Five
Ohio Plans Present Their Recommendations to ORSC
As requested by the Ohio Retirement Study Council (ORSC), on Sept. 9, 2009, the five directors of the state’s public pension systems brought before the council recommendations from their respective boards for how they propose to either return to or stay within the 30-year statutory funding period.
ORSC staff delivered the request in late spring, but the State Teachers Retirement Board was already discussing possible changes. The financial condition of the system due to historic drops in the global markets, a recession from which some analysts indicate we are only recently starting to see relief, and member demographic and economic factors had put the system well over the 30-year maximum funding period. After many months of deliberation, the Retirement Board unanimously passed a plan on Sept. 1 calling for the following changes:
Increase
in Contributions
— Increase member contributions by
0.5% per year beginning July 1, 2011, to a total of 2.5% on July 1,
2015.
— Increase employer contributions by 0.5% per
year beginning July 1, 2016, to a total of 2.5% on July 1, 2020.
The member increase would be phased in at 0.5% per year, beginning July 1, 2011, until 2.5% is reached on July 1, 2015. The employer increase would be delayed for five years, when it would be phased in at 0.5% per year, beginning July 1, 2016, until 2.5% is reached on July 1, 2020. Ultimately, STRS Ohio members would contribute 12.5% and employers would contribute 16.5%.
Increase
in Final Average Salary (FAS) Years
— FAS
calculation to be based on five highest years of earnings beginning
Aug. 1, 2015, versus the current three years.
Change
in Eligibility for Retirement
— Increase years of
service required for retirement, beginning Aug. 1, 2015.
Beginning Aug. 1, 2015, members can retire at any age with 35 years of service; at age 60 with 30 years of service; or at age 65 with five years of service. (Members may retire earlier with an actuarially reduced benefit at age 55 with 30 years or at age 60 with five years.) Members who meet age and service eligibility for service retirement as of July 1, 2015, under the existing rule retain their eligibility.
Change
in Benefit Formula
— New formula would be 2.2% per
year for the first 30 years of service; 2.5% per year thereafter,
beginning Aug. 1, 2015.
The 35-year enhanced benefit is no longer needed to encourage teachers to work longer and is eliminated. Those who have 30 years of service; who are age 55 with 25 years of service; or who are age 60 with five years of service as of July 1, 2015, receive the greater of:
- The benefit as of July 1, 2015, under the current formula; or
- The benefit upon retirement under the new formula.
Reduction
in Cost-of-Living Adjustment (COLA)
— Beginning July
1, 2011, current retirees would receive an annual 2% COLA; members
retiring after July 1, 2011, would receive a 1.5% COLA each year.
The chart below shows the changes recommended by the five systems to the ORSC.
| Provision | STRS Ohio | OPERS (General Plan) | SERS | OP&F | HPRS |
| Contribution Increase | Employee: 10% to 12.5% phased-in
from 7/1/2011 to 7/1/2015 in increments of .5%.
Employer: 14% to 16.5% phased-in
from 7/1/2016 to 7/1/2020 in increments of .5%. |
None requested; remain at 10% for members and 14% for employers. | None requested; remain at 10% for members and 14% for employers. | Employee: 10% to 12% in increments of .5% from 2010 to 2013. Police Employer: 19.5% to 24% in increments of .5% in 2010 and 2% in years 2011 and 2012. Police & Fire Employer: additional 1% beginning 1/1/2013. | Employee: 10% to 11% and exempt the additional 1% from flowing into DROP; effective with effective date of legislation. Employer: No change to current 26.5% |
| FAS | Beginning 8/1/2015: 5 years. |
5 years plus anti-spiking language. | Remain at 3 years. | For members with less than 15 years of service, 5-year FAS beginning 1/1/2010. | Beginning 1/1/2015: 5 years |
| Eligibility | Beginning 8/1/2015: any age/35 years; age 60/30 years; or age 65/5 years. Actuarially reduced early retirement: age 55/30 years or age 60/5 years. | Age 67/5 years or any age/32 years. Actuarially reduced early retirement: age 62/5 years or age 57/25 years. | Beginning 8/1/2015: age 67/10 years or age 57/30 years. Actuarially reduced early retirement: age 62/10 years or age 60/25 years. |
Age 52 for new hires beginning 1/1/2011. | No change requested. |
| Pension Formula | Beginning 8/1/2015: 2.2% per year for the first
30 years; 2.5% per year thereafter. Those who are eligible for
service retirement as of 7/1/2015 receive the greater of: (a) the benefit as of 7/1/2015 under the current formula; or (b) the benefit upon retirement under the new formula. |
2.2% for all years through 34 and then 2.5% for 35 years and over. | No change requested; remain at 2.2% per year for the first 30 years; 2.5% per year thereafter. | No change requested. | No change requested. |
| COLA | Beginning 7/1/2011: current retirees would receive a 2% simple COLA; members retiring after 7/1/2011 would receive a 1.5% COLA. | Simple COLA = CPI, not to exceed 3%. | Remain at 3% simple COLA. | Delay commencement until age 55 for all except beneficiaries and survivors, beginning 1/1/2010. | Effective on or after effective date of
legislation: 2% for all (includes current retirees) except
retirees age 65 or older receiving a pension of $22,000 or less;
board authority to establish maximum 3% COLA when funds are
available; eligibility increased from age 53 to 60. |
| Health Care Changes | Maintains the 1% contribution to the Health Care Stabilization Fund. | Minimum age to retire and be eligible for health care: 55 | With changes to age and service, health care fund has 5 years of solvency. | Reduce employer allocation to health care from 6.75% to 4.80%, effective 2/1/10; premium subsidy for new hires tied to years of service. | Reduce the allocation to the health care fund by an amount (expected to be 1.0% of payroll) that is sufficient to bring the pension plan to a 30-year or lower amortization period. |
| Funding Period | 33.4 years | 30 years | 30 years | 39 years as of 1/1/2009 | 30 |
| Board Vote | Unanimous | No vote | Unanimous | Unanimous | Unanimous |
| Special Note | Populations affected and transition schedule are still under discussion. There are differences in design for the law enforcement and public safety divisions. | System funding for FY2009 has not been reported. | There are some additional DROP proposals. |
OPERS — Ohio Public Employees Retirement System | SERS — School Employees Retirement System | OP&F — Ohio Police & Fire Pension Fund | HPRS — Highway Patrol Retirement System
At the beginning of the ORSC meeting, Rep. Todd Book (D-Portsmouth), who is chair of the council, noted that it was clear that none of the systems would be able to “invest” their way out of future funding challenges. As shown in the chart above, the systems are proposing changes in contributions and/or pension plan design to strengthen their funds.
Because of the differences in each system’s funding situation, demographics and current plan design, there was wide divergence among the five proposed plans. Several council members expressed their distaste for proposed increases in employer contributions, citing the burden this puts on taxpayers. This sentiment was echoed in a major daily newspaper editorial that morning. This same editorial called for the public sector to move to defined contribution plans and away from defined benefit plans.