Investments post double-digit gains

OPERS portfolios rebound in fourth quarter, finish year strong

By Michael Pramik, Ohio Public Employees Retirement System

Feb. 24, 2021 – The Ohio Public Employees Retirement System posted double-digit investment returns in 2020, topping our assumed return rate in both the Defined Benefit and Health Care funds.

The OPERS Defined Benefit Fund returned 12.02 percent last year, compared to the target return of 7.2 percent. The Health Care Fund increased by 10.96 percent, compared to the target return of 6.0 percent.

Four asset classes led the strong absolute returns: U.S. Equities, Non-U.S. Equities, Private Equity and Treasury Inflation Protected Securities, commonly referred to as TIPS. Other bonds also had a strong year, as core fixed income securities returned more than 9 percent, and U.S. Treasuries topped 8 percent for the year.

Consultant Tim McCusker, of NEPC, said at the January Board of Trustees meeting that 2020 will go down as one of the most-volatile investing years in history because of the COVID-19 pandemic. For example, the S&P 500 index fell 34 percent from its Feb. 19 peak, then staged a recovery, gaining more than 50 percent from its low on March 23. The Dow Jones Industrial Average made a similar rebound, rising 53 percent from its low during the first quarter.

OPERS’ Investments division oversees a Defined Benefit Fund of $98.4 billion and a Health Care Fund of $13.4 billion. We use these funds to pay our members’ pension benefits and provide retirees access to health care coverage.

We sometimes receive questions about the benefits we pay relative to good investment returns in any given year. OPERS invests with a long-term time horizon – a period of decades, not years. Because of this outlook, OPERS doesn’t overreact to short-term fluctuations in the financial markets.

Because of its dramatic swings, the 2020 investment year won’t be easy to forget. Yet for institutional investors such as OPERS, it remains only one lap in a marathon designed to provide retirement security for our members.

 

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

    • Vicki,

      As we described in the blog, institutional investors do not set benefit policies based on one year’s worth of investment returns. If so, we’d be changing the benefit structure every year, potentially.

      The COLA freeze proposal was a board-approved action that’s a vital element of our long-range funding plan.

      • But it hasn’t been only one year’s worth of investment returns. The financial market has been going gangbusters for years. Ya’ll need to reconsider HRA or COLA.

        • Cheryl,

          The markets have ups and downs. For instance, in 2018 poor investment markets resulted in the Defined Benefit Fund showing a negative return of 2.99 percent — that was measured against an assumed rate of return of 7.5 percent (which was lowered in October of that year to 7.2 percent).

  • sounds like a very good reason to leave our COLA the way it is. it is almost impossible to live the way it is, much less to have no increase at all for 2 years. we will never make that back.

  • Understood on the 2022 COLA freeze. However, doesn’t the General Assembly have to pass legislation in order for the board to take action?

    • Pat,

      Not in this case. Our Board of Trustees does not have the authority to change the COLA. The trustees took action in September 2019 to approve the plan whereby OPERS staff would seek the legislative change.

      • I’m all for accepting the board’s decision. Working for the future is always a good idea.
        I count my blessings every day for my retirement. When we went 2 years in a row when SS gave no increase, we all had to tighten our belts. If I’m still here in 2022, and OPERS has to give us no increase, I’ll tighten the belt again.
        I’m a widow collecting my husband’s SS so I’m more fortunate than others, but that doesn’t mean it’s all roses for me. I still have obligations and meds to worry about, but I still watch what I spend.
        Thank you Mr Pramik for updates you send us.

      • The freeze is still confusing. Many retirees believe it is a done deal. But it still would require legislative action, correct?

  • Great to hear that you are watching things very carefully and you are letting us know about how the investments are going yep we can’t predict the future and we can’t go back and redo what has happened so we can only cross our fingers for a great future

  • Nice to see some solid returns. And on a related item concerning our pensions… coupled with the decrease in life expectancy due to Opioid issues of the past few years and now the heavy hit on us old folks by Covid, I hope that the actuaries could work with the staff of the State Health Department and the National Center for Health Statistics and recalculate the need to decrease / adjust the COLA. It is okay to admit that the world has changed significantly since this proposal was brought to the Board and a rethink is in order.

  • It would seem, then that the healthcare reimbursement should be able to be continued at the current level for us Medicare beneficiaries or maybe a little bump. As said, we really do appreciate your good/outstanding investment work!

    • James,

      Thanks for the compliment. As we stated in the blog, like other institutional investors we do not base our policies on one or two years’ worth of investment returns.

  • When does OPERS plan to ask the legislature for the 2022 COLA freeze or re-introduce the previous legislation?

    • Alan,

      OPERS is poised to continue its efforts this year to strengthen the long-term sustainability of the system by continuing its pursuit of the cost-of-living adjustment (COLA) legislative change that the OPERS Board of Trustees approved in 2019 and which PERI’s Board of Trustees formally endorsed.

      • OPERS talked of a group D proposal last year in which new members could purchase SS time up to five years, has anything come of that? Also, if this is still in the works why does OPERS not allow members in group B and C to purchase any SS time or at a minimum purchase their extended service which resulted for the changes made in 2013. Some of us must now work 31 to 35 years based on years of service and birthdays.

        • In the Group D proposal they would be eligible to purchase a maximum of five years of service credit, with no associated public employment, at the full actuarial cost this is not proposed for any other retirement group. The Board has approved the creation of a new tier, the details are still being worked out and would require approval by legislation.
          Thanks MS

      • Any updates on WHEN OPERS is going to the Ohio legislature to introduce or reintroduce the COLA freeze bill?

        • Alan,

          OPERS doesn’t introduce the bill. That’s up to the legislature. OPERS continues to pursue the proposal that our Board of Trustees approved in October 2019.

  • Ok Michael I’m going to note your comment on OPERS not over-reacting to short-term investment market results.Now and in the future when results will not be positive.

    • Matt – you are exactly on point. The HRA reimbursement reduction starting in 2022 (lasting until forever or when another reduction in the future happens), which is a done deal by the way, along with two years of COLA suspensions (2022 & 2023) will have a major impact on all of us retirees. The COLA suspensions can be stopped because we have a voice with our state representatives. The HRA reimbursement reduction cannot….unless OPERS Trustees hold this action and review again in the near future. I may be mistaken, but I have not seen a pension system increase any retiree returns when the investment returns are higher, even over a period of years.

      With the state and U. S. economies ready to break out from these pandemic lockdowns, the future sure looks bright as far as investing possibilities. The OPERS Board should place a hold on both of the above issues and review again in 2023 or 2024.

      • Tim,

        Institutional investors don’t increase benefits based on one or two good years of market performance. And, don’t forget that the investment market includes fixed-income investments, which are not expected to perform well in the near future.

        • Mike,

          My point was that Pension Systems in the last 30 or so years, including OPERS, has never increased benefits no matter what the market returns are. They only reduce, adjust benefit coverage programs negatively and give us a few years to acclimate to our new income stream. In the past 15 years this has happened over and over again. I am suggesting an appropriate pause by the Board and then review again in a few years.

          Do Board members read these comments?

          • Tim,

            What you’ve just stated is not the case. Because of market gains during the 1990s, the state legislature passed House Bill 628 in September 2000, allowing for the following:

            • The benefit multiplier for future retirement and disability benefits was increased from 2.1 percent to 2.2 percent.
            • The benefit multiplier for years 20-25 of service was increased from 2.1 percent to 2.5 percent.
            • The method of calculating future benefits for survivors of deceased members was modified to increase the benefits.
            • All retirement, disability and survivor benefits already payable were retroactively recalculated.
            • There was an inflation “catch up” to increase all benefits payable prior to the end of 1979.
            • The employer contribution rate was temporarily reduced for calendar year 2000.
            • The OPERS Board was required to establish one or more defined contribution plans.

            In 2002, another House Bill was enacted, fixing the COLA at 3 percent, rather than having it based on the CPI as it was previously. From 2001 to 2002, OPERS went from having zero debt to having more than $7 billion in debt. In 2000 and 2001, our funded percentage was 100 percent. In 2002, it dropped to 86 percent.

            This information was presented to the Board of Trustees during the February meeting.

          • Mike:

            Didn’t expect such a comprehensive list, all were close to 20 years and more ago….please list the reductions and program changes that have caused reduced benefits during the same time period.

            Mike, just wanted the Board to consider a pause in time before enacting 2 negative impacts during the same period of time, which may not be necessary.

          • Tim,

            Here is only a partial list, all stemming from Senate Bill 343, the major pension legislation that went into effect at the beginning of 2013. These affected only active members, not retirees:

            1. Age-and-service eligibility: Based on a member’s age and years of service as of Dec. 31, 2012, many members had to work longer to be eligible for retirement.

            2. COLA: Anyone retiring after Jan. 7, 2013, has their annual adjustment tied to the Consumer Price Index, not to exceed 3 percent.

            3. Early retirement factors: The multiplication tables we use to determine the benefit for someone retiring with a reduced benefit were significantly changed to reduce the benefit.

            4. Final average salary: This key pension benefit formula component was extended from three years to five years for many members, which also acts to reduce the benefit.

            5. Benefit formula: We lengthened the time it takes to have a higher multiplier applied to FAS, again, reducing the benefit.

          • Malcom,
            If you are trying to get additional information on how a survivor benefit was determined, please forward your questions through your OPERS online account message center or contact our Member Services Center at 1-800-222-7377 for further assistance.
            Thanks MS

    • Gerald,

      There is a delay this year. We expect to begin mailing them in mid-April. We’ll post a blog when they are available to view online.

  • Michael:

    I’ve heard that state pensions will be receiving Federal dollars from the Covid-19 relief bill.

    If so, how much will OPERS receive?

    If not, why not?

    Thank you

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