Ohio UniversityJanuary 27, 2010
OPERS has a long history of proactively addressing issues as early as possible (examples include the Choices Health Care Plan, the Healthcare Preservation Plan, separating pension trust from healthcare trust).
OPERS has a long history of responsible funding and conservative fiscal practices (examples include intergenerational equity value, funding healthcare benefits at inception in 1974, best practices in actuarial assumptions).
OPERS is committed to member involvement and communication.
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More Than Needed Less Than Needed
May cause undue hardship on members
May create need for more drastic changes
later
Goal:Finding the Right Balance
Key to Achieving Balance Incremental Changes Over Time
Retirees living longer in retirement and we need to adjust our benefits to recognize that
Eliminate unfair subsidization of benefits of subsets of members
Encourage member engagement in their retirement planning
Economic environment4
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Year
55 55 65 65Male Female Male Female Male Female
1940 61.4 65.7 6.4 10.7 -3.6 0.71945 62.9 68.4 7.9 13.4 -2.1 3.41950 65.6 71.1 10.6 16.1 0.6 6.11955 66.7 72.8 11.7 17.8 1.7 7.81960 66.7 73.2 11.7 18.2 1.7 8.21965 66.8 73.8 11.8 18.8 1.8 8.81970 67.2 74.9 12.2 19.9 2.2 9.91975 68.7 76.6 13.7 21.6 3.7 11.61980 69.9 77.5 14.9 22.5 4.9 12.51985 71.1 78.2 16.1 23.2 6.1 13.21990 71.8 78.9 16.8 23.9 6.8 13.9
1995 72.5 79.1 17.5 24.1 7.5 14.11996 73.0 79.2 18 24.2 8 14.21997 73.4 79.4 18.4 24.4 8.4 14.41998 73.7 79.4 18.7 24.4 8.7 14.41999 73.8 79.3 18.8 24.3 8.8 14.32000 74.0 79.4 19 24.4 9 14.42001 74.1 79.5 19.1 24.5 9.1 14.52002 74.2 79.5 19.2 24.5 9.2 14.52003 74.4 79.6 19.4 24.6 9.4 14.62004 74.8 80.0 19.8 25 9.8 152005 74.8 80.0 19.8 25 9.8 152006 75.1 79.9 20.1 24.9 10.1 14.92007 75.2 79.9 20.2 24.9 10.2 14.92008 75.4 80.0 20.4 25 10.4 15
Life Expectancyif retire at age
Years in Retirement
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Funded Ratio – the ratio of assets accumulated to pay pension benefits to corresponding liabilities
Amortization years – reflects how long it will take to fund our unfunded liabilities based on expected inflows and outflows
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Key Measures of OPERS Funding ($ in Millions)
ValuationYear
Actuarial AccruedLiabilities (AAL)
Pension ValuationAssets
Unfunded ActuarialAccrued Liabilities
(UAAL) Funded Ratio
PensionAmortization
Years
1990 $20,125 $16,245 $3,880 81% 36 **1991 22,027 18,108 3,919 82% 341992 23,961 20,364 3,597 85% 261993 26,506 23,063 3,443 87% 241994 28,260 25,066 3,194 89% 251995 * 30,224 27,651 2,573 91% 191996 32,631 30,534 2,097 94% 121997 34,971 33,846 1,125 97% 41998 37,714 38,360 (646) 102% n/a1999 43,070 43,060 10 100% 02000 46,347 46,844 (497) 101% n/a2001 * 47,492 48,748 (1,256) 103% n/a2002 50,872 43,706 7,166 86% 29
Results below include Combined Plan, initiated 1/1/20032003 54,774 46,746 8,028 85% 292004 57,604 50,452 7,152 88% 242005 62,498 54,473 8,025 87% 28 *2006 66,161 61,296 4,865 93% 262007 69,734 67,151 2,583 96% 142008 73,466 55,316 18,150 75% 30
* Revised actuarial assumptions** Precedes enactment of statutory requirement for 30 years funding
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2007 Pension Plan In-Flows and Out-Flows(Dollars in Billions)
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Historical Fluctuation of Market Returns
Top 4 Market Losses2008 -26.9%2002 -10.7%2001 -4.6%2000 -0.70%
Top 5 Market Gains1982 28.3%1985 25.6%2003 25.4%1995 20.5%1989 18.4%
Data regarding OPERS investment returns is available back to 1979. A review of this historical data shows that OPERS has only had 4 years with negative investment returns since 1979.
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2007 2008 Projected 2009
Funded Ratio 96% 75% 73%Amortization Years
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Healthcare Solvency
31 years 10 years 9 years* In order to stay within 30 years of funding, OPERS adopted a schedule of decreasing healthcare funding down to 0% by 2015, which means the healthcare fund would run out within 10 years
Recent Changes in Key Funding Measures
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Keys to Changing Funding
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Actuary helped define goals for savings from plan design changes.
GOALS:
1. Correct underlying issues• Longer life expectancy• Eliminate unfair subsidization of benefits of subsets of
members• Encourage member engagement in their retirement
2. Restore healthcare funding to a level of 4% / year
3. Ensure amortization period remains under 30 years through 2012 in order to give the investment market time to recover
Target GoalsLiability Reduction $4 - $8 billionAmortization Reduction 15 – 22 years
What Do We Want To Do?
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Recommended Benefit Changes
Age Reduction Factors Actuarially NeutralEliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially NeutralLimit Retroactivity to Within 90 Days of Application
ReceiptNew Hires After Date of Legislation in New Package
Age
&
Benefit
Formula
COLA FAS
Service
Ass
umpt
ions
Com
pone
nts
Changes in RetirementAge and Service (A)
(current)
GeneralUnreduced - 30 years/ any age, or age 65 w/5 yrs of service
Reduced - age 55 w/25 yrs of service, or age 60 w/5 yrs of service
LawUnreduced - age 48 w/25 yrs of service, or age 62 w/15 yrs of service
Reduced - age 52 w/15 yrs of service
Public SafetyUnreduced - age 52 w/25 yrs of service or age 62 w/15 yrs of service
Reduced - age 48 w/25 yrs of service, or age 52 w/15 yrs of service
Benefit Formula (B)(current)
General
Unreduced - 2.2% x FAS for first 30 yrs of service, 2.5% thereafter
Law
Unreduced - 2.5% x FAS for the first 25 yrs of service; 2.1% thereafter
Reduced - age 52 and 15 yrs of service - 1.5% x FAS x yrs of service
Public SafetyUnreduced - 2.5% x FAS for the first 25 yrs of service; 2.1% thereafter
Reduced - age 52 and 15 yrs of service - 1.5% x FAS x yrs of service
Reduced - age 48 and 25 yrs of service
COLA (C)(current)
Percentage - 3% simple COLA
Timing - COLA begins 12 months after retirement
FAS (F)(current)
3 year FAS
Current
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Age&
Service
BenefitFormula
COLA FAS
GeneralUnreduced retirement at 67/5 yrs, or at any age with 32 yrs
Reduced retirement at 62/5 yrs or 57/25 yrs
Minimum age to retire is 55
LawUnreduced retirement at 50/25 yrs or 64/15 yrs
Reduced retirement at 48/25 yrs or 54/15 yrs
Public SafetyUnreduced retirement at 54/25 yrs or 64/15 yrs
Reduced retirement at 50/25 yrs or 54/15 yrs
General2.2% for all yrs of service up to 35
2.5% for yrs after 35 yrs
COLA = CPI, not to exceed 3%
5 year FAS
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CURRENT
General
Unreduced – any age/30 years of service or age 65/5 yrs
Reduced - age 55/25 yrs of service or age 60 w/5 yrs
Law
Unreduced - age 48/25 yrs of service or age 62/15 yrs
Reduced - age 52/15 yrsPublic Safety
Unreduced - age 52/25 yrs of service or age 62/15 yrs
Reduced - age 48/25 yrs or age 52 /15 yrs
PROPOSED
General
Unreduced - age 55/32 yrs of service or age 67/5 yrs
Reduced – age 57/25 yrs of service or age 62/5yrs
Law
Unreduced -age 50/25 yrs of service or age 64/15 yrs
Reduced - age 48/25 yrs or age 54/15 yrs
Public Safety
Unreduced - age 54/25 yrs or 64/15 yrs
Reduced - age 50/25 yrs or 54/15 yrs
Age & Service Eligibility
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CurrentGeneral
Unreduced - 2.2% x FAS for first 30 yrs of service, 2.5% thereafter
Law
Unreduced - 2.5% x FAS for the first 25 yrs of service; 2.1% thereafter
Reduced - age 52 and 15 yrs of service - 1.5% x FAS x yrs of service
Public Safety
Unreduced - 2.5% x FAS for the first 25 yrs of service; 2.1% thereafter
Reduced - age 52 and 15 yrs of service - 1.5% x FAS x yrs of service (no age reduction factors apply)
Reduced - age 48 and 25 yrs of service – 2.5% x FAS x yrs of service (age reduction factors apply)
Proposed
GeneralUnreduced - 2.2% for all yrs of service up to 35; 2.5% thereafter
Law
No change to benefit formula
Public SafetyNo change to benefit formula
Benefit Formula
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Current
Percentage - 3% simple COLA
COLA begins 12 months after retirement
Proposed
COLA = CPI, not to exceed 3%
COLA begins 12 months after retirement
COLA
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COLA Transition
Current retirees 3% (no change) 3% (no change)
Members retiring with effective dates during 5 yr transition period
3% until end of 5 yr transition period following legislation
Legislation would remove vesting in 3% COLA effective immediately
All COLAs after end of 5 yr transition period equal to CPI not to exceed 3%
Members retiring after end of 5 yr transition period N/A All COLAs equal to CPI not to exceed
3%
Effective date of legislation
End of 5 yr transition period
Current
3-year FAS
Proposed
5-year FAS
FAS
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Assumptions
Age reduction factors for early retirement will be determined by actuary, not statute. (Similar to SERS change enacted previously)
Minimum benefit calculation ($86 per year x years of service) will be eliminated.
Intersystem transfers would be actuarially neutral.
Limit retroactive benefit effective dating to within 90 days of application receipt date.
New hires as of the effective date of legislation (example 2010) would be under new package (no delay until 2015).
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Recommended Benefit Changes
Age Reduction Factors Actuarially NeutralEliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially NeutralLimit Retroactivity to Within 90 Days of Application
ReceiptNew Hires After Date of Legislation in New Package
Age
&
Benefit
Formula
COLA FAS
Service
Ass
umpt
ions
Com
pone
nts
How we transition to this new plan will be important. The Board recommended the following three-group phase-in once legislation is passed. This will ensure adequate notice of the transition to our members.
Group A – Must be eligible to retire within five years after the effective date of the legislation. Grandfathered under current plan design except for COLA provision.
Group B – Must be eligible to retire within 10 years after the effective date of the legislation. Grandfathered under current plan design except for COLA provision. Those seeking an early retirement will have their pension reduced to reflect longer life expectancies.
Group C – All others. All elements of the new plan design apply.
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Purchase Service credit – eliminate subsidization
Increase minimum earnable salary to $1,000/month
Establish a statute of limitations on membership determinations
Grant Board authority to establish mitigating rate
Disability program changes
Corrective changes27
Disability changes Eliminate post-separation eligibility, unless condition began
during employment or is work related Add exclusions for disabilities resulting from illness/injury
from felony, or elective cosmetic surgery After three-year period of receiving benefits change to “any
occupation” standard Require offset for SSDI benefits Limit employer responsibility for reinstatement to three years Limit unfunded service match (minimum 2 / max 5) Require applicant to be physically out of work Implement industry-accepted standards for eligibility
determinations Adopt case management model
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Amortization
Purchase Service Credit actuarially neutral
Increase Minimum Earnable Salary to $1,000 per month
Establish Membership Determination statute of limitations
Board authority to establish mitigating rate
Disability changes
Retirement Age Eligibility/Benefit Formula/FAS/COLA(Alternative Plan Design)
Change RMA vesting schedule to 5 years *
*Does not require statutory authority for change
Estimated Total Impact Estimated 12.26 years
2009-10 Funding Plan
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Continue communication to members, stakeholders
Work with legislators
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