More COLA questions answered
OPERS responds to inquiries about cost-of-living adjustment
By Michael Pramik, Ohio Public Employees Retirement System
Sept. 19, 2017 — Since announcing potential changes to the retiree cost-of-living adjustment, OPERS has received extensive feedback and many questions via the retiree survey, letters and social media posts.
In an effort to keep you informed as we work through a number of options, we’ve provided answers to several more frequently asked questions.
The new questions and answers, as well as additional resources, are available on our COLA Update page.
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.
I truly understand the need for the board to look to the future and to keep the system sound, not waiting for a financial crisis to necessitate drastic and immediate changes. I have always been a big champion of our Ohio system because of the great work the agency and the legislature have done to keep the system stable. And it absolutely makes sense to adjust the COLA for retirees. However a careful approach the process for accomplishing that goal is critically important.
Many individuals chose to retire prior to January of 2012 for the very reason that any subsequent retirement date would result in a COLA based on CPI. It was probably the rare person who, in their retirement planning, was including the idea that their COLA might change. A sudden and drastic change could have a very negative impact on many people who had calculated their future income based on a 3% COLA.
The data that the Executive Director provided indicated that in the past 25 years CPI topped 3% only five times and many years where it was well below 3% and therefore anyone who retired after 2001 was actually increasing their income ahead of inflation. There then in much better shape to deal with CPI when it topped 3% those few years. Now suddenly, this needs to change immediately. Yes, for those who factored in 3% for their long term retirement a 15 month notice is pretty immediate. This situation brings up two points
1) It took 25 years of CPI not topping 3% for OPERS to propose making this change. Why did it take this long?
2) Anyone who has been retired for the past twenty five up to say the past ten or so years ago has effectively been making money from OPERS. Those who choose to retired just before 2012 are now being asked to effectively pay for the previous retirees good fortune. Does this seem like a good faith decision?
The 2012 change to the COLA for all future retirees seemed like a line drawn in the sand that was established, in part, as an outcome of the 2008/09 financial crisis. And there had been, as I recall, a much longer time period for the change to take effect after it was announced. This made good sense in that it gave time for people who couldn’t retire by 1/12 to begin making adjustments while still employed and most working at the top of their salary earnings. It was a pretty fair approach. The current proposal does not at all seem in keeping with how OPERS has handled changes to the benefit, such as the 2012 COLA example, over my 25 years with the system, where there were steps, grandfathering and ample notification.
Here are two scenarios I and many others would really appreciate OPERS evaluating.
1) Anyone who retired in 2011 will retain a 3% COLA thru 2023. Those retired in 2010, will retain a COLA of 3% thru 2022. And so on. The plan would stop with all retirees and future retires with a CPI based COLA by 2023. This is a five year time frame (assuming it initiates in 2018) with OPERS reducing its expenditures each year until the goal is reached. Its a fairly simple formula, much easier for folks to deal with, and gives them time to make income adjustments to balance the COLA change.
2) Another possible method could be to lower current retirees COLA by .33% per year until it reaches CPI. Approximately seven to eight years. A bit more complicated but it would level out the annual reduction in expenditures, giving OPERS a simpler formula for projecting a balance sheet.
3) Another scenario that OPERS might consider, separately or in addition to the above, is an additional calculator to the CPI. Its fairly well understood that the CPI does not factor in adequately the large amount of health care that older adults require. Health care costs have well exceed the CPI for many, many years. A more equitable approach for the older adult population of retirees could be to use the annual inflation rate of health care as a basis for calculating a percent increase to the CPI for anyone, say, over 66. Or for any retiree with a chronic health problems whose cost exceeds a certain percentage of their pension. Also a bit complex but obviously a more equitable way to handle a COLA.
Mr. Gardner,
Thank you for your suggestions.
Julie, OPERS
Tim,
The OPERS Cola changes are being done to other Public Retirement System in Ohio and around the country.
In Ohio Senate Bill 151 will change the Cola for OAPSE retirees.
We are next. This is a trend throughout the country . Please research OPERS own documents to ascertain the real reason behind Cola changes. The NIRS.org is also a good source for funding trends.
Thanks, Mike C.
Medicare cola is 2% in 2018 on current retiree amount.
Opers cola on original retiree amount is less than 2% in most cases when figured on current retiree amount.
Opers has made their decision, apparently well before they asked for comments that they ignored . Now it is to the state legislature. Many who collect retirement funds from opers . With the current cola. Last time opers tried to do this several years ago , thecstate legislature rejected their reasoning . It will be interesting, and possibly hurtful to see what the legislature will do this time .
I doubt that OPERS wants to break down retirees by each year. The calculations would be insanely complex. They didnt even do that with the base pension, and that is even more complex.
Well said, Tim. I am also troubled by the speed that this decision was made. One month after the survey deadline, all the details are ironed out. OPERS made it through the 2008 crisis. So why, all of sudden, do they need 4 billion dollars?
I have always been thankful for OPERS, but I feel really run over by this. Our contributions were raised from 8% to 10% during my employment to ensure the stability of our pension. Why take away from the retirees instead of raising contributions made by current employees?
OPERS wants to mimic the Social Security COLA, but only partially. Social Security doesn’t cap their COLA. In fact, 29 out of the last 43 years Social Security has had a COLA greater than 2.25%. And 13 of the last 25 years have also been greater than 2.25% (see table below). If OPERS wants to align with the CPI, then do it with no cap. We’ll take our chances and we will likely be much better off in the long run.
I would also like to mention that social security COLA increases are calculated on the previous year’s benefit. The increase for OPERS retirees is always calculated on their initial benefit only. So beginning with year one and continuing every year thereafter, PERS retirees will effectively be receiving less than those under social security.
OPERS stated “In the event inflation exceeds 3 percent for an extended period of time, the Board could increase the COLA to 3 percent if OPERS funding is strong.” Why does inflation have to exceed 3% and not 2.25%? How long is an extended period of time? What are the chances our COLA will ever be increased? These sound like empty words spoken to appease.
Source: Social Security Administration
https://www.ssa.gov/oact/cola/colaseries.html
Year COLA Year COLA
1975 8 1996 2.9
1976 6.4 1997 2.1
1977 5.9 1998 1.3
1978 6.5 1999 2.5
1979 9.9 2000 3.5
1980 14.3 2001 2.6
1981 11.2 2002 1.4
1982 7.4 2003 2.1
1983 3.5 2004 2.7
1984 3.5 2005 4.1
1985 3.1 2006 3.3
1986 1.3 2007 2.3
1987 4.2 2008 5.8
1988 4 2009 0
1989 4.7 2010 0
1990 5.4 2011 3.6
1991 3.7 2012 1.7
1992 3 2013 1.5
25 years 2014 1.7
1993 2.6 2015 0
1994 2.8 2016 0.3
1995 2.6 2017 2
I would much rather see a 1-2 yr freeze. Once things are taken away they never come back. Also I thought those that retired after 1-01-2011 were not on the fixed 3 percent. I bought back service time to retire with over 30 yrs of service to tap into the fixed 3 percent. Sounds like this temporary freeze really only affects retirees prior to 1-01-2011?
Mr. Widmer,
Several options are being considered.
Thank you,
Julie, OPERS
I am assuming the option to do nothing is also being considered?
No freeze. No cuts. No change.
Correct.
So opers ignored thevso called surveys . Why did they ask. Obviously they had no determination to ever change their pre determined plan
Now it goes to the legislature . Several years ago the legislature revoked another attempt to lower the cola because opers could not justify the change. We wonder if they have any justification to offer this time ? If not legislature may revoke again. Wonder if the persi union will be discussing this with legislature members. Many legislature members and union members are in the pers retirement system. It would be interesting to heat opers justification , the stock market has been booming for 6 years . Monies from investments should be pouring in. Maybe a new investment staff is needed. Investment income for the general public of investors is flowing in. What happened opers ?
Someday you will get a ballot to vote on this board..remember this , and vote for someone better able to manage the fund .
Mr. Johnson,
The Board’s final proposal contains recommendations that can be traced to the retiree survey. The Board recommended a COLA cap instead of a freeze, and we delayed the implementation of the CPI-based COLA for two years for those who retired from 2010 through 2012. Many of our retirees had told us they retired during those years in part because of the COLA issue. Plus, 70 percent of respondents said they’d prefer a cap to a freeze.
Julie, OPERS
The board has done many things to ‘help’ the bottom line of the pension fund. The employer 4% cut went from healthcare fund to pension. For my thirty years as an opers covered employee around 4% of the employer contribution was paid into the Health fund. When I retired in 2012 this amount was reduced to 1% then 2%, 2%, and 1%. My health costs went through the roof. Spousal coverage went to 0% . This reallocation of funds has increased contributions to the pension fund.
The pension fund has always run at a deficit, why the sudden rush to pay it off?
Don’t they realize the 3% Cola will gradually fade out as we die, again what is the rush? Since the state has control of the fund can they come in and take it if the economic hard times come back?
Do you know how many retirees there are, I don’t. It’s hard to be heard if you disagree with opers. Good luck to us all.
P.S. Some states don’t tax retirees, that could save 2-3% for those moving.
Leave my COLA alone..I worked many years for this and how dare you attempt to change it……….
As has been discussed, the COLA was not meant to keep up with inflation. Health care was changed drastically. Market returns are great. If inflation is low, that helps to make up for the other issues. Please leave the COLAs alone.
Let the COLA float with the CPI….but no cap! Otherwise, double-digit inflation like we had in the late 1970s will decimate our pensions!
If your not increasing the cola don’t touch it……
One of the compelling reasons for retiring when I did was to assure the 3% annual cost of living raise annually. Thus I am not happy about the proposed change and am opposed to it.
OPERS has made some poor investment choices in the last few years. What changes have they made when they have investments in poor preforming choices instead of riding them out too long and diminishing the returns on our pension dollars?
You appear to have your minds made up regardless of what we say. Reducing 3% COLA will break your promise and will hurt retirees who are facing higher health care costs.
When can we expect all of these reductions in our benefits to stop? We thought that it would have stopped with the 2012 changes but now we find ourselves receiving information again that our benefits are going to be reduced further. Just as you have outlined that you have shortfalls in funding, so do we. When we planned our retirement we based it on benefit figures that we were provided from OPERS. Now that these continue to change we have shortfalls ourselves and most of us are now unable to work and make additional money to offset this. At least if changes are made to current members, they have a opportunity to make changes to prepare themselves for those.
Ron and Debra make sense. I concur w/ them. I also ask that if the Ohio Legislature has so much control over our pension, why can’t they repeal the GPO/WEP in Ohio (where those of us that qualify for full social security are being penalized) & are not garnering an OPERS pension for working in public service for 25, 30 or more years. If other states don’t punish their state retirees surely Ohio can give us a break too. OPERS needs to fight for us at the state and federal level & I rarely see any effort helping us.
It doesn’t matter. This was a perk for people to retire before 2013 that we got to keep our cola. Quit playing with our money
Would the proposed decrease in the cola only affect my pension or would it also affect my Additional Annuity payments?
Changes to the COLA would include all benefit types including the Additional Annuity. OPERS staff and the Board will continue to evaluate all changes to the COLA including Additional Annuity accounts.
Julie, OPERS
After reading your FAQs it is apparent that you are unwavering in making the changes you deem necessary as none of the answered show a willingness to change direction or act specifically on questions asked in those FAQs. More changes to future retirees need to be made. They all make better incomes now and can afford to contribute more and save more on their own than a majority of current retirees ever could but who all underwent increases in their contributions during their careers.
Seems like benefits started to go downhill after the Law enforcement retirement section was formed permitting the 25 yr at age 48 option. They do pay a bit more but is it enough? Are any changes planned specifically for them since they retire earlier?
I applaud the board for being proactive to steward our pension fund before it is too late. I also admire the posting of new frequently answered questions and answers. Of course no one wants their benefits reduced but sometimes we have to take small pain now to avoid larger pain in the future. Thank God we are not like states such as Kentucky or Illinois who are in very dire straits in regards to their state pension funds.
Of course I expect I will be attacked and ridiculed by other retirees on this message board for my statements.
I suspect most of us would be fine with a floating COLA based on the CPI….but with no cap! I remember all too well the double-digit inflation of the late 70s that decimated people’s savings.
PS. Is a similar breach-of-contract planned for the OPERS Additional Annuity?
Mr. Martin,
Changes to the COLA would include all benefit types including the Additional Annuity. OPERS staff and the Board will continue to evaluate all changes to the COLA including Additional Annuity accounts.
Julie, OPERS
It’s actually a convoluted conversation when you talk about retirees receiving 3% COLA. Retirees receive 3% based upon their first year’s salary so someone who retired 20 years ago the 3% is based upon a twenty-year-old salary not what their making today so it’s not truly 3% and now you guys want to reduce that to 2% or less. Not an equitable plan. It’s really Distortion of facts and statistics the way you are presenting this
I agree
Hello, no other options have been presented other than reducing the COLA amount for retirees.
Is OPERS considering other options other than reducing the COLA amount?
For example, for those retirees who have savings in the Deferred Comp program, to have part of the 20% fee charged when money is removed from the program invested into the OPERS unfunded liability fund? I suspect OPERS would have to go to the Ohio legislature to make the changes in the law.
What are other options, there has to be some other than COLA reduction. Maybe a combination of COLA reduction and other options. Thank you for all you have done!
Dr. Reichwein,
Thank you for your comment. OPERS does not set the fees charged by Ohio Deferred Compensation.
Julie, OPERS
Hello Julie, I know that OPERS does not set the withdrawal fee (20%) for Deferred Comp, the Ohio legislature does. So why can’t OPERS ask the legislature to have a percentage of the Def. Comp withdrawal fee of 20% put into the unfunded liability fund for all OPERS members who withdraw from Deferred Comp?
Also, you did not address if any other creative options, such as I suggested above, are being considered, and if so, what are they, and if not why not?
Dr. Reichwein,
Thank you for your suggestions. The Board is considering several options, and we provided an update in our most recent post to the OPERS website: https://www.opers.org/pdf/retirees/cola-update-20170921.pdf
Julie, OPERS
Yeah, penalize the people who saved money in their Deferred Comp by subsidizing those who didnt. How unfair that would be!
I also received a Certified Financial Planning degree while working as a social worker for the State. Thank you or being fiscally responsible and pro-active.
Let the COLA float with the CPI ….but don’t cap it!
Is there any law in Ohio which requires the pension fund to be fully funded? We have never been fully funded as far as I know. Why now?
Michael,
Under Ohio law, pension funds must be able to pay their liabilities within 30 years. OPERS’ funding is at 20 years due, in part, to being proactive and making adjustments when necessary.
Julie, OPERS
Julie,
Thank you for the response, but remember the future, current, and past workers are the ones making the adjustments too.
Why the rush to fully fund now?
Mike, Retired OPERS
Michael,
The COLA is a very expensive benefit. We modified it for active members when we passed pension legislation in 2012. The pension changes included requiring members to work longer, reducing the formula benefit, increasing the years included in their final average salary, increasing the cost of service purchase, increasing the minimum level of salary to be eligible for a benefit, adjusting early retirement factors, reducing the impact of spiking, modifying the disability program, and other changes. These modifications reduced the active members’ share of our unfunded liabilities by more than $4 billion. At some point, further reductions in benefits for active members could result in members not electing to participate in the defined benefit plan, which would be detrimental to the plan.
Julie, OPERS
With stock market booming. Opers needs new investments
Also then stop telling us how well the fund is doing
I believe you have mis-stated. The funding should be @ 28 years I believe, not 20 years. So by law it is only 2 years behind not 10.
Thank you for your comment. The December 31, 2016 valuation shows a funded status of 80.1%, with the unfunded liability expected to be funded within 19 years. For more information about our funding, please see our Popular Annual Financial Report, also known as the PAFR, located on the OPERS website. https://www.opers.org/pubs-archive/financial/pafr/2016%20PAFR.pdf
Julie
Hold on, initially we were informed that the COLA changes being considered would affect current retirees only. Now the latest is that they could affect future retirees also.
So now are the future retirees going to get a survey? Haven’t the future retirees been hit way harder than current retirees with the changes adopted in 2013?
Dear OPERS – You illustrate how much you will be saving per year by cutting our COLA. That is deceptive. What you are actually illustrating is how much you will be stealing from retirees who have been promised the 3% COLA (which is not actually 3% because it is simple interest).
You have already cut our medical benefits. Leave our COLA alone.
How about a tiered program the higher the income the less the increase smaller income still receive the 3 percent
Could you more clearly explain Option 1(b) noted in the third quarter 2017 OPERS newsletter ?
When do you see the board making this decision?
Mr. Christofis,
The Board will discuss the proposed COLA changes again at their next meeting on Oct. 18.
Julie, OPERS
Would changes if any take place with this years COLA?
Does it effect retirees before 2006? Does it effect disability retirees?
No decision has been made yet. Once the Board votes, any changes to the COLA must be approved by the Ohio Legislature.
Julie, OPERS
Over the years we have had many changes that was to improve our retirement . But now that I have gotten to retire there are more changes . I am only one vote and it isn’t much but I think that enough is enough. We all work under the thought that we where set for life . I don’t know why we are in such dis order .You took my money with what I thought would be in my best interest.
Restoring purchasing power: OPERS will provide a one-time pension adjustment to restore 85 percent purchasing power for those retirees whose purchasing power is less than 85 percent.
Please explain the meaning of your statement above. The members have no idea what you are talking about and you never explained it.
Linda,
One of the changes the OPERS Board of Trustees has approved for the cost-of-living adjustment is a one-time benefit increase for retirees whose purchasing power is less than 85 percent of what it was when they retired. This increase will affect only a small percentage of our retirees who have been retired for more than three decades. Because of several factors, most notably the historically high levels of inflation through the 1970s, their current pensions have a value of less than 85 percent of the original benefit. OPERS is still working out final details of what groups the increase will apply to, the increase amounts and how we will administer them. But again, it is likely to affect only longtime retirees.
Julie, OPERS
Is this a “guaranteed” one time catch-up for all of us, if our pension value drops below 85%?
Mr. Martin,
This increase will affect only a small percentage of our retirees who have been retired for more than three decades. For one thing, because of the historically high levels of inflation through the 1970s, their current pensions have a value of less than 85 percent of the original benefit. OPERS is still working out final details of what groups the increase will apply to, the increase amounts and how we will administer them. But again, it is likely to affect only very longtime retirees.
Julie, OPERS
If these folks retired 30 or more years ago, they could be 85 to 100 years old by now, a very small group indeed.