OPERS Recommended Benefit Changes

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OPERS Recommended Benefit Changes

• Ohio Staff Councils of Higher Education
• January 29, 2010

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Why Are We Considering Benefit Changes Now?

• 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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Goal Finding the Right Balance
More Than Needed
Less Than Needed
May cause undue hardship on members
May create need for more drastic changes later
Key to Achieving Balance Incremental
Changes Over Time
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What is Driving the Consideration of Benefit
Changes Now?

• 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 environment

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Retirees Living Longerin Retirement
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Growth in Retirees
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How Does This ImpactOPERS Funding?
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Key Funding Measures

• 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)
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(No Transcript)
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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 Losses Top 4 Market Losses
2008 -26.9
2002 -10.7
2001 -4.6
2000 -0.70
Top 5 Market Gains Top 5 Market Gains
1982 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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Recent Changes in Key Funding Measures
2007 2008 Projected 2009
Funded Ratio 96 75 73
Amortization Years 14 30 36

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
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Keys to Changing Funding
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What Do We Want To Do?
Actuary helped define goals for savings from plan
design changes. GOALS
Correct underlying issues Longer life expectancy Eliminate unfair subsidization of benefits of subsets of members Encourage member engagement in their retirement Restore healthcare funding to a level of 4 / year Ensure amortization period remains under 30 years through 2012 in order to give the investment market time to recover
Target Goals
Liability Reduction 4 - 8 billion
Amortization Reduction 15 22 years
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Recommended Benefit Changes
Age Reduction Factors Actuarially Neutral
Eliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially Neutral
Limit Retroactivity to Within 90 Days of Application Receipt
New Hires After Date of Legislation in New Package
Assumptions
Age Benefit Formula COLA FAS
Service Benefit Formula COLA FAS
Components
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Current
Changes in RetirementAge and Service (A)(current)
General
Unreduced - 30 years/ any age, or age 65 w/5 yrs of serviceReduced - age 55 w/25 yrs of service, or age 60 w/5 yrs of service
Law
Unreduced - age 48 w/25 yrs of service, or age 62 w/15 yrs of serviceReduced - age 52 w/15 yrs of service
Public Safety
Unreduced - age 52 w/25 yrs of service or age 62 w/15 yrs of serviceReduced - 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 thereafterReduced - 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 thereafterReduced - 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
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Age Service Benefit Formula COLA FAS
General Unreduced 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 Law Unreduced retirement at 50/25 yrs or 64/15 yrs Reduced retirement at 48/25 yrs or 54/15 yrs Public Safety Unreduced retirement at 54/25 yrs or 64/15 yrs Reduced retirement at 50/25 yrs or 54/15 yrs General 2.2 for all yrs of service up to 35 2.5 for yrs after 35 yrs COLA CPI, not to exceed 3 5 year FAS
Proposed
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Age Service Eligibility
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 yrs
Public 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
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Benefit Formula
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 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
General Unreduced - 2.2 for all yrs of service up to 35 2.5 thereafter Law No change to benefit formula Public Safety No change to benefit formula
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COLA
Current
Percentage - 3 simple COLA COLA begins 12 months after retirement
Proposed
COLA CPI, not to exceed 3 COLA begins 12 months after retirement
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(No Transcript)
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FAS
Current
3-year FAS
Proposed
5-year 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 Neutral
Eliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially Neutral
Limit Retroactivity to Within 90 Days of Application Receipt
New Hires After Date of Legislation in New Package
Assumptions
Age Benefit Formula COLA FAS
Service Benefit Formula COLA FAS
Components
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Transition Plan

• 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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Other Board Changes

• 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 changes

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Other Board Changes

• 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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2009-10 Funding Plan
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
Estimated 12.26 years
Estimated Total Impact
Does not require statutory authority for change
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Next Steps

• Continue communication to members, stakeholders
• Work with legislators

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Questions