1. William B. Fornia, FSA April 11, 2019
Report to the Ohio Retirement Study Council on OP&F 30 Year Funding, and Actuarial Status
William B. Fornia, FSA
April 11, 2019

2. Agenda
Adequacy of Current Statutory Contribution Rates to Fund Current Statutory Benefits
Projection Methodology
Impact of Medicare Part B Benefits
Potential Future Changes to Actuarial Assumptions
Likelihood of Necessity for Future Changes in Benefits or Contributions
Deferred Retirement Option Plan (DROP) issues

3. Current OP&F Contributions Are Adequate for 30-Year Requirement
Buck (OP&F Actuary) calculated a 28-Year Funding Period as of 1/1/2017
We replicate Buck’s calculations
Note that 28-Year period is based on Actuarial Value of Assets
AVA is a smoothed value of assets designed to take out volatility
Based on true Market Value of Asset (MVA), period is 33 years
Strong 2017 Investment Returns maintained the 28-Year Period, as of 1/1/2018
We calculate that based on MVA, period is 25 years
Poor 2018 Investment Return will lengthen the funding period (all other things being equal)
We estimate that even based on AVA, period will likely exceed 30 years
Next actuarial valuation will determine this

4. History of Funding Periods

5. Does OP&F Meet 30 Year Funding?
OP&F does meet 30 year funding, because:
Measurement is as of January 1, 2017
Measurement considers actuarial value of assets.
Health care stabilization fund is tapped
Future members have lower benefits, allowing higher share of contribution toward unfunded liability
OP&F reports that also met as of January 1, 2018
Concerns that 30 year funding will be jeopardized
Poor 2018 investment returns
Likely decrease in discount rate
Need for health care 5

6. Medicare Part B impact
30-year funding calculation does not consider Medicare B
Currently paid out of Health Care Stabilization Fund
Health Care Stabilization Fund likely to be depleted in a few years
Contribution toward HCSF of 0.50% of pay is nearly entirely needed to cover 0.47% Normal Cost of Medicare Part B benefits, leaving little for other health benefits

7. Concerns with Discount Rate
OP&F continues to assume 8.00% investment return on plan assets
This is among the highest of US pensions
Underlying inflation and bond returns continue to be low
We would expect that OP&F will reduce this assumed rate, which would have substantial impact on funding period
Was lowered as of 2017 valuation, so possibly not until 2022 actuarial valuation, following five-year experience study 7

8. Likely Results of 2019 Actuarial Valuation
Actuarial Valuations typically completed in October
Very likely that this will show that 30 year funding target no longer met
OP&F Board may need to make difficult decisions 8

9. Deferred Option Retirement Plan
Statute requires that at least once each five years, OP&F Board conduct actuarial analysis
We reviewed this study and concur that DROP continues to have modest positive financial impact
Additional payout period balanced by reduced benefits 9

10. Conclusions
OP&F calculates that 30-year funding met, but based only on specific parameters
Actuarial Value of Assets as of 2017
Future Depletion of Health Care Stabilization Fund
OP&F has also reported that as of January 2018, 30 year funding continues to be met
We have not conducted our review
We estimate that 2019 valuation will show that 30-year funding is not met 10