OPERS opposes additional GASB proposals
Proposed rule changes by the Governmental Accounting Standards Board regarding health care expenses could have a serious financial impact on public employers in Ohio.
Two exposure drafts would revise current GASB statements on the financial reporting of other post-employment benefits, including health insurance. The Ohio Public Employees Retirement System opposes the changes because they do not appropriately assign responsibility for financial liabilities.
We often refer to these benefits as “OPEB,” and OPERS Executive Director Karen Carraher recently testified against the proposals before GASB. She was joined by OPERS Chief Financial Officer Jenny Starr and Chief Actuarial Officer Sherry Chan. You can read their complete testimony here.
The GASB OPEB standards would:
- Require state and local government employers to record a proportionate share of the health care unfunded liability in their financial statements
- Standardize actuarial methods being used to calculate the health care liability
- Provide additional guidance on setting the discount rate for projecting future health care liabilities
OPERS believes employers should not have to record a portion of the health care liability, because in Ohio, retiree health care is not a benefit guaranteed by law.
Further, OPERS has a funding model for retiree health care coverage, and we will adjust features of the coverage, or benefits provided, as necessary to comply with the model to keep the funding consistent. This approach has no impact on the employers.
“We agree with the intent for transparency and understandability, but we believe the more important goal is to capture the true nature of the transaction, and in Ohio’s case there is not and will not be any future liability with respect to health care for employers,” Carraher said.
OPERS has one of the larger OPEB trust funds in the nation at $13 billion, and at 69 percent funded the system is well on its way to managing health care costs indefinitely.
Michael Pramik
Michael Pramik is communication strategist for the Ohio Public Employees Retirement System and editor of the PERSpective blog. As an experienced business journalist, he clarifies complex pension policies and helps members make smart choices to secure their retirement.
Keep fighting unnecessary paperwork.
Thank you ALL for all your hard work and professionalism!
If the new GASB standards would be imposed — how would this affect we, the retirees? Thank you.
JA,
Good question. The answer is the new GASB standards would not affect retirees or other members at all. They are accounting standards and are not related to funding of the pension plan.
–Ohio PERS
How are hedge funds selected by OPERS and what criteria is used in the process?
David,
The OPERS Investments staff is responsible for selecting and monitoring hedge fund managers for the Hedge Funds portfolio. Staff makes recommendations for new hedge fund investments and strategy changes to the External Public Markets Committee, which includes OPERS’ chief investment officer.
Criteria used for selecting managers include: investment skill, strength of organization, track record, fit for OPERS’ portfolio, portfolio characteristics, risk management, scale of investment opportunity and terms (including fees and liquidity). In addition to the investment due diligence conducted by the Investments team, prior to any investment our Risk Oversight Department conducts operational due diligence, and our Legal department reviews all fund documents.
OPERS staff also uses an outside consultant to assist with the hedge funds due diligence process. The consultant helps identify potential managers and conducts research on strategies, operational due diligence and the ongoing monitoring of managers once they are hired. This consultant serves in an advisory role with OPERS staff to maintain investment discretion.
–Ohio PERS
Michael, thanks, what percentage of the total portfolio is in invested in hedge funds? Are all hedge funds given equal amounts to invest? What has been the historical return of OPERS hedge funds?
David,
As of June 30, the OPERS hedge fund portfolio had a market value of $6.9 billion. It made up 7.8 percent of the Defined Benefit Fund and 5.9 percent of the Health Care Fund. (OPERS maintains separate investment funds for the defined benefit pension and health care.) Like our other investment classes in which we have multiple external managers, some managers are given more to invest than others. The total hedge funds portfolio has earned 3.74 percent since inception in February 2011, although the 12-month return has been 8.41 percent.
–Ohio PERS