Ohio’s largest public pension system voted this week to reduce cost of living benefits for current and future retirees — a move that requires legislative changes.
The Ohio Public Employees Retirement System voted 8-2 to ask lawmakers to allow the pension fund to freeze the cost of living adjustment in 2022 and 2023 for all retirees and delay the COLA for two years for all new retirees.
Changes in pension COLAs is a big lever to straighten out a system’s finances. Likewise, retirees rely on COLAs over the long haul to preserve their buying power and keep pace with inflation.
The proposed changes to the COLA are designed to wipe out $3.44 billion of $24 billion in unfunded liabilities facing OPERS. Investment gains and losses are recognized over multiple years in a “smoothing” method used by large pension systems. The pension fund lost 3.38 percent on its investments in 2018 — losses that have yet to be fully recognized.
Related: Ohio's public pension systems lost money in 2018, returns show
“We are just being proactive and trying to be good fiduciaries of the system,” said OPERS spokesman Mike Pramik. Ohio law requires public pension funds to have enough assets on hand to meet their liabilities within a 30 year window. If OPERS doesn’t take action, the system would be out of compliance with that 30 year requirement.
The OPERS cost of living allowance depends on when the worker retired. For those who retired before January 2013, it’s 3 percent each year. For those who retired after that, the COLA is tied to inflation and is expected to be 1.4 percent for 2020.
OPERS trustees are also considering whether to require public workers hired after 2022 to contribute 11 percent of their wages toward retirement, up from the current 10 percent, Pramik said.
OPERS is the largest of Ohio’s five public employee retirement systems. It has $91.2 billion in assets and serves 1.14 million, including 213,000 retirees, 628,000 inactive members and 304,000 active workers.
The assumed rate of return on the OPERS portfolio is 7.2 percent per year. Returns in recent years have bouned up and down: -3.38% in 2018, 16.62% in 2017, 8.23% in 2016, -.03% in 2015 and 6.7% in 2014.
The second largest pension system in Ohio, State Teachers Retirement System, eliminated its COLA in 2017.
Related: Retired Ohio teachers to lose cost of living increase
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