OPERS to pay COLAs in 2022

We’ll continue to seek 2-year freeze for wellbeing of your pension fund

By Michael Pramik, Ohio Public Employees Retirement System

July 13, 2021 — As most of you know, two years ago the OPERS Board of Trustees approved a plan to improve the long-term funding of your pension system, a goal that all well-run funds strive to achieve.

This path toward full funding had several facets, including combining two of our retirement plans, creating a new benefit tier for future hires, and modifying our health care program.

One major aspect of that plan was to freeze retirees’ cost-of-living adjustments for a two-year period, beginning in 2022. That single action (in conjunction with the other component of the proposal that would impact active members) would reduce our unfunded liability by about $3 billion from an unfunded liability of more than $20 billion at the time the proposal was created.

As part of our ongoing effort to keep members informed, we traveled all over the state of Ohio and shared the details of the plan and the rationale for the actions. We found most retirees and members appreciated the explanation and were willing to accept the proposed freeze. While it would significantly improve the long-term funding of our pension system, we couldn’t make the changes without seeking legislation. Any change to the OPERS plan design (including COLA changes) requires approval by the Ohio legislature, which is why we initiated discussions with legislators.

For several reasons, including the pandemic crisis being a top priority for legislators since early last year, we have not achieved the necessary legislation that would allow us to make the proposed COLA changes.

We’d like to let members know that while we still must seek the COLA freeze for the future wellbeing of our fund, the COLA freeze will NOT occur next year. OPERS retirees will receive their cost-of-living adjustment in 2022, under the same format as this year: a 3 percent COLA for those with a retirement effective date before Jan. 7, 2013, and an adjustment that tracks the Consumer Price Index (capped at 3 percent) for those with a retirement effective date on or after that date.

We will announce next year’s inflation-based COLA later this summer. According to state law, this amount must be based on the change in the CPI-W index from the end of June 2020 to the end of June this year.

OPERS is grateful for the good investment returns we have earned over the past two years. However, even with the good investment returns, our rationale for COLA legislation is as valid today as it was when the COLA proposal was approved in 2017: to reduce our debt. Our Defined Benefit Fund currently has an unfunded actuarial accrued liability of $19.4 billion. This debt becomes increasingly difficult to pay off as the number of active members continues to decline.

Overall, the COLA proposal would reduce the debt by about $3 billion, or 15 percent. The COLA proposal includes several parts. In addition to freezing the COLA for two years for retirees, the current proposal will also impact active members by extending the time it will take future retirees to receive their initial COLA, to 24 months instead of 12 months. This delayed start to the COLA for current active members accounts for about half of the overall savings of the COLA proposal.

The temporary COLA freeze is important, because COLAs account for 25 percent of the total annual pension payments we pay to our members. OPERS paid $6.5 billion in pension payments and another $725 million in health care payments in 2020.

The proposed freeze is a strong step forward to reducing the debt and the time it takes to pay off that debt. The proposal would not impact any retiree’s past COLAs as you would still receive those each month. The proposed COLA freeze would suspend the additional new COLA increases for two years. 

Like other public pension funds, OPERS has experienced increasing unfunded liabilities (debt), in part because of inconsistent financial investment markets that date back to the Great Recession. OPERS’ reliance on investment markets to fund the benefits continues to increase. Thus, investment market volatility has a significant impact on our funding. The investment professionals’ investment market projections for the coming decades indicate much-lower returns than we’ve seen in the past two years. And while we know many of our members have an opinion on what they think the investment market will do over the next decade, it’s probably safe to assume that no one wants to put the pension system funding at risk. 

We will continue to keep you informed throughout the process. Additionally, as with all our initiatives, we would announce any change in advance to allow time to plan. We will continue working with the legislature to approve a plan that will reduce our debt and set your pension system on a better course for the future.

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

  • “We” do NOT nee to continue to seek any sort of freeze on the COLA. Pursuing a funding level even higher than what is recommended nationally, as an excuse to freeze (and we all guess, eventually eliminate) the COLA, is not the way to go. OPERS is quite well-funded, and will be saving huge amounts due to eliminating pre-Medicare health care coverage. Stop trying to pad your reserves on the backs of those already on a fixed income.

    • Well said, Sheryl, it seems like of us who can least afford it are the ones affected most negatively by these changes.

    • I agree with Alan. Spend time finding a different solution! Maybe the groups you hire to invest our funds aren’t doing as well as they should with selecting investment options. We have been in a bull market for over a decade. OPERS investments should be doing very well.

  • Thanks for the update Michael and I’m not surprised since the Ohio Legislature hadn’t yet sponsored the bill. With the 1-year inflation through June above 5% (expected to drop later this year) and health care changes for non-Medicare retirees next year this is welcome news. While I don’t necessarily like the COLA freeze strategy and would prefer other changes to the COLA structure I understand the need and support the change.

  • In another report I noticed the number of active employees contributing to the pension plan is dropping. I am assuming it may be due in part to the privatization of all 88 county boards of DD direct service provider model, and reductions in staffing in other county and state agencies. With more folks retiring, and less active employee/employer funding contributions this might get worse. I do believe that if the COLA is frozen, it will end up being forever. The State Teachers pension was “ temporarily frozen” and it was NEVER restored.

  • I understand percentage adjustments, but. . . . How does 3% on $30,000 compare to 3% on $60,000? Many who worked 35 years started out possibly at $5.00 an hour. I worked full time 37 out of 38 possible years; retired 10 years ago. With a bachelor’s degree I began in a library at $3.50 an hour in 1973; final hourly rate at a different library in 2011 about $18.00 an hour. My work as a children’s librarian was why I was placed on this earth – it wasn’t just a job to me. I’m single and live alone, no other income; cannot consider a better apartment as rent would almost double. I am stuck as food and utility costs increase.

    • I am in the same boat Pat. 3% might not be a hardship on those who retired with a high salary, but I am almost considered on the poverty level as it is.

    • It is the same for me Pat. My COLA is .5% this year which after taxes is $5.46 a month increase. When I was getting a 3% COLA at least I felt I was keeping up most years. After 27+ years you would think I would be able to live without robbing Peter to pay Paul. I am just above the poverty level.

  • I hope any proposed freeze moving forward is implemented in a way that no one is frozen for more than two years. Under the previous proposal, 2021 retirees would not see an increase for the remainder of 2021 and all of 2022 and 2023. That seemed very unfair to 2021 retirees. If this is corrected so that no one suffers disproportionately, I can support it.

  • Welcome news. PERS should not have hit retirees twice in the same year with taking away group health insurance and a COLA freeze.

  • I would like to know,what is the status of the fight on the windfall elimination that has taken some of our pensions????

  • I worked for the state for 35 years. One of the things at my job that I found extremely frustrating is that staff working in high paid management positions would “retire” then rehire at a slightly less salary, and no longer be contributing to OPERS. So they retire and make even more money and OPERS loses a contributing member. These positions should have been filled by qualified existing or new staff who would continue contributing to OPERS.

  • I personally have no problem whatsoever with not receiving a COLA as the benefits I have received since I retired are more than I expected. OPERS has been so good to me and I appreciate all they have provided to me.

  • OPERS is decreasing health care reimbursement in 2022 and Medicare B will increase premium payment, it’s good news to hear we will continue to receive our 3% COLA.

    • Elise,
      The cost of living adjustment (COLA) is issued on the year anniversary of the retirement effective date. If someone retired with a 12/1/2021 effective date they would receive the first COLA on 12/1/2022.
      Thanks MS

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