Member-to-retiree ratio keeps declining

Important pension metric is moving the wrong way for various reasons

By Betsy Butler, Ohio Public Employees Retirement System

Jan. 30, 2020 – “Why do you think the number of new members is not growing?” a Facebook follower recently asked us.

That’s an important question, because the ratio of active members to retirees is an important indicator of a pension’s ability to fund itself, as higher ratios are better for pension systems. Fifty years ago that ratio was almost 6-to-1. As recently as the 1990s, it was 2.8-to-1. Today, it’s only 1.3-to-1, inviting a closer look as to why it keeps declining.

First, the stock market crash of 2008 not only substantially reduced the funded status of state and local pensions. It also impacted the workforce, prompting reductions to both benefits and employer payrolls. Since then, state and local governments have continued to struggle to recruit and retain employees.

Budgetary restraints, compensation levels (particularly in fields such as information technology and health care), cuts to pension benefits and younger workers’ desire for quick career advancement and work-life balance challenge state human resources directors to attract productive, engaged workers who will commit to a public service career.

Cutting costs and increasing profitability are popular ways to stay competitive in business, and the public sector is no exception. Automating certain tasks once carried out by workers and employing artificial intelligence have been cited as ways not only to save money and allow for more transparent government spending, but also to improve service efficiency and redirect money for other public-sector employment.

Privatization is another factor. Prior to the 1980s, governments took on more varied activities that the private sector had previously performed. Then, the tide of public-sector expansion began to turn, and management of government services began to be privatized. Why? To eliminate spending deficits, balance budgets, improve efficiency, reduce taxes and shrink the size of government. The 1990s saw federal, state and local governments turning over electrical utilities, prisons, sports-and-recreation facilities, roadways and more to private managers.

While paying fewer government workers helps budgets, it does nothing to lower a pension plan’s costs. We try to prevent losing OPERS members, but there’s not a lot we can do in some cases to thwart this national trend.

We track our active-to-retiree ratio to stay abreast of how these trends can potentially impact us.

During the 1970s, the growth in the number of employer units – especially in counties, cities and villages – led OPERS’ active membership to increase over 41 percent. About half of that increase was in active membership, while retirees increased by 80 percent. Inactive members more than doubled, as they left their contributions in the system to earn interest. The retiree-to-active member ratio declined from 5.75-to-1 to 4-to-1.

Membership during the 1980s continued to increase, but at a much slower pace. While the number of employers was on the rise, total members increased by 17 percent for the decade, with active members only increasing by 3 percent, the bulk occurring in inactive members and retirees. Thus, the active to retiree ratio continued to decline, from 3.4-to-1 to 2.5-to-1.

The 1990s saw the largest growth in membership, a 260,587-member increase that took membership to the three-quarter-million mark. The largest portion of the increase occurred in new inactive members, followed by new active members. Significant hiring by employers improved the ratio to 2.8 actives per retiree.

During the 2000s, total membership increased 21.2 percent. But most of this increase occurred in inactive members; active members decreased by 10 percent, and the active-to-retiree member ratio declined from 2.8 to 2.

In the just-concluded decade, the decline continued. Currently OPERS has an active-to-retiree ratio of 1.3-to-1, as reported in our 2018 Comprehensive Annual Financial Report.

On the bright side, research shows public servants are generally satisfied with their jobs and benefits. The National Institute on Retirement Security’s November 2019 report, “State and Local Employee Views on Their Jobs, Pay and Benefits,” also found that public workers value the opportunity to be of service despite high levels of stress and take-home pay that may be lower than their private-sector counterparts.

Public workers also acknowledge the competitive importance of benefits, citing that while retirement plans are not the initial attraction to a career in public service, they are important to older workers and those with longer tenures.

At the same time, the National Association of State Retirement Administrators indicated local governments gained an estimated 13,000 jobs, marking the sixth-consecutive month of improvement in aggregate state and local employment. If that trend continues, perhaps we could in the future again see an increase in active members to retirees.

 

Betsy Butler

Betsy Butler is the Ohio Public Employees Retirement System’s knowledge and issues strategist, researching information on pensions, retirement and health care. Betsy came to OPERS in 2009 after working as a special collections librarian for two OPERS employers: the Ohio History Connection and Miami University.

Betsy Butler

Knowledge & Issues Strategist

20 thoughts on “Member-to-retiree ratio keeps declining

  • January 30, 2020 at 9:49 am
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    At one point in time I had an equal amount of time in STRS and PERS. I could stay in a position where eventually I retired from one or the other depending on how many more years I worked.
    Three things decided it for me in regards to which retirement system: (1) the unwillingness of STRS to recognize and help those education personnel in non-public school settings (12 month education [correctional, mental disabilities, physically handicapped, etc.] vs 9 month public school educators. (2) the refusal of STRS to show up for my department’s retirement seminars because that particular year there was only 4 of us as nd we weren’t worth the bother [even Social Security showed up when there would be few eligible for it ] and (3) STRS moved into a new building and redecorated with artwork and fountains. PERS seemed to do all right maintaining the building on Town St for decades, so I believed they were working harder for their retirees.
    I’d like to believe PERS is trying their best to work with what they get. The local and state entities who believe that people work rather interact with computers or call centers overseas are kidding themselves when it comes to the number of employees they refuse to hire. Turnover may be a great thing to keep costs down, but it doesn’t do a thing for their graying customer base.

    Reply
  • January 30, 2020 at 10:04 am
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    How about the effect on this ratio because of the huge number of us who retired in Dec. 2012, based on the promised locked in 3% COLA if we got out by that date? Didn’t anyone at OPERS consider how this would negatively affect the ratio of those still working compared to those who are retired? Many of us with 30 years of service were only in our 50s and would have been happy to keep working, but we had only about 2 months to decide whether it would be better in the long run for us to retire earlier than planned and lock in (so we THOUGHT) our cost of living increase. The way OPERS handles people who choose to return to an OPERS job has prevented just about all of us from doing that. Now we are losing that COLA as well as our health care in 2022, all based on what most of us were advised to do back in 2012.

    For new hires, the retirement prospects in the public sector are not nearly as attractive as they used to be. Many of us accepted that we would make lower salaries than in private industry, in exchange for a more secure retirement. Young people can see how those retirement promises are being eliminated at an accelerating rate. If they have a concern for their total earning power, the private sector looks better in the long run.

    Reply
    • February 6, 2020 at 2:02 pm
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      We presented members with the facts in terms of retiring prior the effective date of Senate Bill 343. OPERS did not encourage anyone to retire to lock in a 3 percent COLA. In fact, our priority is to make sure members understand the advantages of working longer.

      Also, the limits on Medicare-eligible re-employed retirees to use an HRA are set by the IRS, not OPERS. We currently offer a health plan for re-employed retirees if they are unable to access an employer’s health care plan.

      Julie, OPERS

      Reply
  • January 30, 2020 at 5:15 pm
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    ODJFS is not replacing employees as they leave. Instead, they bring in contract and temporary workers who don’t contribute to PERS. Some of these people work on state projects for years. This shifting of money makes it look like payroll is being reduced because the cost of those workers isn’t charged to payroll. This gives a false impression that the state is saving so much money. People need to look at this, since they don’t post openings, they can’t exactly recruit and hire actual state employees.

    Reply
  • January 31, 2020 at 9:51 am
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    How significant is the population shift in Ohio on these numbers? The impact that rural Ohio continues to lose significant population and that the metro areas are those seeing growth. Many rural employers are contracting. In many sectors, the metro areas have a greater ability to process the additional workload with fewer employees through technological advances (the automation piece that you reference). With future automation of public sector jobs, continued shifts toward availability of jobs locating near metro areas, and the population continues to age does OPERS anticipate this ratio will be less than one in the coming decade(s)?

    Reply
  • February 3, 2020 at 2:18 pm
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    Many of the perks/retirement benefits that once makes OPERS the envy of some private and other public employees retirement are slowly being chipped away. I would not be surprised if defined benefit as we know it, is eventually phased out. My biggest worry as I am about to retire in a few month, is how long can OPERS continue to honor its legal obligation to pay pension to its retirees, if Member to Retirees continue to decline?

    Reply
    • February 6, 2020 at 11:13 am
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      We understand you are weary of all the changes but we believe we have put a structure in place to extend the life of the Health Care Fund for current and future retirees.

      OPERS has a tradition of anticipating expenses and proactively working toward funding those expenses. The reality is OPERS is not immune to the rising cost of health care, and we will provide access to health as long as possible, but our focus must remain on providing pensions. Your OPERS pension is a guaranteed benefit and must be funded before we can use discretionary funds for health care.

      Funding pensions is our first priority. In our more than 80-year history, OPERS has never missed a pension payment, and we fully intend to continue this tradition.

      Julie, OPERS

      Reply
      • February 18, 2020 at 9:48 am
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        Thanks Julie for your response. It is comforting and reassuring to know that OPERS has laid a solid foundation and continue to build on that foundation which will enable it to honor paying retirees pension into the foreseeable future, as it has done for more than 80yrs.

        Reply
        • February 18, 2020 at 3:57 pm
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          Thank you — glad we could help!

          Reply
  • February 4, 2020 at 4:26 pm
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    I am a pre-medicare retiree that worked 8 years at one government agency and the remaining 22 years at another. During my career, longevity at the same company was an asset. My much younger co-workers are being told in college and by others that longevity at a company makes you stale. They have been told that it is best to only remain at a company for 5-8 years. I’ve seen the high turn over because of this reason (and of course other reasons) at my former employer. If this is the case now with the younger generation, I am not sure how OPERS will be able to continue to fund itself. It’s actually pretty scary.

    Reply
    • February 10, 2020 at 12:20 pm
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      OPERS covers a large network of more than 3,700 employers across Ohio with many opportunities for OPERS members who want to change jobs and remain in public service.

      Reply
  • February 9, 2020 at 11:31 am
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    I was told that an OPERS retiree’s pension was solely based on that retirees personal contribution and their employers contributions plus the money made on investing those fund. If this is true then whether or not there are more people receiving pension than now contributing should not matter.
    What matters more is that State employees took a salary freeze for several years , therefore not growing their retirement fund much. Also as stated by others, closing Developmental Centers and hiring part time and contract people is also detrimental.

    Reply
    • February 11, 2020 at 12:45 pm
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      Employee and employer contributions are pooled and provide approximately one-third of OPERS’ revenue. The remaining two-thirds of OPERS’ revenue comes from investment returns. The larger the employee pool, the greater ability to provide benefits.

      Julie, OPERS

      Reply
  • May 29, 2020 at 1:54 pm
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    i have tried to find this information out on my own but maybe someone could shed some light on the subject. I would like to know if the persons or person that are in charge of managing the investment funds at OPERS are a registered fiduciary? If some people haven’t heard of this term a registered fiduciary in the investment world is a person that must recommend investments that benefits the investor over the advisors personal gain. The government issues form ADM to all registered fiduciaries and they intern must give a copy of that to their clients. I have not seen any mention of this qualification on OPERS website.

    Reply
    • June 2, 2020 at 3:14 pm
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      The OPERS Board of Trustees and OPERS executive management are fiduciaries of the pension trust funds. Fiduciaries are charged with the responsibility of assuring that the assets of OPERS are used exclusively for the benefit of plan participants and their beneficiaries.

      Julie, OPERS

      Reply
    • June 2, 2020 at 4:45 pm
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      I love this type of comment. I have often wondered about OPERS investment decisions and the qualifications of those who choose how to invest OPERS funds. So glad your comment was posted.
      CherylH

      Reply
  • July 15, 2020 at 12:21 am
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    Looks like a 0.5 percent COLA for 2021. What is the status of the proposed COLA freeze for 2022 and 2023?

    Reply
    • July 15, 2020 at 10:16 am
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      The cost-of-living proposal is pending in the Ohio Legislature.

      The 2021 COLA has not been announced yet. Those whose retirement effective date is prior to Jan. 7, 2013, will continue to receive a 3 percent cost-of-living adjustment.

      Julie, OPERS

      Reply

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