Steady course best for pension systems

Our blog about the 2013 investment earnings of the Ohio Public Employees Retirement System has raised interesting questions about when retirement systems might consider changes to their pension benefits and health care coverage.

Last year, OPERS earned 13.9 percent on its investments, boosting the overall portfolio to a record $88.6 billion. It was among our top 10 annual returns since we began operating in 1935.

Some of our members have asked whether we could restore some of the coverage that was taken away in 2012, given the fact that we had a good year in 2013.

In short, the answer is no. OPERS does not make benefit or coverage decisions based on one year of investment performance, good or bad. We operate under a very long time horizon regarding our investments, with an annualized return target of 8 percent. The reasons for our pension and health care changes in 2012 included changing demographics, longer life spans and increasing costs for health care.

During a recent presentation on system funding to the OPERS Board of Trustees, our actuarial staff discussed 10 characteristics of a well-funded retirement system:

  1. Use reasonable actuarial assumptions in the actuarial valuation process.
  2. Pre-fund the retirement system versus using a pay-as-you-go financing arrangement.
  3. Always contribute the annual required contribution.
  4. Institute employee contributions to help pay for some of the retirement costs.
  5. Do not borrow against the retirement funds.
  6. Have post-retirement COLA provisions that are reasonable and responsible.
  7. Limit the frequency and amount of benefit enhancements during good investment periods.
  8. Have plan provisions keep up with changing demographic conditions.
  9. Adopt plan changes when necessary based upon adverse experience.
  10. Establish a reserve during times of good experience.

At OPERS, our funding goals include maintaining adequate assets and stable employer contribution rates, allowing for funding of health care at 4 percent of payroll, reducing our unfunded liabilities and promoting intergenerational equity.

Restoring recent changes simply because of one good year of returns are not part of our plan, nor would they be wise. For instance, we are establishing a reserve for our health care stabilization fund that we can tap in case we do not meet expected investment returns during any one year.

In order to preserve the pension system for our current and future retirees, we must use reasonable actuarial calculations, invest wisely and make plan changes only when necessary. In other words, stay the course.

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12 Responses to Steady course best for pension systems

  1. D. White says:

    “At OPERS, our funding goals include maintaining adequate assets and stable employer contribution rates, allowing for funding of health care at 4 percent of payroll, reducing our unfunded liabilities and promoting intergenerational equity.”

    So that raises an important observation. I am not eligible for health care at age 55 with 30 yrs because 5 of those yrs are non-Ohio. However, am I paying toward the health care fund at 4% of payroll? Is it possible for me to invest 4% of my contribution so that I may have health care when I retire at 55?

    • Michael Pramik says:

      D. White,

      You are not paying anything toward health care. By law, your entire contribution must be used for pensions. It is 4 percent of the employer contribution that is used for health care.

      –Ohio PERS

  2. Larry Rothstein says:

    It is still very distressing that you plan to terminate health insurance coverage for spouses and children of retirerees. What you fail to realize or appreciate is that many OPERS employees work in careers that are not sustainable to age 65 as in the traditional secctor. Nurses and Policeman for example, work in very physically demanding jobs and a majority retire long before they or their spouses are elibible for Medicare. No one is asking for free coverage, but simply the ability to unify in a group to negotiate lower cost health care. As the spouse of a retiree who has been in excellent health my whole life, I now will be forced to go to the open market for coverage at a time when I am getting older and may really need such coverage. I am very unhappy and disgusted with your actions in this regard.

  3. Tom Quade says:

    As I posted to the previous report on the PERS investment return, DELAYING THE IMPLEMENTATION OF HIGHER COST SHARING FOR ONE MORE YEAR FOR SPOUSES DOESN’T DERAIL OR CHANGE LONG TERM PLANS. That doesn’t fall under benefit enhancement during good years. It just shows a level of understanding of what the changes you have made to the health care system really mean to a small portion of Ohio PERS retirees.

  4. Cheryl says:

    “Stay the course” — I found that phrase rather demeaning in the context used above. Please be advised that those of us who have been paying into OPERS for years as well as saving supplemental funds in the OPERS Additional Annuity Program most certainly did “stay the course”. OPERS changed their course. Not only has our OPERS changed their course by taking away substantial retirement and health care benefits, but OPERS also changed their course regarding the Additional Annuity Program (if annuitized, we will not get the $$ originally quoted). “Stay the course” — Perhaps a different phrase would have been more appropriate in light of the many recent changes.

  5. Craig S says:

    OPERS long term strategy is right on target. The changes made in 2012 are reasonable. I for one don’t think they went far enough, but that’s a topic for another day. KEEP UP THE GOOD WORK!

  6. Jim says:

    I was a state employee in Illinois about 21 years ago. For the most part, the pension fund was controlled by the whims of politicians. They offered unsustainable enhanced early retirement incentives, compounded cola, and employer pickup of employee contributions in lieu of salary increases. Long range plans and consequences of this generosity were non existent. Of course, they paid for this with IOU’s that were worthless. I was lucky to be offered a job in Ohio covered by OPERS at that time. The Illinois system is nearly bankrupt with OPERS being solvent and the best public pension plan in the USA. Moving to Ohio and working a job under OPERS is the best investment I ever made. OPERS management by professional and competent financial staff as opposed to unqualified politicians allow thousands of people to enjoy a dignified and healthy retirement. Thanks for keeping focus on the long game OPERS staff!

  7. Ben Grabill says:

    Keep up the good work of managing OPERS investments, this is our future income and benefits for the rest of our lives. Please keep us informed of investment results and needed changes to protect our retirement system. Thank you.

  8. julie says:

    Craig S you mmust not have a spouse who is going to have health care phased out or you would have a diffrent view..why does a spouse of someone on social security that never worked outside the home will be able to recieve healthcare AND half of what his or her spouses monthly benefit is and never paid a penny into it? if opers needs to make changes it should be to future hires and members ,not those already retired and all ready working!!!

  9. Joe says:

    Your changes in health care will hurt those that need it the most. In short non-ambiguous terms here are your changes:
    A) no coverage for spouses
    B) a $96 reduction in all OPERS benefit checks..elimination of part B
    C)the loss of group plan savings when you force us to shop for an individual policy using an HSA

    In summary this stinks!

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