A look at OPERS’ investments, funding
Difficult year for worldwide markets affected all institutional investors
By Michael Pramik, Ohio Public Employees Retirement System
March 9, 2023 – During the January Board of Trustees meeting, OPERS Investments staff presented preliminary returns for 2022. Last year was one of the most-difficult environments in decades because of rising inflation and aggressive global central bank interest-rate hikes.
The preliminary OPERS Defined Benefit Fund return was a negative 12.1 percent, while the OPERS Health Care Fund fell by 15.5 percent. Final audited results will be posted to the OPERS website after the March trustees meeting.
Despite the Defined Benefit Fund declines, OPERS’ pension funding metrics actually improved. Using the preliminary investment returns, the system’s funded ratio rose to 85 percent in 2022, from 84 percent at the end of 2021. That means OPERS has 85 cents for every dollar it owes in future liabilities.
The forecasted time expected to pay off the system’s unfunded actuarial accrued liabilities, defined as the amortization period, improved from 16 years to 15 years.
The reason for these improvements is that OPERS smooths its pension investment returns over a four-year period for funding purposes. OPERS had good returns in the immediate years preceding 2022, which equated to an unrecognized asset gain of $10.5 billion at the end of 2021.
However, as OPERS staff explained to the Board, we recognized only one-fourth of the 2022 investment loss this year. The system will have to recognize the remainder, about $14.8 billion, over the next three years. The net amount of these unrecognized gains/losses as of Jan. 1, 2023, is a $9.4 billion loss.
For the OPERS Health Care Plan, the primary funding metric is the estimated remaining years of solvency. The Health Care Plan solvency years declined from 29 years at the end of 2021 to 21 years at the end of 2022.
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.
Does the health care fund projection take into account the lower benefits that will be paid out to those who join Medicare?
Jim, all factors are considered for the health care fund projection. We must take into consideration our member population and those who will transition into Medicare. Thank you, OPERS
Eventually the Fed will need to stop raising rates, then start lowering them which will boost the overall stock market.
Good explanation God willing after 2024 we will as an entire country recoop from this stupidity going on in Washington DC. God Bless all the present and past public servants!
I read a news article relating to some investors with SVB and Signature Bank. The Ohio Teacher’s retirement fund was listed. I want to know if our OPERS retirement funds were also invested at one of these banks.The last bad investment in housing in 2008 almost crushed our health care fund. We also lost valuable work hours due to mandatory furloughs that hurt the retirements for those of us that were within five years of retirement.
D.,
OPERS maintains a diversified, global investment portfolio that is intended to manage risk, reduce volatility and ultimately produce investment returns that enable OPERS to fund retirement benefits.
The short-term performance of an individual security does not impact our ability to deliver these retirement benefits to our members.
On March 10, OPERS had 30,125 shares of Silicon Valley Bank worth $3.2M and 31,796 shares of Signature Bank worth $2.2M. That total represents less than 1 one-hundredth of 1 percent (0.0058%) of our Defined Benefit Fund, which stood at $92.5 billion at the end of 2022.
What ESG funds is OPERS invested in? How much?
Madeline,
OPERS does not maintain an ESG investment policy.
OPERS is authorized by Ohio law to invest under a “prudent person” standard and does so through an investment policy established by the Board of Trustees. That law reads, in part, “The Board and other fiduciaries shall discharge their duties with respect to the funds solely in the interest of the participants and beneficiaries.”
Hello Michael,
I am interested in the investment policy established by the Board of Trustees. Can that policy be made available to retirees?
Also, I realize the traditional fund receives contributions from the employers as well as employees; however, what other assets are allocated to the traditional retirement fund? Is that information made available annually to retirees. With the increased market volatility, it would be good to know what other investments or asset allocations are part of the traditional retirement fund?
I appreciate your response to these questions. Thank you.
Debora,
All of our investment policies, as well as the current investment plan, are posted on our website. The Traditional Pension Plan receives a contribution of 14 percent from state-and-local employers and 10 percent from members. A small percentage of the employer contribution for those in our defined contribution plans also goes toward the Traditional Pension Plan.