DC, hybrid plans changing for future members
As of 2022, OPERS will offer two retirement options for new participants
By Michael Pramik, Ohio Public Employees Retirement System
Oct. 10, 2019 – OPERS offers three pension plans, but that will be changing for future members.
The OPERS Board of Trustees approved a plan at its September meeting that will modify the Member-Directed (defined contribution) and Combined (hybrid) pension plans for those hired in 2022 and beyond. The goal is to align future benefits in the Member-Directed Plan with those of the Traditional Pension Plan, to which a large majority of OPERS members belong.
As a result, OPERS will merge the Combined plan into the Traditional Pension Plan and close off the Combined Plan for those who are hired after 2022. It will not affect the plan design for those who are enrolled in it as of that date. Merging the Combined Plan was recommended in concert with a proposal to create a retirement group for new Traditional Plan members as of 2022.
The proposal also would change the Member-Directed Plan’s vesting schedule, mitigating rate, annuitization, Retiree Medical Account and cost-of-living adjustments. It will not affect the plan design for those who are enrolled in it as of Jan. 1, 2022.
Members hired after Jan. 1, 2022, will have a choice of two plans – Traditional and Member-Directed. About 94 percent of active and inactive OPERS members are enrolled in the Traditional plan.
Here’s a snapshot of some of the changes to the Member-Directed Plan for future members:
| Option | Current MD plan | Future MD plan |
|---|---|---|
| Vesting schedule | 100% at 5 years | 100% at 10 years |
| Mitigating rate | 2.44%* | 4-10% |
| Eligibility to annuitize | Age 55 | Age 62 |
| COLA on lifetime annuity | Yes | No |
| Retiree Medical Account | 4% | 2% |
| Plan changes | One during career | One within first 5 years |
| *Increasing to 3.5% in 2020 |
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.
Here is what I think – when these employees eventually retire – they won’t have anything to retire on. Their funds will have been mismanaged and reduced and those that are in control of the funds will find something to blame it on other than themselves. Very sad.
PLEASE TELL ME IN PLAIN ENGLISH WHAT MY CHANGES WILL BE , I’m 68YRS. OLD AND RETIRED AFTER 30 YRS IN 2007 !!!!!!
Kenneth,
These changes do not apply to current retirees, only to those hired in 2022 and beyond who select the Member-Directed Plan.
–Ohio PERS
I’m unclear on exactly what the ‘Mitigating rate’ is. Would you mind explaining in more detail? Thank you.
Kerry,
The mitigating rate is paid only by members in the Member Directed and Combined Plans. The purpose of the mitigating rate is to reduce the financial impact of the loss of members participating in the Traditional Pension Plan.
Julie, OPERS
It means part of the employer contribution goes is taken away from member directed plan holders to fund traditional plan members. It just keeps going up and up so eventually there will probably be no more employeer match going to the member directed plan members. Imagine 4-10% for future members!!!!
House bill 520, which the Ohio Legislature passed in 2016, requires a study every five years to determine the mitigating rate. The legislation capped that rate at 4.5 percent, as defined in Ohio Revised Code Section 145.222(D)(2).
On your chart above it says for future members, it is 4-10%. And they can always revise legislation…
The limit is actually for the ARP mitigating rate, which is the rate for those in our Alternative Retirement Plan. We put 10 percent in that chart, which is from a board presentation in 2019, because that’s the amount that those in our Traditional Pension Plan pay toward the unfunded liability.
The mitigating rate should have been raised years ago. Then, maybe folks would have chosen the defined pension plan instead of the other plans, and maybe we wouldn’t be in the trouble we’re in today.
CherylH
The defined pension plan benefit plan is great if someone can get all their service years in. Those who cannot (or don’t want to work until they are 94 yo) just want to be treated fairly in going with the member directed plan. 14% sounded good at the start, but subtract mitigating rates turns into 9.5%, then whats next? This is really a management issue for OPERS. The system will get through the baby boomer bubble eventually, hopefully enough new people will enter in to support it-if they think OPERS is a good value. OPERS folks need to be excellent managers to keep it afloat. It is bad enough that any social security benefits we may receive will be reduced by 40% (Wind fall provision) just for working for the state. That alone may be a reason the youth don’t work for government. All that we ask for as member directed folks is fair treatment. We are not the bank to rob ‘Peter’ to pay ‘Paul’. Just be fair across the board.
Will the ‘Mitigating rate *Increasing to 3.5% in 2020’ affect members currently enrolled in the member directed plan or will that increase only affect members enrolling in 2020 and beyond?
I’ve been enrolled in member directed since 2017, will my mitigating rate be increasing in 2020?
In plain English … what are you saying in the Health Care “Discussion” portion of the most recent OPERS Board Report. Federal Programs? Low income subsidies? 75% should be eligible for Federal Assistance? Marketplace plans? It sounds like you are saying sign up for Obamacare and good luck with these extremely high deductible catestrophic incident only insurance! What happened to the 4% of my income my employer paid into OPERS health care fund IN MY NAME for 31 years?
Mr. Huber,
Under the proposed changes for pre-Medicare retirees, we’re replacing group coverage with an allowance that retirees can use on the open health care market. At this point, the Board likely won’t make any decisions regarding health care changes until January with the changes going into effect in 2022.
On low income subsidies: This month’s Board discussion included whether to include a subsidy for low income pre-Medicare retirees. Our research shows that federal subsidy programs provide greater financial support than OPERS could offer. You can find the presentation on the Board meeting page at http://www.opers.org/about/board/meetings/index.shtml. Scroll to October 16 and click Agenda to see the presentations given during the meeting. Information on the low income subsidy discussion begins on p. 11.
Finally, I want to stress that your employer contributed 14% of your salary toward your pension, not health care. Our priority is to fund pensions first and then, if there are funds available, set aside money for health care. Only employer contributions can be allocated to the health care trust fund. We will provide access to health care as long as possible but it is not a guaranteed benefit.
Julie, OPERS
For member directed, why does the chart show RMA 4%? From the 14% employer contribution, doesnt 4% of it go to RMA, some to mitigating rate then like 8% or so left to actual retirement?
This chart reflects changes for future members who select the Member-Directed Plan. It doesn’t indicate the complete distribution of the employer/member contributions.
When I signed up in 2005, there was no mention in any of the materials provided to me about any sort of “mitigating rate” applicable to the Member-Directed Plan. If there had been, I likely would have avoided this Plan — I find it odious that shortfalls in the Traditional Plan are funded on my back. I am penalized to the point where I am paying for others’ benefits out of my benefits. My question is this: can you point me to where, when I signed up, I was put on reasonable notice that my benefits would be reduced so others’ benefits could be maintained?
The Ohio General Assembly established a mitigating rate to offset any negative financial impact to the defined benefit (Traditional) plan because of participation in the Member Directed and Combined plans. Ohio law requires the Board to set this rate every year.
Julie
I am currently in MD plan. At one point, I was thinking of switching to Combined Pan. Now with the new change, do I still have that option? is the mitigate rate going up every yr? looks like it will uptrend to 10%? My Gosh…nothing will left for us if I am reading it right
The changes referred in this blog post are effective as of January 1, 2022. If you are interested in making a plan change please forward your plan change questions through the online message center available through your online account. There we will be able to review your account options and go over plan change details. The mitigating rate is set by the Board and is subject to change in future years.
If they are going to keep taking more of my employer contribution for the stupid mitigating rate, the least they can do is get rid of the RMA and let me have the full RMA allocation to invest, so those funds can grow more to try and offset the loss of the mitigating rate. I’d much rather have the RMA allocation to invest and grow then have it sit in the RMA account and not grow (the minuscule interest rate isn’t considered growth).
Jason,
The mitigating rate is a portion of the employer contributions paid by employers on behalf of their employees who choose not to join the OPERS Traditional Pension Plan. It’s written into state law and is intended to offset the financial impact of the loss of their contributions.