Pension redesign having its intended effect
Occasionally we see misinformation about public pension systems in general, and the Ohio Public Employees Retirement System in particular. When that occurs, we believe we must set the record straight.
Most recently, OPERS and the other Ohio public pension systems were admonished for not attaining progress fast enough after achieving pension redesign in 2012.
Obviously, we disagree. Pension system performance needs to be measured over decades, not short periods of time. The pension reforms passed by the Ohio General Assembly in 2012 and health care changes passed by the OPERS Board of Trustees are having their intended effect despite being in place for only three years. Our asset levels are at an all-time high of $91.2 billion due, in part, to the changes.
The myth is that all of the unfunded liabilities can be due at any one time – thus, the money is “owed.” This is simply not true. Your home mortgage isn’t due all at once, and the same is true of a pension system. It is illogical to assume a pension system should have cash on hand to pay off liabilities all at once.
As a matter of fact, we monitor pension liabilities in two categories: retirees and active members. Retiree liabilities are funded at 100% through a separate fund. What is currently being funded is the ultimate pension liability that will eventually be due for active members that are still working.
The amortization period is the time in which we’re required to be able to pay off our unfunded liabilities. By state law, the public pension systems have to be able to pay off these liabilities within 30 years. If they can’t, they need to come up with a plan to do so. Our amortization period has never gone beyond 30 years since this requirement has been in existence, and it currently stands at an impressive 21 years.
The “funded ratio” is a comparison of our assets to our liabilities. While full funding is an ideal situation, it’s not accurate to say a system is struggling simply because it is not fully funded.
What’s also important is the trend – which way are we heading? The Great Recession certainly took a toll on our funded ratio. But look where we’ve come since then. Our funded ratio dropped to 75 percent in 2008 and we’ve trended upward since then, to our current funded ratio of 84 percent. That’s a significant improvement.
Our system is strong – not only for our members but for all Ohioans who benefit from the $6.6 billion annual economic boost we provide.
We take our fiduciary responsibility seriously, and we want to always provide our members and public with accurate information.
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 know that you are trying to help the people that are still employed, however, at the expense of the retired persons. How are the retirees supposed to pay to rate increases when we are on a fixed income? You reduced our reimbursement and the same time we still have to pay at the same rated as before. How are we to support ourselves with everything going up and up and up? We are robbing Peter to pay Paul, so to speak.
Please advise the current administration in washington to tend to their own business..We certainly do not require any of their help…Retired and prosperous since 93.
I hope that this will be sent to the Columbus Dispatch too since this article responds to allegations made by the Dispatch that the Ohio pension systems were moving too slowly to address claimed funding shortfalls. (It would be nice if OPERS could point out that while we have made tremendous progress in 3 years, the legislature sat on our requested statutory changes for 4 years which made it all the more difficult to initiate needed and foreseeable pension system changes).
Bill,
We had a letter to the editor published in the July 7 edition of the Dispatch.
–Ohio PERS
Yes, the system is stronger but at a high cost to spouses of current retirees. Massive changes that occur after a member has retired is something other state retirement systems have avoided especially in regard to spousal benefits.
Mr. Pramick, I find it interesting that you had no comment to Gail & Richard’s Skatzes post. What they are saying is ringing true for so many of those who retired, felt secure, and are now looking at financial desperation. The question becomes, is any one listening to the voices of these retirees? Is anyone even trying to come up with some type of relief or solution for these strapped individuals? I do not write this in anger. It just concerns me that so many who have put their lives on the line deserve a little better than what they are faced with.
David,
The blog was on pension reform. The comment to which you refer was on the health care changes we needed to make to sustain health care into the future.
When OPERS needed to adjust its pension plans after the Great Recession, we made significant changes that reduced benefits for current workers and made them work longer to get them. Throughout this process, then-current retirees were not affected by these changes. That includes the cost of living adjustment. We adjusted the COLA from a flat 3 percent to a rate based on the Consumer Price Index, maxing out at 3 percent. This change also did not apply to those who already were retired.
So it’s simply incorrect to suggest that the health care changes, which will apply to all eligible OPERS members (retirees and non-retirees), were made to help out the pension fund.
–Ohio PERS
I agree with David bailey that spouses should get half of retirees health care upon the death of the Retiree A lot of the retirees I have talked to. in this same type of health care
Is it possible for a retirement funds like OPERS to be “overfunded”? That is, at what point is the fund receiving contributions that will not be repaid to the same group of contributors?
An investment councilor told me that while many people do not put away enough for retirement, he knows of others that “over invest”, subject their families to hardships, and then die with large balances. Can a retirement fund do the same thing?
John
John,
Yes, a retirement system can be overfunded, meaning it has more than enough money on hand to pay all of its future liabilities. We are currently funded at 84 percent, so it’s a somewhat moot point to discuss overfunding.
–Ohio PERS
Having worked for more than 31 plus as a Public Employ & a Retiree for 10 plus years you are singing to the Choir ! A letter to the Columbus Dispatch Editor may be of greater benefit !!
I agree with David,balancing your books on the backs of current retired employees and spouses is nothing to be proud of.
I went to a retirement seminar today in Cambridge. I literally felt sick, angry, and disgusted at the end of the seminar. I learned that out of my meager 20 year retirement, I will be hit by social security under the WEP Act and lose almost 50 percent of my retirement paying Health Care Premiums, and Death Benefit for my wife. Under the guise of balancing the budget you take away half of the retirement of a hardworking dedicated state, county, and city workers.
Further, I find your web site confusing. I simply would like to know what my retirement will be at age 62 with 20 years in and retiring on January 01, 2017. Can I get that information via email?????? How about if I call on the phone? Please inform.
Don,
You can log in to your online account, and under “Tools and Resources” find our benefit estimator that can help you determine your retirement benefit at age 62. If you have not yet registered online with us, we encourage you to do so. Click on “Member Login” at the top right of our home page, then “Need an Account?”
As you near the time you’d like to retire, we really recommend that you set up a one-on-one session with an OPERS counselor here in Columbus. You can make that appointment by calling 800-222-7377.
As for your Social Security benefit, contact the Social Security Administration. It too has calculators on its website that can help you determine your approximate benefit taking the Windfall Elimination Provision into account.
–Ohio PERS
WEP is federal policy having to do with Social Security and has nothing to do with PERS. The reason for WEP is to prevent individuals who spent significant portions of their careers in jobs in which they paid no social security tax from receiving “windfall” social security benefits. If you don’t like that, take it up with your congressional representative, not with PERS.
The problem I have with the WEP is that while I was employed in non-public jobs, which, in my case, was just for short times throughout my working life, I contributed to SS and should be entitled to receive a full SS benefit, based on the time I spent in that system. It would be about $300 a month but now it will be cut in half. It should not be reduced just because I am receiving a pension from OPERS. My time in OPERS and the non-public employment are independent of one another; I was either working in public or non-public but not at the same time. If someone wants to regard this as a “windfall”, so be it, but I do not see myself getting rich in retirment.