1. Building a Stronger OPERS
Municipal Finance Officers Association
Annual Conference
Nov. 1, 2017

2. Ohio Public Employees Retirement System
State of OPERS
Funding Update
Investment Update
Health Care Status Update
Cost-of-Living Adjustment (COLA)
Why now?
Why retirees also?
Why COLA?
Status
Questions
Ohio Public Employees Retirement System

3. Ohio Public Employees Retirement System
State of OPERS – Funding Status Update
Funding as of 12/31/2016
$ in B
Pension
Health Care*
AAL
$100,166
$18,711
Assets
$80,280
$11,922
UAAL
$19,886
$6,789
Funded Ratio
80%
64%
Amortization/ Solvency
19 years
16 years
Health care assets cannot be used for pension funding
Ohio Public Employees Retirement System
* Roll-forward of 12/31/15 AAL

4. State of OPERS – Funding Status Update
Valuation Year
Actuarial Accrued Liabilities (AAL)
Valuation Assets
Unfunded Actuarial Accrued Liabilities (UAAL)
Ratio of Assets to AAL
Amortization Years
Total Defined Benefit Return
Unrealized Gain/(Loss)
2016
$ 100,166
$ 80,280
$ 19,886
80% 19
8.31%
$ (2,766)
2015*
$ 97,177
$ 78,061
$ 19,116 20
0.33%
$ (3,501)
2015
$ 91,832
$ 13,771
85%
2014
$ 89,285
$ 74,865
$ 14,420
84% 21
6.96%
$ ,398
OPERS is currently anticipated to fund health care at 0% in 2018 and beyond, so no additional levers would be available to offset any reduction in the assumed rate of return.
Ohio Public Employees Retirement System

5. Ohio Public Employees Retirement System
State of OPERS – Funding Status Update
Investment Returns ( )
Negative Return
0.00%-8.00% Return
8.00+% Return
Year
Return
1973
-18.80%
1978
2.20%
1972
18.00%
1974
-11.90%
1979
2.87%
1975
21.40%
1977
-1.00%
1981
0.71%
1976
20.80%
1994
-0.02%
1987
1.29%
1980
9.73%
2000
-0.71%
1990
6.30%
1982
28.32%
2001
-4.58%
1992
5.66%
1983
9.64%
2002
-10.73%
1996
7.85%
1984
13.07%
2008
-26.92%
2011
0.20%
1985
25.59%
2015
-0.03%
2014
6.70%
1986
15.21%
1988
9.25%
1989
18.38%
1991
15.68%
1993
9.72%
1995
20.47%
1997
13.37%
1998
14.45%
1999
12.10%
2003
25.39%
2004
12.49%
2005
9.03%
2006
14.66%
2007
8.52%
2009
20.06%
2010
13.90%
2012
14.40%
2013
14.00%
2016
8.23%
Any year less than 8.0% return is a loss
Despite many years of positive returns, a
$19 billion unfunded liability still exists
OPERS cannot invest our way out of UAAL
Market volatility calls for pragmatism in plan design
Ohio Public Employees Retirement System

6. Ohio Public Employees Retirement System
State of OPERS – Investment Update
OPERS Investment Performance
(Preliminary Returns, net of fees, as of 08/31/2017)
Ohio Public Employees Retirement System

7. Ohio Public Employees Retirement System
State of OPERS – Investment Update
OPERS Asset Allocation Today:
Since 2007, the asset structure of OPERS Investment Fund has been transformed. The changes were made to reduce the volatility of the Fund’s assets, while continuing to earn high risk-adjusted returns. This was accomplished principally by moving toward a peer group weighting in alternatives asset classes such as real estate and private equity, and moving some funds to multi-asset class strategies such as Risk Parity (which broadly owns the same asset classes found elsewhere in the asset allocation of the Fund but adjusts their portfolio weighting to balance risk).
Private Alternatives:
include Private Equity and Private Real Estate
Public Alternatives:
include Commodities, REITs, Risk Parity and Global Tactical
Asset Allocation (GTAA)
Ohio Public Employees Retirement System

8. Ohio Public Employees Retirement System
State of OPERS – Investment Update
Private Alternatives:
include Private Equity and Private Real Estate
Public Alternatives:
include Commodities, REITs, Risk Parity and Global
Tactical Asset Allocation (GTAA)
Ohio Public Employees Retirement System

9. Ohio Public Employees Retirement System
Health Care Update
HRA Successes
Educational Efforts
Open Enrollment
Ohio Public Employees Retirement System

10. Cost-of-Living Adjustment
State of OPERS – COLA
Cost-of-Living Adjustment
Ohio Public Employees Retirement System

11. Ohio Public Employees Retirement System
Challenges – COLA Update
Market Volatility
Unfunded Liability
Changing
Demographics
Environment - Pension Envy
Ohio Public Employees Retirement System

12. Why now?

13. Ohio Public Employees Retirement System
COLA – Why Now
Reduce $19 billion unfunded pension liability specific target not set
Maintain intergenerational equity
Ability to react to market volatility and life expectancy of retirees
Continue to provide health care
Continue to be proactive
No Health Care funding beyond 2017
Ohio Public Employees Retirement System

14. Accumulated Member Contribution Pension Benefit Paid To Date
OPERS Retiree Statistics
Averages
Current Age
% of Retirees
Years of Service
Years in Retirement
Monthly Benefit
COLA
Career Contrib. Rate
Accumulated Member Contribution
Pension Benefit Paid To Date
90+ 2% 19 29
$1,380
$23
8.0%
$28,126
$359,777
80-89
11% 20
$1,735
$33
8.3%
$47,279
$359,710
70-79
26% 22 13
$2,153
$48
8.5%
$75,168
$303,414
60-69
36% 24 7
$2,676
$66
8.8%
$99,758
$251,487
50-59
10% 26 6
$3,195
$83
$109,018
$227,124
Below
50 &
Disability 1%
$2,318
$59
9.1%
$53,340
$177,783
Deceased
14%
$1,272
$26
$48,876
$267,718
All
100% 12
$2,260
$53
8.6%
$79,337
$278,167
Retirees/beneficiary receiving pension benefit as of 8/31/2017. Deceased = beneficiary receiving benefit.
Accumulated member contributions include 4%/1% interest accumulated throughout career and up to retirement.
Pension benefits paid to date are nominal dollar amounts.
If one considers investment losses the greatest risk to a DB plan, then loss of future contributions is the second biggest risk. The active members’ contributions to UAAL creates a trickledown destabilizing impact on the plan.
The bulk of our retiree population has retired in the last 10 years. When we see these heavy waves of young retirees, long term costs of the group must be carefully considered and accounted for.
All older retirees have gone through high inflation periods with little or no COLAs at times.
Ohio Public Employees Retirement System

15. Why retirees also?

16. Retiree & Member Levers
Age & service eligibility increased
Age & service calculation modified
5-year FAS
CPI-based COLA
Actuarial reduction factors
Spiking (CBBC)
Minimum earnable salary increased
Disability program changes
Liability cost service purchases
Joint retirement/intersystem transfers
Survivor benefit eligibility
Medicare-Eligible Health Care & HCPP 3.0
Remaining:
COLA
Non-Medicare Health Care
S.B. 343:
Age & service retirement eligibility/calculation
Final Average Salary (FAS)
Cost-of-living adjustment
Actuarial reduction factors for early retirement
Contribution-based benefit cap (CBBC)
Minimum earnable salary
Disability program changes
Cost of service credit purchases
Intersystem transfers
Enhanced refund
Membership determinations

17. Impact of Prior Pension Changes

18. Why COLA?

19. Ohio Public Employees Retirement System
Why COLA?
Active member benefits have been addressed to account for increased life expectancy and elimination of subsidization of benefits and for contribution levels
Source of pension UAAL remains primarily attributable to retiree population; COLA is the only pension lever
Long-term, low inflation predicted to continue; current COLA outpaces inflation
No additional levers remain to significantly reduce unfunded liability that do not constitute total benefit redesign
Ohio Public Employees Retirement System

20. Ohio Public Employees Retirement System
Historical Inflation
Original COLA significantly lower than inflation = mitigated only 1.5% of 6.0% (1970)
COLA predated health care – never intended to offset health care inflation
In the last 30 years, COLA has tended to outpace inflation 60% of the time
Ohio Public Employees Retirement System

21. Ohio Public Employees Retirement System
Payments in 2016
OPERS paid $5.3 billion in pension, the COLA accounts for $1.3 billion of that amount
OPERS paid $1.2 billion in health care coverage
Ohio Public Employees Retirement System

22. COLAs at Ohio Retirement Systems COLAs at Ohio Retirement Systems
All Ohio COLAs are simple, not compounded
COLAs at Ohio Retirement Systems
Set by Board
0% beginning 7/1/17
Previously 2% with 5-year delay after retirement
STRS
HPRS
Set by Board annually currently 1.25%
Capped at 3%
Retire after 1/7/13, minimum age 60
Pre-1/7/13, minimum age 53
SERS
Board authority to grant COLA based on CPI, capped at 2.5%, beginning 1/1/18
Previously a flat 3%, regardless of CPI changes 3%
Currently suspended
Resume in 2019
CRS
3% for those with 15 years on 7/1/13; minimum age 55
2013 new hires & lower service members = CPI, capped at 3%; eligible at age 60
3% (pre-1/7/13)
% increase in CPI, capped at 3%, starting in 2019 (2/1/13)
OPERS
OP&F

23. COLA Status Update

24. Ohio Public Employees Retirement System
COLA - Process
Discuss Considerations with Stakeholders
Board Discussions
Collecting Data
Revise Considerations Based on Input/ Feedback
Ohio Public Employees Retirement System

25. Ohio Public Employees Retirement System
COLA Survey
Surveys Sent
194,125
Surveys Received
75,796 (37.1%)
Survey Comments
29,681
Ohio Public Employees Retirement System

26. 75,796 Surveys Received and Entered
Survey Results
75,796 Surveys Received and Entered
73% think it is reasonable to align all COLAs with inflation
58% think OPERS should provide a COLA every year regardless of the System’s financial condition
56% would prefer the shortest 1-year freeze (if a freeze were imposed)
72% would prefer a lower cap over a COLA freeze
46% would prefer a lower cap of 2.5% (if a cap were imposed)
*As of Sept. 27, 2017
Ohio Public Employees Retirement System

27. Ohio Public Employees Retirement System
Feedback Themes
Retirees feel COLA exceeding inflation is acceptable and would rather the COLA be compounding
Retirees express need for COLA to offset health care expenses
WEP/GPO
Ohio Public Employees Retirement System

28. Ohio Public Employees Retirement System
Feedback Themes
Many people retired in anticipation of
Senate Bill 343
Retirees recognize low inflation times but worry about possible future high inflation
Given the choice, the preference for all is no additional change
Ohio Public Employees Retirement System

29. Ohio Public Employees Retirement System
COLA – Next Steps
Update Board’s discussions:
Options presented to the Board included several parts:
Transitioning all COLAs based on CPI subject to a cap
COLA freeze 1-5 years
Ad hoc increase
Transition delay
Future funding triggers
Changes only on actives
Flat dollar amount COLA
Ohio Public Employees Retirement System

30. Board Approved CPI COLA (Cap 2.25%)
CPI-based COLA capped at 2.25% 85% purchasing power restored
2-year delayed implementation for retirees
First COLA – delay for future retirees to second pension anniversary (24 months after retirement) plus 1-year freeze for those who rush to the door.
Triggers – 30 or more years amortization = freeze
Upward trigger to 3% subject to inflation/funding/amortization
period

31. Ohio Public Employees Retirement System
Questions/Feedback
Ohio Public Employees Retirement System