Trustees for the State Teachers Retirement System of Ohio voted 10-1 on Thursday to indefinitely suspend the cost of living allowance given to retired teachers.
Retirees will no longer get a 2 percent COLA bump on their pensions for the foreseeable future.
The fix, though, may not be enough to shore up the finances of the $72-billion fund. “Even if we take this action, it’s only a 50-50 shot that it works,” said STRS trustee James McGreevy, who argued for broader, deeper changes. McGreevy was the only no vote.
Actuaries calculate that the pension fund has a 33 percent change of hitting all its targets — investment returns, mortality, retirement rates and other assumptions — every year in the next six years. Depending on how far off target STRS is, more changes could be required. Likewise, if investment returns exceed expectations, trustees could decide to revisit the COLA issue.
The move, which impacts 490,000 teachers and retirees statewide, comes after consultants told STRS Ohio to dial back its expected annual rate of return on its $72.1 billion investment portfolio. The rate had been set at 7.75 percent — too rosy. Likewise, consultants and actuaries advised trustees that the system’s assumptions about payroll growth and life expectancy for teachers and retirees were out of whack.
Earlier this year, trustees agreed to change assumptions but in doing so, accrued liabilities ballooned on the financial sheets. Ohio pension systems are required to be able to pay off their unfunded liabilities within a 30-year window. But with the assumption changes, STRS was looking at a 57.7-year window.
Retired Beavercreek teacher Linda Beaver, of Miamisburg, said losing the COLA means “you do more with less.”
“Retirees wil have to decide what is most important and set priorities. Probably less travel, less eating out, just have to make the money go farther,” Beaver said.
STRS trustees agreed that the cost of living allowance issue will be reviewed within five years. Beaver said she would have preferred that the board look at it annually. “Five years is a long time to wait for a review.”
Dean Dennis, a retired Cincinnati teacher, blasted the trustees to listening to public comments — after the vote was taken.
“I paid into that system for 35 years. My employer paid into it for 35 years. They met all their earnings assumptions. They set that money aside for me and now they’re taking it out,” Dennis said. “They’re just robbing my pension.”
Like in other states, Ohio’s public pensions are defined benefits systems. The pension benefit is based on age, years of service and final average salary and it’s guaranteed. Defined contribution plans, such as 401(k) funds, are more common in the private sector.
Public employees in Ohio do not participate in Social Security.
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