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