Legislative update on pension systems

From Dennis Leone, September 3, 2009
Subject: Legislative Update

OPERS Outlines Its Approach to 30-Year Funding Directive from ORSC

Ohio's five public pension systems, including Ohio Public Employees Retirement System (OPERS), have been asked by the Ohio Retirement Study Council (ORSC) to look at options that could help contain costs and strengthen their funds in light of the recent economic downturn to reach or keep within the 30-year funding requirements. Those steps are to be presented at ORSC's next meeting on Wednesday, Sept. 9.

Unlike the State Teachers Retirement System (STRS) which approved a multifaceted plan Tuesday, OPERS said in a statement that it remains "within the 30-year funding requirement" due to its "long history of being proactive in managing our investments and liabilities, including work we began last year on numerous initiatives. We looked at the demographics of our plan and the needs of our membership and recommended changes including service purchases, retirement age, minimum earnable salary and the disability program."

OPERS went on to note in a news release that as a fiduciary, it is "always looking for efficiencies and ways to improve operations. Proactive, insightful planning and tough decisions by the OPERS Board of Trustees allow the fund to weather market volatility to ensure long-term solvency. Each year, the OPERS board reviews the benefits offered and makes incremental changes, as necessary, to support the fund for our members."

OPERS said that the following changes in recent years have allowed the system to remain within a 30-year funding requirement:

- Implementing the Health Care Preservation Plan and its tiered benefits which are tied to years of service.

- Developed separate investment strategies for the pension and health care funds, with a designated Health Care Trust Fund.

- Approving accounting changes to ensure that OPERS is within the statutorily mandated 30-year funding level.

- Proposing to increase the cost of purchasing service credit to reflect its true cost (pending legislation).

- Proposing statutory changes to increase the minimum earnable salary required to earn full-time service credit (pending legislation).

- Approving proposed statutory changes to the system's disability program (pending legislation).

OPERS went on to note that, "Each system has a unique population and benefit structure, and OPERS' board has evaluated options, as requested by ORSC, and considered what changes should be made. The OPERS board has discussed the following possible plan design change options, and will continue to evaluate plan design change options at its upcoming meetings." Those options include the following:

- Age and Service Eligibility - add two years to the current plan.

- Benefit Formula - maintain the current 2.2 percent x Final Average Salary (FAS) but increase the timeframe that the multiplier increases to 2.5 percent from 30 years of service to 35.

- Final Average Salary (FAS) - increase base FAS from the three highest years of earnings to the five highest years.

- Cost of Living Adjustment (COLA) - Maintain current 3 percent simple COLA except in years when the Consumer Price Index is less than 3 percent.

- Contribution Rate - No change in the current contribution rates - members (10 percent) and employers (14 percent).