Annual report presents comprehensive look at OPERS
By Betsy Butler, Ohio Public Employees Retirement System
July 6, 2022 – Any conversation with fellow OPERS members and retirees is likely to include a discussion of your retirement system’s financial health. Given the ongoing challenges of the pandemic, skillful navigation of a strong investment market and the prudence of recent plan design changes, OPERS delivered improved overall funding in 2021, and that’s worth talking about.
Fast facts on OPERS’ 2021 financial accomplishments are effective talk-starters, but a more meaningful discussion can ensue after spending some time reading the system’s annual comprehensive financial report. With content governed by Governmental Accounting Standards Board accounting requirements, the report is organized around a set of financial statements.
It contains an introductory section that orients readers and facilitates their understanding of the information presented; a financial section containing statements and descriptive notes concerning the prior year’s financial activities; an investments section presenting returns, benchmarks and top holdings; an actuarial section offering details on funding progress; and a statistical section revealing additional financial and statistical data and trends.
“Connecting Members to the Future,” the theme of OPERS’ 2021 annual report, reflects the system’s continued commitment to maintaining a strong, results-driven and well-positioned system that delivers a stable, secure and meaningful retirement benefit to all current and future members.
Even those of us with elementary financial analysis skills can discover insights into how our system operates. When analyzing the numbers in the financial section, consider whether the system is better or worse off than the previous year, what its financial risks are, whether it is considering the future, and whether it has complied with its requirements.
If you’re pressed for time, find the high points of the annual report by reading through the letter of transmittal, found in the introductory section. Directed to the OPERS Board of Trustees, it provides an overview of the year, including financial highlights, investments activity, pension funding details and the system’s internal and external activities.
Similarly, the Management’s Discussion & Analysis in the financial section describes the previous year’s results and key factors influencing them, shows the system’s current financial condition, and provides an overview of the OPERS pension plans, their funding positions and their future prospects. It is a critical tool in telling the system’s story.
Other revealing correspondence includes Chief Investment Officer Paul Greff’s report on investment activity. Opening the investments section, this includes a review of 2021, together with key initiatives undertaken that year and those planned for the year ahead.
A certification letter by the Board’s actuarial consultant, Gabriel, Roeder, Smith & Co., begins the actuarial section by providing the purpose of a funding valuation, which includes measuring the financial position of OPERS and assisting the Board in establishing contribution rates. The letter also describes the two major schedules in this section of the annual report: financial, focusing on the system’s assets and liabilities; and actuarial, focusing on assumptions, benefits paid, and solvency.
Analyze the report’s financial statements for two-year comparisons of additions to fiduciary net position (i.e., revenues), deductions from fiduciary net position (i.e., expenses), and net position (i.e., the balance sheet). The statements also provide an in-depth discussion of the key drivers of such fluctuations. When reviewing financial statements, spend time digesting their required footnotes. These include further information on OPERS, plan details, discussion of exposure to relevant risks, and the valuation of investment assets.
The statistical section provides important information to assist with reading the financial statements. It offers schedules of pension funding valuation results in total and by plan for the past 10 years; retiree counts and benefits paid by county in Ohio and in other states where retirees live. The Deductions by Type table provides insight on health care costs, annuities, disability case management and refunds. Retiree counts and benefits paid by county, as well as retiree counts by state and by geographical location, are also helpful statistics shared here.
Finally, the plan statement is a fine ready reference, offering descriptions of key plan components, as well as a summary description of benefits provided by OPERS and the eligibility requirements for both pension and health care.
Here are a few statistics and notes you’ll find by reading this year’s annual report:
- A Defined Benefit Fund investment portfolio gain of 15.34 percent
- A Health Care Fund investment portfolio gain of 14.34 percent
- An increase in the pension funded ratio to 84.1 percent from 81.5 percent
- An increase in the health care funded ratio to 110.4 percent from 104 percent
- The improvement of health care solvency to 25 years
- A total net position of $127.0 billion at the end of 2021, up $13 billion from a year earlier
- A total retiree count of 219,088
- Pension benefit payments of more than $6.8 billion and health care payments of $0.9 billion
- A 3.1 percent increase in member and employer contributions, compared to a 0.1 percent increase in 2019
- An average pension at retirement of $23,056
The final, audited report has been submitted to the Auditor of State.
We all like to receive recognition for our work, and OPERS is no exception. Since 1945, the Government Finance Officers Association has awarded the Certificate of Achievement for Excellence in Financial Reporting to encourage and assist public entities to prepare complete, reliable and transparent comprehensive annual financial reports that go beyond the minimum requirements of generally accepted accounting. For the 38th consecutive year, OPERS received this certificate for its annual report.
Compiling the annual report is a time-consuming process for many of my colleagues. Collaborating with external actuaries, the Board’s investment consultant and system auditors, OPERS staff across several divisions spend months importing financial data, simultaneously contributing, documenting, reviewing, designing and approving each section of the annual report.