Increase of statutory maximum employer rate would be first in five decades
By Michael Pramik, Ohio Public Employees Retirement System
Oct. 26, 2023 — The OPERS Board of Trustees took action at its October meeting to authorize OPERS staff to seek the system’s first statutory maximum employer contribution rate increase in nearly 50 years. The legislation would increase the maximum employer contribution limit for state and local members to 18 percent, and set the Law Enforcement statutory contribution at the same rate as that of the Ohio Police & Fire Pension Fund. The increase in the statutory maximum would not necessarily translate into an automatic increase in the employer rate right away.
Contributions is one of the four components of a pension system’s retirement funding equation: Contributions + Investment Earnings = Benefits + Expenses. OPERS’ statutory contribution rate has not increased in almost 50 years, and investments face a volatile, uncertain future. In order to preserve the current benefit level, which has been significantly reduced over the past decade by legislative action, it’s become necessary to pursue additional legislation to increase the employer contribution rate.
OPERS’ proposed legislation would:
- Increase the statutory maximum employer contribution limit from 14 percent to 18 percent.
- Set the law enforcement and public safety statutory employer contribution rate to the same rate as that of the Ohio Police & Fire Pension Fund.
- Establish a plan and schedule for contribution rate increases, to be determined annually by the OPERS Board of Trustees.
- Pursue legislation once every 10 years that would increase the statutory employer maximum by up to 1 percent if the Actuarily Determined Employer Contribution is higher than the statutory maximum.
- Determine the impact to the Member-Directed Fund at a later date.
The OPERS Defined Benefit Fund has a significant unfunded liability because of past benefit increases, a decreasing active member-to-retiree ratio, weakening investment return assumptions and actual market losses in 2008 and 2022. If OPERS experiences poor investment results, the fund’s amortization period could exceed the state-mandated level of 30 years, and further benefit changes could be required.
Health care also is at risk because only the employer contribution can fund health care, and currently all of that contribution is necessary to fund pensions.
OPERS has a long history and proven track record of responsibly increasing employer contributions. The current maximum rate was established in 1976, but it wasn’t until 2008 that OPERS reached that rate. Prior to 1976, there was no statutory maximum. Similarly, any future increase in the statutory maximum employer contribution could be implemented over time.
While the Ohio legislature historically has not considered increases to the employer contribution, in the last General Assembly legislators appeared willing to consider an increase to that rate for the Ohio Police & Fire Pension Fund. OPERS believes if there should be an employer contribution rate increase, it should be done at once with all pension systems in mind.