Ohio University January 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. 2

3 More Than NeededLess 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 environment 4

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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 8

9 Key Measures of OPERS Funding ($ in Millions)

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Pension Plan In-Flows and Out-Flows (Dollars in Billions)

12 Historical Fluctuation of Market Returns Top 4 Market Losses % % % % Top 5 Market Gains % % % % % Data regarding OPERS investment returns is available back to A review of this historical data shows that OPERS has only had 4 years with negative investment returns since 1979.

Projected 2009 Funded Ratio96%75%73% Amortization Years1430 *36 Healthcare Solvency31 years10 years9 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

14 Keys to Changing Funding Investment Earnings Contribution Rates Plan Design

15 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 Goals Liability Reduction$4 - $8 billion Amortization Reduction15 – 22 years What Do We Want To Do?

16 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 Age & Benefit Formula COLAFAS Service Assumptions Components

Changes in Retirement Age and Service (A) (current) General Unreduced - 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 Law Unreduced - age 48 w/25 yrs of service, or age 62 w/15 yrs of service Reduced - age 52 w/15 yrs of service Public Safety Unreduced - 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 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 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 17

Age & Service Benefit Formula COLAFAS 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 % for yrs after 35 yrs COLA = CPI, not to exceed 3%5 year FAS 18

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 Age & Service Eligibility 19

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 Benefit Formula 20

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 21

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Current 3-year FAS Proposed 5-year FAS FAS 23

24 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).

25 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 Age & Benefit Formula COLAFAS Service Assumptions Components

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. 26

 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 27

 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 28

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 years Funding Plan 29

 Continue communication to members, stakeholders  Work with legislators 30

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