Investment return tops 15% in 2021
Defined Benefit, Health Care funds exceed their policy benchmarks
By Michael Pramik, Ohio Public Employees Retirement System
March 9, 2022 — The Ohio Public Employees Retirement System’s Defined Benefit Fund increased 15.3 percent in 2021 while the Health Care Fund was up 14.3 percent, Board of Trustees consultant NEPC said at the February Board meeting. These returns are based on a calendar year fiscal return and reflect results from the period Jan. 1, 2021, through Dec. 31, 2021.
The Defined Benefit Fund ended the year at $109.3 billion. The 15.3 percent return outperformed our policy benchmark by 0.06 percent, or six basis points, for the year. The annualized total return is 14.9 percent for the past three years, 11.4 percent for five years and 10.1 percent for 10 years, beating our policy benchmark return for all periods.
For the fourth quarter of 2021 the DB Fund returned 5.1 percent, outperforming the 4.2 percent benchmark and ranking among the top-performing plans compared with our peers.
Leading the strong performance last year were Private Equity, up 44.8 percent; U.S. Equities, up 26.3 percent; and Real Estate, up 17 percent.
The Health Care Fund finished 2021 at $14.5 billion. The 14.3 percent return exceeded the policy benchmark by 0.58 percent, or 58 basis points. The fund’s annualized total return is 14.9 percent over three years, 10.5 percent over five years and 8.7 percent over 10 years. All those returns exceeded the policy benchmarks.
The Health Care Fund returned 4.5 percent in the fourth quarter, beating the 4.3 percent return of the benchmark.
The Health Care Fund has a different asset allocation, which takes into account higher liquidity needs relative to the total fund asset balance, and a reduced risk profile due to the expected solvency period of the fund. Thus, returns for the Health Care Fund will differ from the Defined Benefit Fund based on the performance of various asset classes.
Like the Defined Benefit Fund, the Health Care Fund was bolstered by strong equity returns in 2021. While the Health Care Fund does not include Private Equity or private Real Estate, it does have a 7.3 percent allocation to Real Estate Investment Trusts (REITs), which returned 46.0 percent in 2021.
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.
What percent of OPERS funds are invested in Russia?
Patricia,
Less than one-tenth of 1 percent of the total investment portfolio is related to Russia.
Kudos to the Defined Benefit Fund. Is it possible for me to get a look at their investment portfolio? A 15% return is admirable.
Sharon,
Our current asset allocation targets are always listed in the Annual Investment Plan, available on our website. Our Comprehensive Annual Financial Report contains additional investment information.
Thanks for great financial management! It is appreciated!
I just turned 65 an am now enjoying a full retirement. Via Benefits is the best thing going. I get reimbursed for out of pocket expenses that I had to pay before from the monies I received from the OPERS pension plan!!! Life is great now!!!!
Congratulations!
How do these returns assist in meeting the funding liabilities for the pension and health care plans?
Kenneth,
Our current assumed investment rate of return for the Defined Benefit Plan is 6.9 percent, so the 2021 return is positive news for funding. The return assumption for the Health Care Fund is 6.0 percent. So 2021 was a good year in that sense as well.
Ok for 2021. What about 2022 which is seemingly much more important to me and I assume others. I already have 2022 data already from STRS where I also have an account.
David,
We’re planning to post a blog this week regarding last year’s returns and their effect on funding.
Does PERS have any investments in Russia? If we do, The members have the right to know their status. Thank you
Genevieve,
Less than one-tenth of 1 percent of the OPERS total investment portfolio is related to Russia.
Thank you Michael for this great investment report on Defined Benefit Fund and Health Care Fund returns. Any possibility that deposits into our Medicare HRA VIA account(s) will return to pre-2022 levels due to Health Care Fund increasing 14.3%?
Ronj,
We don’t base HRA deposits on the returns of the financial markets.
It would seem plausible that this could be at least one factor in your computation of HRA benefit. When it grows, the retirees could expect to receive some consideration of benefit. If not, what is the health care fund for? It certainly would be appreciated by the retirees who have seen their reimbursement dwindle.
If not, what does OPERS base deposit amounts on?
James,
We would ask this question: If future investment returns are flat because of general market declines, or at least fail to reach the assumed investment rate of return for the Health Care Fund (6 percent), should OPERS reduce the HRA amount? The current base amount relies on numerous factors, not only what investments did during the trailing 12-month period.
Offering health care coverage has become increasingly expensive as health care rates have risen dramatically and member demographics have shifted. To preserve the OPERS Health Care Fund for current and future retirees, OPERS took a careful look at all aspects of the health care program to identify impactful changes. Keep in mind that the HRA allowance was never intended to cover the full amount of costs that a Medicare retiree may incur.
OPERS staff reviews HRA utilization annually with the Board of Trustees. When considering the value of the Medicare base allowance amount, OPERS staff and the Board discuss the average HRA balance and how much Medicare plans cost. On average, a Medicare retiree carries a balance in their HRA from year to year. Even though the base allowance amount has been lowered, Medicare retirees should still have sufficient funds within their HRA to cover their supplemental Medicare plan premiums, and some will have additional funds for other qualified medical expenses.
Per Mr. Pramik– “On average, a Medicare retiree carries a balance in their HRA from year to year. Even though the base allowance amount has been lowered, Medicare retirees should still have sufficient funds within their HRA to cover their supplemental Medicare plan premiums, and some will have additional funds for other qualified medical expenses.”
Mr. Pramik, the operative word(s) here is “should” and “some”. I wonder just how many Medicare retirees are in the “should/some” category? I think it has become very clear that Medicare retirees are facing increased costs (particularly medical costs), but unfortunately have minimal (or no) opportunities to recover those costs. That is, short of returning to the work force in some fashion to make up any deficit. The OPERS answer to these rising costs is to simply cut retirees benefits. Regarding any year-to-year balances in Medicare retirees HRA accounts, I believe this can occur ONLY if one has a Medicare Advantage (that is, a zero or VERY low premium) plan. The problem with this scenario is all of the Advantage plans have a very substantial deductible (generally $3500 – $6500 or more), which means just ONE hospitalization can potentially wipe out any HRA balance. If one desires somewhat better medical coverage, this requires participation in a “Medigap” plan. As you know, these plans have substantially higher monthly premiums (mine is currently $190), but have lower (in some cases zero) deductibles. There is no way that the current HRA allocations for Medicare retirees (that is, after the huge 28% cut in base from $450 to $350) can cover a Medigap plan premium and the required Medicare Part B (currently $170 for all) premium. Then there is the Part D premium to consider as well. I guess my point here is that if you have an Advantage plan and are in excellent health, then HRA funds are probably sufficient. Otherwise, not so much…
I agree with Joe M. If you have Original Medicare, a Medigap policy, and Medicare B; HRA funds are not enough to cover those premiums. And then, there may be a dental policy and vision policy premiums. It is good that OPERS provides HRA funds, but OPERS is not being overly generous with HRA funds.
Amazing how our HRA was cut and Medicare costs raised! Seems like when our healthcare costs raise you all are all too willing to cut our HRA/benefits regardless of how well our investments are doing. Would like to know exactly how many state employees there are that pay into our pension/healthcare fund now. I do know the retirees’ spouses lost all healthcare benefits a few years ago-that was a big unexpected cut for retirees. So do not expect us to be too sympathetic to currant and future employees as they still have years to work and get their benefits
D,
You can find the number of current, active members in our latest annual financial report. Your comment about current and future employees likely would be reciprocated and cuts to the subject of intergenerational equity: Balancing long-term sustainability with consistent access to coverage among different generations.
My HRA deposit does not cover my insurance premiums, however, I have a Medicare Supplement (Medigap) Plan which is expensive and goes up a lot every year.
I read an article in Fortune that Black Rock has lost 17 Billion due to Russian exposure. What does that mean for OPERS?? I thought I read something not to long ago in Perspective that we are vested in Black Rock.
Albert,
The only OPERS standalone fund with Russian exposure is the BlackRock MSCI ACWI ex-US Index Fund J. That exposure, as of Feb. 28, was 0.05 percent, or what investors call a de minimis amount.
My HRA does not even cover my Medicare Supplement. Add to that Medicare B and D. I agree. The only retirees with sufficient funds would be Medicare Advantage and like you said one illness is all it takes to wipe that out and more.
In my case, that is TOTALLY correct. An excellent analysis.
Jim Davis
OPERS has done very well with their investments, and they should be reconsidering their changes to COLA. Everyone should at least be getting 3% COLA / per year, and not based on the CPI with a 3% cap. OPERS members need to consider these recent headlines form 9/13/2022 (and keep in mind that we are affected by SS WEP):
Social Security beneficiaries could be looking at a very welcome bump of 8.7% in their benefits starting in January next year, if current trends continue.
That hike would be the biggest since 1981, and would be worth an extra $144 a month for a retiree on the average monthly benefit of $1,656.