Most public systems altered plans after recession
On the heels of the Great Recession, public pension plan design underwent massive change.
In fact, the period of 2009-14 included the greatest changes in the history of state pension plans, said the National Association of State Retirement Administrators. In a new report titled “Significant Reforms to State Retirement Systems,” NASRA said nearly every state passed meaningful pension reform to one or more of its public plans as the plans lost a cumulative $1.1 trillion in 15 months.
There wasn’t a blueprint for change. Because of the intricacies of each plan, changes varied depending on the needs of the fund, and the poor financial market performance wasn’t always the only impetus for action. Longer life spans, rising health care costs and changing demographics of our membership base also contributed to the need for the Ohio Public Employees Retirement System to seek change.
With the cooperation of the Ohio legislature, OPERS’ new plan design has required most members to work longer, reduced cost of living adjustments and altered the benefit calculation formula, among other changes.
What was somewhat unique for OPERS is the fact that our plan redesign required no additional contributions by employers or members. NASRA said that employees in more than 40 plans in 36 states have to contribute more to the new plans than they had in the past. Two states, Virginia and Wisconsin, now require employees to pick up contributions previously made by employers.
All but 11 states reduced pension benefits during this period. An earlier NASRA study determined that new reforms reduced benefits by up to 20 percent.
An overwhelming majority of redesigns did not affect the basic structure of defined benefit plans. Only in Oklahoma and Arizona were individual account plans enforced. In Oklahoma they affect new public workers as of Nov. 1, 2015, and in Arizona they apply only to future elected officials.
About half the states were sued over their pension reforms. In some cases changes that were upheld in some states were struck down in others. This information reinforces the fact that pension plans are individual entities and that there is not a one-size-fits-all solution to tackling pension plan liabilities.
The changes OPERS made in 2012 helped to ensure our fund will be solvent for future generations. As the same economic and demographic trends exist now that existed in 2012, we must continue to adhere to the new plan design to ensure our future success.
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.
7 thoughts on “Most public systems altered plans after recession”
Thank you for the info. Praying all will be done with changes now.
First, our pension plan was altered, and I’m finally getting used to that fact; second, I just read through the OPERS “Popular Annual Financial Report (for the year ended December 31, 2015)”, and although I am far from being a financial advisor, the report made me feel uneasy and also have even less confidence in OPERS. Two items: First of all, we get it — OPERS is not required by law to provide health care coverage! That statement appears in the Report, and then again a few pages later, we’re reminded that OPERS is not required to provide health care. One thing I know for sure: 1) OPERS does not have to provide health care by law! Another thing I think I understand is that our pension is guaranteed by law! But is it? I can assure you that I will not end up with the pension I was guaranteed when I signed up for the traditional version several years ago. One other item in the report caught my eye — why did OPERS Administrative Expenses increased by almost 4%. As a University employee, we carry on and do a lot more with a lot less — less includes salary increases. I would be curious to know how much of that ~4% went towards employees salary increases? I apologize in advance for expressing my negative concerns, but my confidence in the retirement system is fading.
Cheryl, thank you for your recent post. I’m pleased you found the information in our Popular Annual Financial Report helpful but certainly want to address the issues of concern you raised.
Your OPERS pension is vested at retirement. That’s when the amount of your pension is determined based on your chosen plan, years of service, age and other factors. The vesting process is described in Ohio law. As you read in the report, for every $1 of pension obligation, OPERS has 85 cents “in the bank,” making us one of the strongest systems in our category. Assets on hand would cover your pension for the next 30 years, even if no more money were to come in.
Regarding your question about OPERS administrative expenses, we created a few new positions in order to better serve our members. Also, we’re not immune to rising health care costs. We have a self-insured plan for our associates, and those costs increased by nearly a third. Averaged over the past five years, OPERS’ actual operating expenses increased less than 4 percent each year.
Thanks again, and I hope this information is helpful.
Hi Ms. Graham-Price,
I’m neither a financial planner nor a labor relations or contract attorney, but I can assure you that I was told I would receive 3% COLA when I originally selected the OPERS traditional plan years ago (I’ll look in my files to see what actually was printed by OPERS back then). I am still employed; therefore, I will not receive a 3% COLA each year (it’s all based on the CPI now — never to go above 3%). Also, years ago I read about and was told about the great health insurance OPERS offered to its retirees — however, we all get it (after being told numerous times by OPERS admin) health care is not guaranteed. So, please – no need to repeat the health care blurb.
You are correct, Cheryl – the COLA was among the pension redesign changes in 2012. OPERS has provided its retirees a cost of living adjustment since 1971. For more than 30 years we provided a COLA linked to the Consumer Price Index. Then in 2002, the COLA was made a flat 3 percent, and in 2012, we reverted back to a COLA tied to the CPI. The Social Security Administration has used the index since 1975 to determine cost of living raises for its recipients.
— Ohio PERS
I would like to have had the option of having more money taken from my check for my retirement than work an extra year.
I do not think that would allow you to work less years as it is your service credit that determines when you can draw full retirement based on age and number of years of service; not your account value.