OPERS to lower investment assumptions

Downward shift comes in the face of lower return expectations

By Michael Pramik, Ohio Public Employees Retirement System

Oct. 18, 2018 – Faced with declining market expectations, the OPERS Board of Trustees has lowered the pension system’s investment return assumptions for both the Defined Benefit Fund and Health Care Fund.

Beginning with the 2018 calendar year, the assumed actuarial rate of return will be 7.2 percent for the Defined Benefit fund and 6.0 percent for the Health Care Fund. The current rates are 7.5 for the Defined Benefit Fund and 6.5 percent for the Health Care Fund.

The expected rate of return for the defined benefit plan is a key actuarial assumption that influences the way OPERS calculates its liabilities. The move is expected to lower our funding level and increase the time in which we can pay off liabilities.

Lowering the actuarial rate of return could affect benefits for retirees and working members, so OPERS does not take this step lightly. Determining what steps to make after changing the rate will be a challenging decision.

This action reflects worsening expectations in the capital markets since OPERS’ last five-year experience study in 2016, which prompted the Board to reduce the assumed rate of return for the Defined Benefit Fund from 8.0 percent to 7.5 percent. Investment consultants have told us to expect to earn half a percent less annually on our investments than they forecasted during the experience study.

Further, the present value of OPERS’ future benefit payments to current retirees stands at $117 billion, and more than 60 percent of that liability is due to be paid within the next 15 years. While it’s true that we are long-term investors, market returns over the next 10-to-15 years are very important to our plan.

The rate of return adjustment is part of OPERS’ continuing effort to keep the pension plan healthy and sustainable. It determines how much money we need to have on hand now to pay future obligations.

Many institutional investors have been lowering their earnings expectations. The median investment return assumption used by 129 public pension plans surveyed by the National Association of State Retirement Administrators was an all-time low 7.45 percent in July.

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

  • I used to think that OPERS was on my side. Not anymore. It seems that when the wind blows they are looking for more ways to take away our benefits. No one cares about us any more.

  • I really appreciation the Board’s proactive approach to safe guarding our retirement investment. Keep up the good work.

  • I would support endind COLA for retirees rather than change our health benefits and HRA. I would also expect a change in current workers benefits.

    • I fully support your comments. I can afford doing without the cola, but I would have difficulties
      doing without my health benefits. It costs more to get old. Medical needs increase and so does
      the cost of them.

  • “Determining what steps to make after changing the rate will be a challenging decision.“

    Will the members have any input on the steps/actions that may/will be required?

    • Yes. Members and retirees will have the ability to provide feedback on future actions. Keep abreast of Board activity by reading your member newsletter, the PERSpective blog and other communications from OPERS.

      Julie, Ohio PERS

  • Since these are assumed rates how about letting members know what the assumed vs. actual rate earned for the past 5 years!

  • Your “Beginning with the 2018 calendar year…” does not make sense. Please give the 2019 calendar year expectation.

    • The new investment return assumptions adopted by the Board will be reflected beginning in the Dec. 31, 2018 actuarial valuations.

  • I have enjoyed OPERS benefits and hope they are there for my “still working friends” when they retire.
    Edison Klingler

    • Yes. OPERS uses a variety of independent sources to anticipate challenges and address issues to make sure the system stays on track.

    • No. The actuaries did not recommend any changes to the current price inflation or wage inflation assumptions.

  • Anyone that speaks with a financial advisor or monitors the stock market and the recent forecasts of investment returns should understand that this is an expected and prudent step. In fact I’m surprised they didn’t lower the assumed rate of return further. Even though OPERS is one of the stronger pension systems they and other pension systems have a serious challenge over the coming years. It’s safe to assume adjustments will be necessary. Personally I’m hoping they’re able to revise the COLA, as they proposed earlier rather than eliminate it for all as they have for my wife in STRS as well as many other public pensions across the country, and be able to keep a meaningful health care benefit for at least most of us. The strength of the whole system is what will matter over the coming years, not for just one group of us, and hopefully a balanced set of changes can be worked out before more drastic steps become necessary.

  • I agree with the people who say they would rather see the COLA go before health benefits. The healtyh benefits are very important to me.

  • I am wondering what the average return on investment actually was over the past 5 years, not what the prediction was, please.

    • Remember, OPERS is a long-term investor. The rolling five year return was 8.95% and the rolling 10-year return was 5.80%. In 2017, investment returns were able to add to the financial stability of the System, a good thing. However, the returns were not enough to completely make up the erosion of the last decade. You can find more information on our investment returns on p. 103 in the Comprehensive Annual Financial Report (CAFR) and on p. 5 in the more user-friendly Popular Annual Financial Report (PAFR) on the OPERS website at https://www.opers.org/financial/reports.shtml

  • I appreciate the input from all views and will always take a very measured approach in managing our system for everyone affected.

  • I can’t believe the couple comments about doing away the COLA for retirees. I am totally opposed to that. When I retired I was assured I would receive a 3% COLA every year. The calculation for COLA for retirees changed a few years after I retired and I grew concerned over how my friends would do. I do not have additional income and count on that 3% COLA. I am not eligible for Medicare for some time and the 2019 increase in my health care costs will be more than any COLA I receive.

  • I hope COLA doesn’t go away. I do not get medical benefits from OPERS so I must buy benefits with very limited funds.

  • I would hope that Opers would address this issue in gradual manner and work with retiree advocacy groups in doing so. Instead of rushing to the general assembly to alter retiree benefits.

  • Lets wait and get some actual numbers and facts before we start to offer up any of our benefits. Retirement and health care funds are two separate things and if I understand funded from different sources.

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