread over many asset classes and has a disciplined approach to investments.

We have faced severe downturns in the market before and will survive this one. We have an experienced and talented investment and executive staff working diligently during this financial turmoil.

Our diversified portfolio will help weather the storm as it has many times in our 73-year history.

It's interesting that only SERS is cited as being guaranteed.

Later,
Ryan