OPERS making changes to DC plans
While the primary retirement plan for members of the Ohio Public Employees Retirement System is a defined benefit pension, OPERS also offers two defined contribution-style plans.
OPERS has operated the Member-Directed and Combined plans since 2003. After a recent review of the pension and health care structures of the plans, we uncovered several operational and financial issues that needed to be addressed. Thus, we’re announcing several adjustments to the Member-Directed and Combined plans that we’ll phase in over the next nine months.
Each OPERS retirement plan is a separate, legal entity. Because they have their own sources of funding, the plans must cover their own expenses. The upcoming changes ensure that they can.
OPERS periodically reviews all of its retirement plans, understanding that demographics and changes in life patterns impact the finances of plan funding. The decade of experience with the Member-Directed and Combined plans has given OPERS insight regarding what the plans require to be self-supporting and to be operated more efficiently.
The key issues are that the fee structure of the plans has been inadequate to cover expenses, and that participants may be affected by operational and financial issues when they switch plans or purchase service.
Some of the changes will take effect on July 1. The others will begin on Jan. 1. Here is a summary of the changes effective on each of those dates:
Changes effective July 1
- Plan changes: Members who are eligible to change from one OPERS retirement plan to another have been able to do so up to three times. That’s being changed to one. So no matter how many plan changes members have made in the past, as of July 1, they’ll be able to make one change in the future. Why OPERS is making this change: to simplify the process of members changing plans.
- Plan change service purchases: Members will have 60 months to make payments toward a plan change service purchase, rather than the current 180-day window. If any of the time remains unpurchased after 60 months, members will be able to make one payment on that balance before they retire. Why OPERS is making this change: By giving members more time to purchase the service credit, it reduces the possibility that they’ll forfeit some of it.
- Retiree Medical Account vesting schedule: Members in the Member-Directed Plan have part of their employer contribution set aside for health care in the RMA. This currently vests on a sliding scale over five years. For new members who begin employment on or after July 1, the new period for full vesting will be 15 years. This change also applies to members who plan change into the Member-Directed Plan on or after July 1. It does not apply to current Member-Directed Plan members. Why OPERS is making this change: It encourages members to work longer for health care to be closer to Medicare-eligible age; it also recognizes that health care coverage is not usually provided in conjunction with defined contribution plans.
Changes effective Jan. 1, 2016
- Member-Directed RMA contribution rate: Employer contributions equal to 4.5 percent of a member’s earnable salary currently are credited to the member’s RMA. This contribution rate is changing to 4.0 percent. The half percent difference will go toward paying administrative expenses of the plan. Why OPERS is making this change: to establish an adequate and stable funding source for a portion of the Member-Directed Plan’s administrative expenses.
- Member-Directed RMA interest rate: Member-Directed Plan participants earn 4 percent on their money. That’s changing to reduce the risk to OPERS when investment returns are low. Beginning in 2016, when returns are greater than zero, the member’s RMA will be credited with 4 percent interest the following year. If returns are zero or negative, no interest will be credited the following year. Why OPERS is making this change: to reduce the risk that OPERS bears in paying guaranteed interest on RMAs when overall investment returns are negative or less than the guaranteed rate.
- Member-Directed and Combined plan administrative fees: A new, flat fee of $5 per month will be deducted from the investment account of all active and inactive members of these plans. It will replace the 0.1 percent fee charged to active members and the sliding, monthly fee charged to inactive members who have account balances less than $5,000. Why OPERS is making this change: Because actual participation and other results were not as great as anticipated for these plans, the previous fees have not covered the expenses.
- Mitigating rate: This fee is charged to members in both OPERS defined contribution plans to lessen the impact on the Traditional Pension Plan of people opting out for one of the DC plans. It will increase to 1 percent of the member’s earnable salary on Jan. 1, then rise an additional half percent for each of the following two years. The mitigating rate is deducted from the employer contributions. It cannot be used to pay administrative expenses of any plans. Why OPERS is making this change: to maintain the financial stability and integrity of the Traditional Pension Plan. The mitigating rate, which has been in effect since 2006, is provided for in the Ohio law that created OPERS’ two newer retirement plans. When the OPERS Board of Trustees began to consider these plans, they did so under the principle that the new plans would not undermine the Traditional Pension Plan in any way. Collections from the mitigating rate help reduce the financial impact of unfunded actuarial accrued liabilities on the Traditional Pension Plan.
Click here for more information about the upcoming changes to the OPERS defined contribution plans.
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.
My mom is currently with opers medical. I know you all are throwing everyone to the free market wolves. She got a statement saying that she will be getting a stipend to purchase medical insurance. I have been all over your site and have not found any info on who will or can supply her with the same level of coverage. Where is that info ?
Walter,
We are transitioning to an exchange, called the OPERS Medicare Connector, to save our members money and offer tham more-affordable choices than we will be able to do in the future.
The Connector will contact each eligible participant and go over their options in a lenghty telephone call. If you’d like more information, beginning in July you can contact Connector administrator OneExchange at 844-287-9945.
–Ohio PERS
Greetings from Cincinnati. I empathize with you. You are concerned about how you will help her make a choice to get the best possible coverage at the most affordable price.
If you have already gone this route (the one I am going to suggest) I apologize.
Your Mom received a Connector Readiness kit in the mail earlier in the year. In it was a calendar and it also told her what her allowance would be. The calendar has useful information in it towards making your mom (also you, since you want to help her) ready for the changes.
Please navigate the OPERS site for how you can view several U-Tube presentations and please take the Webinar — offered Tuesdays at 11. I took it Friday and you can ask questions — but not all of the answers are available yet.
You are not the retiree and so you wouldn’t know to do this and I do hope I have helped you.
You could also call OPERS Customer Service and see if they can direct you on how to educate yourself and your mom so that you can get her the best medical coverage at an affordable price.
JA
If the actual participation in the DC plans are not as great as anticipated, why is the mitigating rate going up? Also, the amount of increase is more then double the present rate which leaves my to question the competence of the board when they first introduced the options. Did they intended to make they new plans more popular by using unrealistic numbers? I believe this is just robbing peter-to-pay-paul and the real problems facing the traditional plans and OPERS are still there.
Mike,
You’ve posed sort of an apples-and-oranges question. The mitigating rate isn’t premised on the number of people participating in the Member-Directed and Combined plans (our DC plans). It’s determined by the overall negative impact of those members who opt for the DC plans and do not participate in the Traditional Pension Plan (defined benefit plan).
As we said in the blog, one of the initial principles of the DC plans was that they not harm the traditional plan in any way. So Ohio lawmakers created the mitigating rate to offset any negative financial impact, such as the lack of participation in the traditional plan because some members would opt for the other two.
The DC plans became effective in 2003, but we did not initially impose a mitigating rate even though there was a recommendation that we set the rate at 3 percent to 4 percent. In 2006-07, when we increased employer and employee contribution rates to our plans, the OPERS Board of Trustees decided to employ the mitigating rate. But they said it should be less than 1 percent, to mirror the increases in contributions.
After our recent plan review, the Board decided to increase the rate in order to reduce the negative impact of members participating in the two DC plans.
–Ohio PERS
Hold on a second…. Your answer is truly confusing…OPERS newsletter says so FEW folks are in MD that the fees must be raised — you’re saying so MANY folks chose MD that the contributions to Traditional have fallen. Which is it?
Terry,
As stated in the blog, after about a decade of plan performance it became clear that the new plans were not covering their own expenses — in part because fewer members opted for these plans than we anticipated. We changed the fee structure so that the plans would cover their expenses.
The mitigating rate, according to state law, can be applied to compensate for the reduced participation in the Traditional Pension Plan because members opted for the DC plans. Following a recent actuarial review, the rate will increase incrementally over three years.
–Ohio PERS
Michael, can we simply say that the reason why DC plan participants must pay more is because there aren’t enough members to cover the administrative costs and risk mitigation (presumably applies only to the defined benefit portion of the Combined Plan) necessary to operate the plans? “Fewer participants results in higher costs for all” at least has some logic to it, unlike your explanations.
Steve,
No, that’s not a complete answer. The administrative fee issue and the mitigating rate issue are separate issues. For one thing, the mitigating rate proceeds cannot be used to pay administrative fees.
One reason for the administrative fee changes is that the anticipated sources to fund these costs has been inadequate since the inception of the plans. But it’s only one reason. Likewise, the loss of members participating in the Traditional Pension Plan is only one reason for the increase in the mitigating rate. Also relevant are future plan assumptions as determined by OPERS’ actuary.
–Ohio PERS
I have been on ARP for almost a decade and can say absolutely that I very much enjoy being in control of my own retirement. I manage my investments through TIAA-CREF and can see exactly what I have without guessing. I also own what is there and not an IOU from the state that hopefully my benefits will be there someday. What bothers me about these official OHIO Pers answers is that there is basically almost no expense involved in the ARP plan. My (and employer) monthly contributions are directly routed to TIAA-CREF. Besides initial setup years ago, I don’t deal with PERS on anything. They don’t do anything for me. What about all the money saved longterm by not having to offer us medical? Isn’t that savings enough to offset any so called ‘expenses’? The whole thing smells fishy at best and devious at worse. So, why all the talk about expenses? I think taxing the MD plan is simply a smokescreen codified to cover the expenses of the pyramid scheme traditional plan. There is simply no other way to spin it…the mitigating tax is a buffer and a hedge to do nothing other than to protect the oldschool model (which is becoming an endangered species for good reason). Give me medical back for ARP and I’ll feel more sorry for the traditional plan.
Jeffrey,
The rationale for the mitgating rate applied to the Member-Directed and Combined plans is no different than the rationale for the ARP’s mitigating rate. At the time ARP was created, studies determined that creating the ARP would negatively impact the Traditional Pension Plan by reducing its participation level.
–Ohio PERS
Please send me e-mail updates.
Thank you!
I am one of those that will be drop off the insurance I am a widow which is the best way to go here. it is getting me very frustrated i live alone my family is all out of town so it scares me a little i want a good insurance that covers everything but not to expensive. I need somebody to explain to me my option. I do not have any condition that required help all the time I am 80 years old and manage pretty good by myself.Do not believe going to the doctor for everything i manage by myself…….I am pretty healthy so far but you never know , also i travel quite a bit and i would like to be covered for that.
Good luck Andre. Opers believes they have no responsibility to provide health insurance coverage to spouses. Opers also ( time and time again ) states that they have no obligation to provide health insurance coverage to opers retirees. I think that all opers employees should have the same health coverage ( while employed ) as we retired people have. It seems fair to me. Let’s see how the operas employees like it.
Another change where participants receive less of their contributions. When is this stuff goung to end?
I have been made aware that anyone working in an opers position as a returning retiree will not be eligible for the insurance allotment. As a retiree I have been re-employed off and on as a temporary employee and am currently working 2 days a week. My question is how soon does OPERS have to know I am no longer working in order for me to get insurance allotment. I do not want to be excluded when the process takes place. Please advise as to how and when I should let OPERS know I am not working. I am currently being employed thru July 31st, 2015 working only 2 days a week. I want to know what date I need to end this temporary appointment in order to receive my allotment as well as all notifications regarding the connector. I aware the phone call which is forthcoming and I don’t want to be left out or excluded. Thank you.
Regards,
Sandy
Sandy,
We will be sending out a comprehensive communication package regarding re-employed retiree health care coverage this week. Look for a PERSpective blog on this subject within the next couple of days. There also will be emails, updates to our website, a video and other helpful communication on this topic.
–Ohio PERS
Hi,
My understanding is that a returning retiree on the traditional plan receives monies that were originally taken out as standard employee/employer contributions in the form of a OPERS Money Purchase Plan, which includes all contributions and possibly interest. Is this is correct? If so then is there a mitigating rate on these contributions? If not then why not?
Thanks
RMG,
The Money Purchase Plan is only for re-employed retirees, not active or inactive members. The mitigating rate, which lessens the actuarial impact on the Traditional Pension Plan, applies only to plans in which active and inactive members participate.
The mitigating rate does not apply to Money Purchase Plan participants because they’ve already retired — their participation in the Money Purchase Plan does not have an impact on the Traditional Pension Plan.
–Ohio PERS
So the money available for the Defined Benefit Plan has fallen short, and in order to make up for that, employer-provided money is being redirected from employee Defined Contribution Plans to the Defined Benefit (Traditional Pension) beneficiaries?
Isn’t this something that the OPERS/employer should have insurance for – errors in actuarial calculations? Why should the employees in the DC plans bear the burden of bad planning?
At what point will the mitigating rate drop back down to zero?
Russ,
As we stated in the blog, Ohio law stipulated that a mitigating rate could be charged to lessen the impact of the new plans on the Traditional Pension Plan. The specific mitigating rate is based on plan participation and future assumptions as determined by OPERS’ external actuary. The rate is being increased in response to recent actuarial calculations, not because of any errors.
–Ohio PERS
I chose an ARP for two reasons when I started in my current position: primarily, I was already well-established with TIAA-CREF from two other previous positions in other states; and secondarily, I wasn’t comfortable with relying on the solvency of a state-run plan for my future years. The increase to the mitigating rate, and further unfairly burdening those who aren’t participating in OPERS with the responsibility of its solvency, is evidence that I made the right choice.
If reduced participation is negatively impacting the stability of OPERS, the correct business-like response is to make better actuarial calculations and maintain a competitive performance just like any other investment company would do. The response should not be to burden other state employees with the stability of OPERS. The increase to the mitigating rate equates OPERS to an entitlement program. Frightening.
Is there a cap on how high the mitigating rate can go? Or should those who opted for an alternative to OPERS expect to fund others’ retirements at an even higher rate in the future? The impending increase already will reduce my total retirement savings in 25 years by at least one year’s worth of my current salary.
Jen,
Sections 145.87 and 3305.061 of the Ohio Revised Code provide that the Member-Directed and Combined plan mitigating rate cannot exceed the ARP mitigating rate.
–Ohio PERS
After looking at several years of board agenda items regarding the mitigating rate it becomes very clear as to why OPERS is increasing the mitigating rate for the MD plan members. If you read closely, it is evident that OPERS has historically been concerned with the ARP and how it was allegedly impacting the traditional plan. In fact, the ARP mitigating rate was as high as 6%. Subsequently, the legislature changed the law so that the ARP mitigating rate could not be any higher than what was set for the MD plan. Obviously, this created problems for OPERS since it could no longer charge a different rate for ARP members regardless of the ARP members’ alleged negative impact on the traditional plan. The documents show that as recent as 2008-2009 the board was actually considering setting the MD plan mitigating rate at 0% but recognized that would also apply to ARP members. This concern is repeated in later documents. As a result, OPERS is now raising the mitigating rate for the MD plan (even though it admits that participation has fallen short of projections which means the impact to the traditional plan has been less than projected) so that it can apply a mitigating rate to the ARP members. It appears that OPERS is not treating the ARP and the MD plans as separate entities but is instead looking at the total [alleged] “negative impact” and spreading it across the members of the two plans.
Joe,
The mitigating rate isn’t solely premised on the number of people participating in our plans. It’s determined by the overall negative impact of a certain segment of members not participating in the defined benefit plan. When the defined contribution plans were created in 2003, the OPERS Board of Trustees chose not to impose the mitigating rate in the absence of historical plan experience. The board initiated the rate at 0.77 percent in 2007 when contribution rates were to increase for all plans. Based on actuarial recommendations, OPERS is increasing the rate in the future.
–Ohio PERS
I have recently been having a lot of money being taken out of my paychecks. I am a college student and need the money that is getting taken out. Is there anyway I can drop OPERS and collect the money that has been taken out?
Jonathan,
You can ask your employer for a form that will make you exempt from the OPERS deduction. You also can apply for a refund of your account from OPERS. See our website for details.
But consider those moves carefully. If you are young, do you really know where your career will take you five, 10 even 20 years from now? If you ever come back to public service in an OPERS-covered position after working in the private sector you would have to pay a great sum of money to buy back the OPERS service time that you are now planning to forfeit.
–Ohio PERS
Hi All,
Today I have received email from our HR at Wright State University that Opers is going increasing mitigating rate for Member Directed and Combined Plan. ARP mitigating rates are freezed at 0.77% (Current rate). Cheers for ARP members !! The reason I choose Member Directed Plan because I thought both are same. Now ARP makes more sense to me. By 2018, Member Directed mitigating rate will be 2% while ARP is 0.77%. I would like to switch now. OPERS should allow people to switch because It was misleading when we enrolled few years ago.
Any thoughts ??
Jaynul,
The choice of whether to participate in the ARP or in an OPERS pension plan is irrevocable as long as the individual is continuously employed at the public university.
–Ohio PERS
I choose Member Directed over ARP because the mitigating rate was same in 2007. Now OPERS increase the mitigating rate only for Member Directed and not for ARP. So technically, People who trusted OPERS they got cheated. OPERS should allow people to switch if they want to switch to ARP one time since it’s there fault. I would like all member directed user must file complain to attorney general because it’s totally unfair. If I knew about this, I would never pick Member directed over ARP.
Jaynul,
OPERS does not control the ARP mitigating rate. So it’s misleading to say that we increased the Member Directed mitigating rate but not the ARP mitigating rate. Further, it’s not under our control to allow participants in our Member Directed plan to switch to an ARP. Our plans are governed by Section 145 of the Ohio Revised Code. ORC Section 3305.05 determines when a university employee is eligible to participate in an ARP.
–Ohio PERS
The mitigation is tripling. That is absolutely disgusting. My family member was convinced to take a risk by electing a defined contribution plan and now a HUGE chunk of what I thought was my family money is paying for under funded pensions.
Also when I helped my family member sign up for defined contribution back in 2003 I don’t remember being given any information to suggest that the rosy returns presented in the marketing materials might be severely hampered by usurious increases in my subsidy to others. Are you able to show me where in the marketing materials this is explained? I probably kept what I received in 2003, at least I hope I did. i never would have signed up for defined contribution had I known of the uncertainty and the fact that opers is able to take advantage of me without any recourse.
Doug,
OPERS was established as a defined benefit pension plan in 1935. When the OPERS Board of Trustees began designing the Member-Directed and Combined plans in 2000, it maintained that any new retirement plan should not undermine the financial stability of the Traditional Pension Plan. The board adopted the following guiding principle for the defined contribution plans: “The financial stability and integrity of the Traditional Pension Plan should be maintained into the future for its participating members and retirees. Any new defined contribution plans should not undermine the Traditional Pension Plan’s financial status.”
A component of the final Ohio law creating the defined contribution plan provides that a portion of the employer contribution rate will be used to offset the negative financial impact from the creation of the new plans, in this case because the participants in the Member-Directed and Combined plans reduce participation in the Traditional Pension Plan. In other words, the law created the mitigating rate 12 years ago.
The specific mitigating rate is based on plan participation and future assumptions as determined by OPERS’ external actuary, and our board establishes the mitigating rate based on these factors. In February of this year, after a review, the trustees voted to increase the mitigating rate.
–Ohio PERS
How can I verify my Member-Directed RMA account is being credited with 4% interest yearly? I want the good people of OPERS to know that Aetna does not provide any statements to me concerning my RMA account. I have spoken to a few co workers that are also in the MD plan. Everyone of them has said they are not getting statements from Aetna. Please do something about this.
John,
We have contacted you about your issue and are looking into why you can’t track this information.
But generally, members can access a history of their RMA transactions in their online account, including the crediting of interest. For contributing members, interest is credited to the RMA in one lump sum on the last business day of the year. Interest is calculated on the prior year-end balance.
Active members should receive semi-annual RMA statements in July and January.
–Ohio PERS
Can you describe the new process of making change to the mitigating rate now that the Ohio General Assembly has frozen the mitigating rate in June, 2015? The OPERS board has been found to change the mitigating rate based on analysis pertaining to the defined contribution plan’s effect on OPERS that may not be a good judge or measure.
The OSU beneftit page states, “Legislation signed June 30, 2015, froze the mitigating rate at its current level, and any future rate change will require further legislative action. Only the Ohio General Assembly has the ability to reduce the impact of the mitigating rate on plan participants.”
Can you clarify what is going on here?
Jeremiah,
If I understand your question, you are referring to both the Alternative Retirement Plan mitigating rate and the OPERS mitigating rate for the Member-Directed and Combined Plans.
The Ohio legislature did enact legislation last year to “freeze” the ARP mitigating rate. There is a bill currently pending to undo the “freeze” and to establish a methodology for calculating the ARP rate. The pending legislation has no impact on the OPERS mitigating rate for the Member-Directed and Combined Plans.
Current law regarding the OPERS mitigating rate has not changed. The OPERS Board has the authority, based on an actuarial study, to set the OPERS mitigating rate.
– Ohio PERS
Please tell me the house bill or senate bill and committee that will be discussing this methodology for unfreezing the process for adjustment of the mitigating rate. I believe that the General Assembly had deemed the current authority and process as broken which needed a fix from arbitrary adjustments.
The ARP mitigating rate legislation is H.B. 311. As introduced, this bill only applies to STRS bull all five Ohio pension systems have been participating in discussions with the sponsor.