OPERS Pension Plan Changes and Health Care

Learning Objectives 2 OPERS History and Funding Challenges Pension Changes Health Care Changes Communicating Change

3 Learning Objectives OPERS History and Funding Challenges Pension Changes Health Care Changes Communicating Change

Increased Life Expectancies Men and women are living approximately 10 years longer today compared to statistics from the 1950’s. Growth in Retirees 1967 – OPERS had almost 31,500 retirees – OPERS had over 184,900 retirees – Projections indicate we will have over 370,000. Return on Investments 2008 – Economic downturn 4 Historical Change

The Impact on Funding $4,329,981,866 $1,573,388, Billions $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 Total Pension Benefits Paid Total Health Care Costs Paid

Pension Fund Health Care Fund Pension Benefit Payments Investment Income Investment Income Health Care Coverage Payments An Illustration of Funding Member Contributions Employer Contributions 30 year funding 6

Recent Changes In Key Funding Measures Funded Ratio96%75% 79%77% Amortization Years1430* 29*30* Health Care Solvency 31 years 11 years 11 years 7 * In order to stay within the statutory 30 year funding requirement, more of the employer contributions were directed to the pension fund decreasing the health care solvency period.

Learning Objectives 8 OPERS History and Funding Challenges Pension Changes Health Care Changes Communicating Change

May cause undue hardship on members May create need for more drastic changes later Key to Achieving Balance Incremental Changes Over Time Goal - Finding The Right Balance More Than Needed Less Than Needed 9

Major Components of Pension Redesign Effective January 7, 2013 Age & Service Eligibility Age & Service Reduction Factors Benefit Formula Final Average Salary (FAS) Cost of Living Adjustment (COLA) 10

Approved Legislation - Group Concept OPERS Transition Plan Group A Must be eligible to retire within five years after the effective date of the legislation. Group B Must be eligible to retire within 10 years after the effective date of the legislation or have attained 20 years of service credit prior to the effective date. Group C All others and new hires after the effective date of the legislation. To be counted toward determining group eligibility, all service purchase must be completed during the applicable transition period. Transfers from another Ohio retirement system will also count if the service earned at the other system occurred before or during the applicable transition period. 11

12 Group B Subject to: Age & Service Eligibility requirements New Age & Service Reduction Factors COLA will be based on annual change in CPI Group A Subject to COLA transition Group C Subject to all elements of the new plan design OPERS Transition Plan Approved Legislation - Group Impact

13 Age & Service Eligibility

14 Approved Legislation and Groups Impacted Age & Service Reduction Factors B and C Impacted Determined by actuary Benefit Formula C Impacted State/Local Division Unreduced – 2.2% for all years of service up to 35, 2.5% thereafter No change to benefit formula for Law Enforcement and Public Safety Final Average Salary (FAS) C Impacted 5-year FAS Cost of Living Adjustment A, B and C Impacted Determined by CPI, 0% - 3%

COLA Transition Current retirees 3% (no change) Members retiring with effective dates during 5 yr transition period 3% until end of 5 yr transition period following legislation Legislation removes 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% Beginning of 5 Year Transition 1/1/14 End of 5 Year Transition 12/31/18 15 Legislation Effective 1/7/13

Approved Changes Purchase of service credit actuarially neutral Minimum Earnable Salary Eliminate two alternative benefit calculations Anti-spiking provision Disability program changes Intersystem transfers Membership determinations Limit retroactive retirement benefits to 90 days Universal beneficiary designation Other Approved Components Not subject to the transition plan: 16 Applies to All Groups

17 OPERS can now update the following: Enhanced refunds Health care eligibility Medicare B Reimbursement Combining service credit among the OPERS retirement plans Establishing the mitigating rate Updatable Factors

18 Progress Check If a member retires two and a half years after the effective date of the legislation, will the member receive a fixed 3% Cost of Living Adjustment (COLA)? Yes No Yes, for a limited period This member would receive a fixed 3% for three years, then transition to the CPI based model.

Learning Objectives 19 OPERS History and Funding Challenges Pension Changes Health Care Changes Communicating Change

Contribution Rate Allocation Changes To Retain 30-Year Funding PensionHealth CareTotal %5.5%14.0% %5.0%14.0% %4.0%14.0% %4.0%14.0% %TBD14.0% 20 With legislation, our goal is to maintain health care funding with a 4% employer contribution. Due to the length of time it took to get the pension bill passed, this may not occur immediately. Strengthening the pension fund is our primary responsibility.

Our current health care program requires a 7.6% employer contribution which is not sustainable given our challenges Moving from a program that takes 7.6% still requires significant changes to the health care program With passage of pension legislation, our goal is to allocate consistent contributions to the health care fund and extend coverage for career members Final details are forthcoming… With Health Care Contribution Changes, OPERS will Adopt a New Health Care Plan 21

22 Health Care Changes – Start 1/1/2014 Will Impact Current and Future Retirees Changes will become effective January 1, 2014 for those retired before 1/1/14 (many items will phase in over a three year period) Eligibility requirements will be immediate for those who retire on or after 1/1/14. Allowance levels will transition into the new allowance over a three year period ending by 1/1/2017 The OPERS Medicare Connector will be available in 2015

Will Impact Future Retirees Member Age 60 with 20 years of service, or Any age with 30 or more years of service (will increase to 32) Health Care Changes – Member Eligibility 23

Will Impact Current and Future Retirees Restructured allowance based on years of service and age –Current retirees at or above a 75 percent allowance will not receive less than 75 percent More out of pocket costs for premiums and covered services Reduce and eliminate Medicare B reimbursement Dependent Children: access with allowance equal to 50% of retiree’s allowance if retiree has 20 years or more of service Will Impact Future Retirees Only – Retired on of after 1/1/14 Disability Recipients: access with allowance limited to first 5 years of disability retirement unless approved for federal program 24 Health Care Changes – Allowances

Will Impact Current and Future Retirees Non-Medicare Spouses Access to OPERS health care thru 2019 No allowance – 3 year transition to 0% for current retirees starting in Those retiring in 2014, 2015 and 2016 get the transition Medicare Spouses Access to the OPERS Medicare Connector No allowance – 3 year transition to 0% for current retirees starting in Those retiring in 2014, 2015 and 2016 get the transition Survivor Spouses Upon member’s death, no allowance or access to health care 25 Health Care Changes – Spousal Eligibility

26 Health Care Changes – OPERS Medicare Connector Will Impact Current and Future Retirees Medicare Recipients Continues to use Medicare as your primary insurance Provides more choices through the individual market to supplement your Medicare with greater affordability Greater ability to budget for health care costs as you pick a plan that best suits your needs Allowance based on years of service and age May have funds left over from allowance to pay for Medicare Part B or spouse’s premium Spouses can use the services of the connector

Health Care Changes – OPERS Medicare Connector Licensed Medicare Counselor Contracts with preferred plans and manages the retiree allowance account Supports the enrollment and decision process and assists in resolving claims disputes Regulated by the Centers for Medicare & Medicaid Services Medicare Retiree Receives an allowance from OPERS based on years of service to purchase a health plan Elect coverage with help from Licensed Medicare Counselor OPERS Selects the best Medicare Connector and monitors their performance, provides eligibility information to the connector and monthly allowance to eligible retirees Plan Options Medigap or Medicare Supplement Part D Rx Medicare Advantage HMO/PPO/PFFS Dental & Vision 27

Medicare Connector – Option 1 Medicare Advantage with Pharmacy (MAPD) $70.00 Medicare B Premium $99.90 Total $ % Allowance $ Remaining $99.10 Health Care Changes – OPERS Medicare Connector Medicare Connector – Option 2 Medicare Supplement with Pharmacy $ Medicare B Premium $99.90 Total$ % Allowance$ Remaining $19.10 MAPD costs range from $0 to $74 a month Med Sup + PDP range from $61 - $265 a month * Based on the 2013 Medicare rate of $358/month x 75% allowance 28

29 Progress Check If employers’ contributions are used to fund health care, there will be no change to coverage. A.) True B.) False OPERS will still need to make significant reductions, but the goal is to maintain a meaningful health care plan.

Learning Objectives 30 OPERS History and Funding Challenges Pension Changes Health Care Changes Communicating Change

31 Communicating Change Communicate pension redesign and approved health care changes to members Keep OPERS membership updated by: – –PERSpective (the OPERS blog), Facebook, Twitter –in-person presentations, web presentations and videos To stay informed, keep your contact information current and read your newsletters

Ohio PERS 277 E. Town Street Columbus, OH Available Media: 32

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Questions? 34 Thank you for supporting OPERS! Questions?