OPERS adapts to changing investment environment

We’re lowering our expected investment rate to 7.5 percent

By Michael Pramik, Ohio Public Employees Retirement System

Nov. 16, 2016 — Like many other pension plans, the Ohio Public Employees Retirement System is reducing its investment return expectations because of changes in the global economy.

This adjustment in OPERS’ expected rate of return is part of our continuing effort to keep our pension plan healthy and sustainable, and is part of a rigid review cycle. The changes that OPERS made in 2012 to our pension and health care funds strengthened our system and allowed us to lower our expected returns now.

“This adjustment is important because it determines how we expect to fund the plan,” said OPERS Executive Director Karen Carraher. “It will increase our unfunded liabilities in the short term. But the good news is that we remain financially sound and in compliance with Ohio retirement law, and our ability to pay pensions to our members is unaffected.”

OPERS’ long-term investment assumption had been 8 percent since 2002, but this week the OPERS Board of Trustees lowered the rate to 7.5 percent. The vote followed the review of a five-year experience study by independent financial experts that projected a future investment environment less conducive to earning the 8 percent return.

It’s important to note that this rate is intended to be representative of a long-term investment horizon, one which exceeds 30 years.

Many institutional investors have been lowering their earnings expectations, reflected in the interest rate they use to estimate future benefit liabilities. The average rate used by 127 public pension plans, surveyed by the National Association of State Retirement Administrators, was 7.62 percent in February.

Because our first commitment to our members is to pay pensions, this week’s move will have an effect on the amount of future funding allocated to the OPERS health care fund.

OPERS allocates part of our employers’ contribution to the pension fund and part to the health care fund. The rate adjustment means OPERS will allocate more contributions to the pension fund in the near term.

Because of the tough decisions OPERS made in 2012 to our pension and health care plans, this allocation change will not alter the OPERS health care plan for 2017, and the plan will remain on sound footing into the future.

“We need to be prudent with our funding in all aspects of our system,” Carraher said. “This move to a lower return expectation is a best practice and a part of our future funding success.”

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.

Michael Pramik

Communication Strategist

  • You said:

    Because of the tough decisions OPERS made in 2012 to our pension and health care plans, this allocation change will not alter the OPERS health care plan for 2017, and the plan will remain on sound footing into the future.

    Strong enough footing to guarantee the Medicare eligible retirees (even though you don’t think that we are “entitled” to a penny from you towards our health care…..) their allowances to pay for their Medigap (which I have) or their Medicare Advantage Plans going into the future? If so, how far into the future. A better way to put this might be to just be blunt: When do you intend to dump us the way you dumped the spouses (I do not any longer have a spouse…so it didn’t affect me, but I know plenty of people who were adversely affected by your decision.)

    Because my Social Security check has 2/3 of its value taken away due to my state pension, and because my Plan F rate will be above $200 in a few years, if you don’t continue giving us an allowance soon I be forced to cut UHC a check monthly for the Plan F!

    I don’t think they will withdraw it from the account I set up when we were all given the privilege of selecting and buying our own policies…..I will bet they are only withdrawing it automatically from the credit union which I have on file with you because One Exchange is involved. If it were a transaction between me (a nobody) and UHC, I think they would expect a check mailed to them. I could be wrong. .I hope I am.

    I will bet that since (I knew this was coming) the allowance is shrinking every year, we will stop getting it sooner rather than later. It isn’t the money I will have to pay out of my own pocket that I am unhappy about, it is the inconvenience of having to cut another check every month….

    How will it work for those of us who will be paying for our plans when the allowance is no longer offered to us to do so?

    When will you stop giving us the allowance? A lot of us can see that this is certainly a strong possibility.

    • JA,

      Are you talking about the OPERS Medicare Connector allowance? We are continuing to provide that, and it’s not shrinking. Or are you talking about the spousal allowance?

      –Ohio PERS

      • What do think ja meant about shrinking allowances? OPERS projected the first 3 years of the allowance for medicare and each year it has been reduces.

        What you should be making clear, is when the allowance will be recalculated and projected for 2019, because many of the comments indicated they think that it will be ending.

        • Marc,

          Good question. You will receive open enrollment materials soon. An open enrollment packet will be mailed to every retiree with coverage and premium details within the Health Coverage Guide. It will also be available at opers.org. Open enrollment ends Dec. 7.

          Thank you,
          Julie, OPERS

  • Oh no — sounds like the health care fund will be going away. Also interesting, the average rate of return expectations used by 127 public pension plans is 7.62; however OPERS decided to come in under the average at 7.50.

    • Many analysts think that 7.5% is way too high. 5-6% is more realistic. Most states including OPERS still assume way too optimistic returns going forward.

  • Current employees should remember that a few years back, there were adjustments made in the funding of the health care where its funding was diverted into pension. I think there was a couple years of 0% funding for health care and then it was gradually increased back up. Sounds like same thing may happen again but hopefully all will remain stable in the long term

    • Over the last 15 years the average funding rate for health care has been 4.2% with a low of 1.0% in 2013 and a high of 7.0% in 2008. Our obligation and primary focus is in secure pension funding and staying well within the statutory requirement of a 30-year amortization period for pension funding. We do feel health care funding is stable and will continue to make practical decisions to protect the fund. The board sets the funding rate for health care every year.

  • I noticed that the non-medicare premiums thru the transition period are based on 2013 premiums.
    Since this will continue through 2017 what have been the increased rates in premiums over the years
    from 2013 to 2017 and will those rates be reflected in the the percentage we have to pick up in 2018?
    For example if the average rate increased 10% per year will we be looking at picking up the 2018 rate of
    whatever our percentage is of 15.6K? or a 20% rate increase of 28.9K?
    Thank you
    Cindy D.

  • Do you check with other insurance companies besides Med Mutual for better rates and better coverage? With all the deductibles and 75/25 coverage, having a major health issue is going to be a very expensive out of pocket expense. I can t believe there are not better policies out there, at a better rate. Medicare at least pays 80/20 and they can buy a secondary for the 20%. I m not sure if I can get a secondary if I m not on Medicare. Also, a lower monthly rate will help all of us if the “Cadillac Tax” takes affect in 2020

    • Great questions. We are working on a blog now that will answer this question and many similar topics. Please watch for the new blog post. If you haven’t already signed up for email notifications of new blogs,visit the OPERS blog homepage.


  • I would guess that the “Cadillac” tax will not be instituted due to the Republicans rolling back ACA …Obamacare. If this is true, will our plans change again, to return to the benefits that we previously enjoyed……at the lower cost?

    • Charles,

      It is important to understand how the Cadillac Tax does – and does not – impact our health care plans. For those over 65 and on Medicare, changes to federal law would generally not impact our Connector model, assuming that no major changes are made to the competitive Medicare marketplace. Our offerings for those under 65 are impacted by the Cadillac Tax. No one is sure yet what changes will be made to the Affordable Care Act or when those changes will go into effect. Right now, there is not a robust open market for this segment of our population, although we would hope that one develops.

      Julie, Ohio PERS

  • Is it true that OPERS is terminating all health care coverage effective 2020? I have had other employees saying they can’t retire until they reach Medicare age. I plan on retiring within the next year and feel that if this is the case, I should look for other coverage somewhere else.
    Thank you for your time,

    • Joann, thank you for asking! I’ve heard this question before and OPERS is NOT terminating all health care coverage effective 2020.

      Again, thank you for contacting OPERS. When in doubt, contact us (phone, through your online account) and we will assist.

      Enjoy your day,

  • I think its time to look at the people who are doing the investing of our and taxpayer money. The average return in the stock market over time is closer to 9%-10%. The Pension Fund is separate from the Health Care Fund if I am not mistaken. Correct me if I am mistaken. It sounds like PERS is somewhat arbitrarily lowering its expectations so it can have a built in excuse to slash Pensions. We know people are living longer. They have been for decades not just the last few years. PERS needs to stop beating us up with its excuses and upgrade its investment strategies to account for longevity.

    Please contact your state reps and the office of Senator Sherrod Brown.

    • Not all of OPERS money is invested in the market. A big chunk is invested in bonds which are paying historically low rates. So OPERS is not going to be earning as much right now as the stock market is earning.

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