February 2024 OEA Retirement Systems Update

SERS Anti-Spiking Provision Included in State Budget

The recently passed state budget, House Bill 33, included an anti-spiking provision that impacts the School Employees Retirement System (SERS). Referred to as a contribution-based benefit cap (CBBC), the change in law had been sought by the SERS Board. The CBBC was previously passed by the Ohio House in separate legislation before ultimately being included in the budget.

The CBBC will impact future retirees and go into effect on August 1, 2024. It is expected to only affect a fraction of retirees who have abnormally large increases in salary that are not supported by retirement contributions over their career. When a member’s final average salary in their pension calculation is well above what would be expected from normal salary increases, their benefits are effectively subsidized by other members of the system.

The CBBC calculation annuitizes member/employer contributions and then multiplies it by a factor that will be identified by the SERS Board. A member’s pension is capped at the lower of the formula benefit or the CBBC benefit. Again, this is designed to only impact a small fraction of SERS members and not typical OEA members. More details about the implementation of the CBBC will be available in the coming months as the SERS Board determines the multiplier to be used in the calculation.

Click here to download a copy of this June 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

STRS to Continue Retirement Eligibility at 34 Years, Provide 1% COLA in FY ‘24

At its May meeting, the STRS Board approved two benefit changes—one impacting active teachers, and one for current retirees. The change for active teachers deals with retirement eligibility. The Board’s action extends the ability to retire after 34 years of service at any age and receive unreduced benefits. The years of service needed was scheduled to increase to 35 in August of this year. Eligibility at 34 years of service was extended for five years and will now be in effect until July 31, 2028.

On the retiree side, the Board approved a 1% cost-of-living adjustment (COLA) for fiscal year 2024. Eligible retirees will receive an increase of 1% to their base retirement benefit on the anniversary of their retirement date. Retirees are eligible for COLA if they have been retired for five years or more.

By state law, the Board is constrained in making benefit adjustments to the extent they do not materially impair the fiscal integrity of the pension plan. The actuarial consultant for STRS, Cheiron, determined that, based on the funding status of the plan, only smaller scale changes could be considered at this time. This was determined to be changes that have a de minimus funding impact—not to exceed 1% of the actuarial assets of the plan ($830 million). The total cost of the changes approved is estimated to be $825 million.

STRS Board Weighs Possible Benefit Enhancement

At the April STRS Board meeting, the board’s actuarial consultant, Cheiron, provided information on the potential of a benefit enhancement “budget.” The intent is to provide the STRS Board with options to enhance benefits without impairing the fiscal integrity of the pension plan. According to the actuaries, STRS funding is not strong enough to allow for a budget based on three fiscal integrity tests. However, they did indicate that the Board could consider making smaller scale changes of a de minimis amount—not to exceed 1% of the fund’s actuarial determined assets. Based on the most recent valuation, that amount is $830 million.

The Board was provided estimated costs of a range of benefit enhancements. A one-time, permanent Cost of Living adjustment of 2% for eligible retirees ($910 million); a reduction of one year of service (34 years) for retirement eligibility with full benefits ($1.14 billion); and a permanent 1% reduction in employee contributions ($1.32 billion) all exceeded the 1% of assets threshold. Further, the actuaries provided costs of more significant benefit enhancements. A reduction in retirement eligibility to 30 years of service costs $4.44 billion. An ongoing annual COLA of 2% costs $13.96 billion. The STRS Board is expected to further explore the options available and potentially act at its May meeting.

OEA believes that maintaining the long-term solvency of the pension plan is the top priority. All educators deserve a secure pension they cannot outlive. However, as the funding of the plan allows, benefit enhancements should be realized by both active and retired members. Providing inflation protection for retirees through a cost-of-living and reducing age and service requirements for active teachers should be pursued as long as they do not put future benefits at risk.

OPERS Funding Status Holding Steady

At its May meeting, the OPERS Board received a presentation on the 2022 actuarial valuation of the pension plan. Actuarial firm Gabriel, Roeder, Smith & Co. reported that the funding ratio of the defined benefit pension plan was 84%. The time needed to pay off the unfunded liabilities of the plan based on current assumptions (amortization period) was 16 years. State law requires this period to be no greater than 30 years.

Both the funding ratio and the amortization period were largely unchanged from the 2021 valuation despite heavy investment losses during calendar year 2022. This is because investment gains and losses are recognized over a four-year period to reduce volatility. OPERS recognized $5 billion of the 2022 loss, which was offset by unrecognized gains from previous years. In total, the unrealized loss is $9.7 billion. Over the next several years, the funding period will tend to decrease, and the amortization period will increase absent future investment gains greater than the assumed rate of return.

Based on modeling by the actuary, OPERS could exceed an amortization period of 30 years with an investment loss of greater than 4.5% in 2023. Conversely, an investment return of 19.1% or greater would offset the unrealized losses.

Click here to download a copy of this June 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

Davidson Elected to STRS Board

On Saturday, May 6, 2023, the results of the STRS Board election were certified with Pat Davidson winning election to a four-year term. Davidson received 69.5% of the vote and defeated current Board member and OEA’s recommended candidate Arthur Lard.

OEA would like to thank Arthur Lard for his unwavering commitment to pension security and the long-term health of STRS for active and retired members alike. We would also like to acknowledge his hard work and the dedication that he and other OEA members have shown during this campaign.

STRS faces difficult challenges in the years ahead, including market instability and growing inflation, and the work of the STRS Board will be critical if our pension system is to weather those storms. We wish Pat Davidson the best as he assumes his new responsibilities on the Board. We also look forward to working with all members of the STRS Board to ensure that all STRS members, current and future, have a pension they can count on for the rest of their lives.

In other news on the STRS Board, Governor Mike DeWine has replaced his appointee to the Board. The Governor announced that G. Brent Bishop would replace Wade Steen. Bishop is a managing partner of a central Ohio real estate firm and member of the University of Toledo Board of Trustees. Steen is disputing the appointment, arguing that he cannot be removed by the Governor. Governor DeWine responded with this statement.

STRS Board Weighs Possible Benefit Enhancement

At the April STRS Board meeting, the board’s actuarial consultant, Cheiron, provided information on the potential of a benefit enhancement “budget.” The intent is to provide the STRS Board with options to enhance benefits without impairing the fiscal integrity of the pension plan. According to the actuaries, STRS funding is not strong enough to allow for a budget based on three fiscal integrity tests. However, they did indicate that the Board could consider making smaller scale changes of a de minimis amount—not to exceed 1% of the fund’s actuarial determined assets. Based on the most recent valuation, that amount is $830 million.

The Board was provided estimated costs of a range of benefit enhancements. A one-time, permanent Cost of Living adjustment of 2% for eligible retirees ($910 million); a reduction of one year of service (34 years) for retirement eligibility with full benefits ($1.14 billion); and a permanent 1% reduction in employee contributions ($1.32 billion) all exceeded the 1% of assets threshold. Further, the actuaries provided costs of more significant benefit enhancements. A reduction in retirement eligibility to 30 years of service costs $4.44 billion. An ongoing annual COLA of 2% costs $13.96 billion. The STRS Board is expected to further explore the options available and potentially act at its May meeting.

OEA believes that maintaining the long-term solvency of the pension plan is the top priority. All educators deserve a secure pension they cannot outlive. However, as the funding of the plan allows, benefit enhancements should be realized by both active and retired members. Providing inflation protection for retirees through a cost-of-living and reducing age and service requirements for active teachers should be pursued as long as they do not put future benefits at risk.

Russell Elected to SERS Board

At its April Board meeting, the SERS Board certified the results of the 2023 Board election. Aimee Russel was elected to an open seat on the Board with 73.8% of the vote over Becky Roe. Russell is a bus driver, paraprofessional, and worker in the cafeteria for Ashland City Schools and an active member of the Ohio Association of Public School Employees (OAPSE).

Click here to download a copy of this May 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

Vote Arthur Lard for the STRS Board

OEA believes that all educators deserve the ability to retire with financial security. Strong pensions provide educators with predictable, guaranteed benefits when they retire. That is why OEA continues to advocate for policies and support candidates for the STRS Board. For the active seat on the STRS ballot this year, OEA recommends Arthur Lard for re-election.

Arthur Lard is a business education teacher from Portsmouth City Schools who has served on the STRS Board since 2019. He has a strong background in accounting and board governance. He has served as treasurer of his local association for 23 years.

As a member of the STRS Board, Arthur has fought for policies that would secure the financial security of the system and worked to return benefits to members. Last year, with improved funding of the pension plan, the Board voted to remove the age 60 requirement for retirement eligibility and provide a 3% cost-of-living adjustment (COLA) for retirees. But Arthur’s opponent, and his supporters on the STRS Board, keep making empty promises for policies that would put our pension at risk. We must re-elect Arthur Lard to the STRS Board because of his dedication to keeping our pension financially secure long into the future.

Ballots for the STRS Board election will be sent in early April. Active employees contributing to STRS and those with accounts on deposit (including members who are receiving disability benefits) are eligible to vote. Members can vote by mail, phone, or online following the instructions within the election materials. Votes must be received by May 1, 2023.

OPERS Suffers Investment Losses in Down Market

During calendar year 2022, OPERS experienced a negative 12.1% return in the defined benefit pension fund and a negative 15.5% return in the OPERS health care fund. The U.S. and global stock markets were down substantially over this time period.

Despite the single year declines, the actuarial funding level of the pension plan improved. This is because gains and losses are recognized over a four-year period of smoothing. The funding ratio of the pension plan rose to 85% from 84% the previous year. The forecasted time expected to pay off the unfunded liabilities of the plan fell from 16 years to 15 years. The net amount of yet to be recognized losses of the fund is $9.4 billion.

The projected solvency of the health care fund declined from 29 years to 21 years. The health care fund projections are based on the market value of assets as opposed to a smoothed actuarial value.

Click here to download a copy of this March 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

OEA Endorses Arthur Lard for Re-Election to STRS Board

The OEA Board of Directors has voted to endorse Arthur Lard for re-election to the STRS Board. Lard is a business education teacher from Portsmouth City Schools who has served on the STRS Board since 2019. He has a strong background in accounting and board governance. He has served as treasurer of his local association for 23 years and was treasurer of the OEA Board of Directors for four years. Prior to becoming a member of the STRS Board, Lard completed extensive training on pension issues receiving the Certificate of Achievement in Public Plan Policy on Employee Pensions from the International Foundation of Employee Benefit Plans.

As a member of the STRS Board, Lard has been a thoughtful advocate for Ohio’s teachers. During his time on the Board, the funding status of the pension plan has improved, making our benefits more secure. The health care plan is fully funded so that it will be there for current and future retirees. The Board has lowered health care premiums and provided rebates to retirees. This fiscal year, STRS paid a 3% COLA to retirees and, most notably, did away with the age 60 requirement for retirement eligibility.

Ballots for the STRS Board election will be sent in early April. Active employees contributing to STRS and those with accounts on deposit (including members who are receiving disability benefits) are eligible to vote. Members can vote by mail, phone, or online following the instructions within the election materials. Votes must be received by May 1, 2023.

Faber Audit of STRS Finds No Evidence of Fraud

In late December, Auditor of State Keith Faber released results of a special audit of STRS. The audit resulted from a report critical of STRS operations that was commissioned by the Ohio Retired Teachers Association. The special audit found “no evidence of fraud, illegal acts or data manipulation related to the $90 billion held in trust by STRS for its members.”

The report further states that “STRS’s organization structure, control environment and operations are suitably designed and well-monitored, both internally and by independent experts.” Contrary to accusations made by detractors, STRS operations have been largely vindicated by independent reviews from the State Auditor and a fiduciary audit commissioned by the Ohio Retirement Study Council. These evaluations consistently find that STRS is following best or leading practices in its operations. In the words of the audit, “the checks and balances these experts provide should reassure stakeholders concerning STRS’s operations.”

Further conclusions from the special audit in investments include:

• Investment benchmarks are not unusually high or low compared to peer benchmarks.
• STRS’s controls over private equity fees have been appropriately designed and implemented.
• STRS’s investment earnings ranked in the top quartile among its peers.

Two Vie for SERS Board Seat

There is a contested election for a seat on the SERS Board representing active employees. Becky Roe and Aimee Russell are running for a first term on the Board. In early February, a ballot and postage-paid return envelope was sent to all active SERS members. Ballots must be returned by March 6, 2023, to be valid.

Roe works for Columbus City Schools as the Director of Financial Process Improvement. She previously worked as a member of SERS staff for 24 years. Russell serves as a bus driver, paraprofessional, and cafeteria worker for the Ashland City Schools. She is an active participant in her OAPSE local.

In January, an OEA screening committee conducted interviews of both candidates but decided not to recommend a candidate for endorsement, taking a neutral “no position” in this race. Additional information about each candidate and the election can be found on the SERS website by clicking here.

Click here to download a copy of this February 2023 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

SERS Reports Results of Actuarial Valuation

At the November meeting of the SERS Board, the system’s actuary presented the results of the annual actuarial valuation of the pension and health care plans. In fiscal year 2022, the funded status of the pension plan increased from 74.46% to 75.48% the prior year. The funding period, the amount of time needed to pay off the unfunded liabilities of the plan, decreased from 23 to 22 years.

Investment returns for FY 2022 were lower than the assumed rate of 7.0%. However, the actuarial valuation uses asset smoothing where gains and losses are realized over a four-year period. Because the unrecognized gains of the previous three years were greater than one-fourth of the loss in the most recent year, SERS’ actuarial value increased.

The valuation also reported the SERS health care plan to be just over 45% funded. This was a slight decrease from the prior year due to negative investment experience. The heath care plan is projected to remain solvent for 38 years, until 2060. At the present level of funding for the pension plan, the Board’s policy would allow for up to a 0.5% allocation of the 14% employer contribution to health care. However, at the September meeting, the SERS Board voted to allocate nothing towards the health care plan in order to put those assets towards pension benefits.

Reports Examine Pension System Recovery, Impact on Rural Communities

Two recent reports from the National Institute on Retirement Security examine public pension plans around the country. One examines the status of plans across the country and how they navigated recovery from the 2007 to 2009 Global Financial Crisis. Another illustrates the impact of public pension benefits on local economies.

Examining the Experiences of Public Pension Plans Since the Great Recession is a report that examines how plans have adapted in the years since the recession by taking actions to improve long-term resiliency. The report shows similarities between the Ohio public retirement systems and those across the country. Some key findings include:

• The majority of public pension plans recovered their pre- recession asset levels within six years, while continuing to pay over a trillion dollars in benefits.
• Based on lower projected returns, assumed rates of return on investments have decreased from eight to seven percent for the median public pension plan.
• Generational mortality tables have been broadly adopted by nearly all large public plans and future longevity improvements are now incorporated into projections.
• Many public plans have shortened amortization periods, or the period of time required to pay off an unfunded actuarial accrued liability. Tightening amortization periods, akin to paying off a mortgage more quickly, has had the effect of increasing short-term costs. In the long run, plans and stakeholders will benefit.

Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America underlines the importance of secure public pensions; not just for individual retirees but for their economic impact on communities. Some key findings include:

• Public pension benefit dollars represent between one and three percent of GDP on average in the 2,922 counties studied.
• Rural counties have the highest percentages of their populations receiving public pension benefits. .
• Small town counties experience a greater relative impact in terms of both GDP and total personal income from pension benefit dollars than rural or metropolitan counties.
• Rural counties see more of an impact in terms of personal income than metropolitan counties, while metropolitan counties and rural counties see an equivalent impact in terms of GDP.

Click here to download a copy of this December 2022 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.

NEA, Tim Ryan Working to Repeal GPO-WEP

The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) are federal laws that unfairly punish public employees by reducing their earned Social Security retirement and spousal benefits. Many OEA members in STRS, SERS, and OPERS are impacted. OEA members and the National Education Association (NEA) have been working for decades to repeal these punitive provisions. Congressman Tim Ryan (D- OH 13) has been a key ally in these efforts.

The GPO reduces the Social Security spousal or survivor benefits of people who get a public pension but did not pay Social Security taxes themselves. The WEP reduces the Social Security retirement, disability, spousal or survivor benefits of people who work in jobs which pay Social Security taxes and jobs in which they do not. Because Ohio public employees are exempt from Social Security, these provisions impact hundreds of thousands of Ohioans. The Congressional Research Service reports that WEP affects 1.9 million Americans, and the GPO affects nearly 700,000.

Critical legislation is pending in Congress. The bipartisan Social Security Fairness Act (S. 1302/H.R. 82) would fully repeal GPO and WEP. The Social Security 2100 Act (S. 3071/H.R. 5723) would fully repeal GPO and WEP, expand and strengthen benefits, and ensure that wealthy Americans pay their fair share. Click here to urge your legislators to support these important bills.

Congressman Tim Ryan, OEA’s recommended candidate for the U.S. Senate, is a cosponsor of both bills. He has consistently supported full repeal of GPO and WEP. The retirement security of working Americans is a key priority for him. He has testified on behalf of Delphi employees who had their pensions terminated and has taken on the drug companies to lower drug prices for retirees. As a Senator, he would work with U.S. Senator Sherrod Brown (a lead sponsor of S. 1302) to ensure a fair deal for Ohio’s educators.

STRS Makes Major Improvements to Retiree Health Care Plan

During the October Board meeting, the STRS Board unanimously approved several changes to make the STRS health care plan more affordable for retirees. The improvements were based on the robust funding position of the health care plan and cost savings achieved through contract bidding for a pharmacy benefits manager and health insurance administrator.
Changes adopted by the Board include:

• Premium reductions for both non-Medicare and Medicare enrollees
• Increased premium subsidy levels for non-Medicare retirees (2.5% per year of service to a
  maximum of 75%)
• A $600 premium rebate for enrollees with coverage in October 2022.
  • Equivalent to a $50 per moth reduction, capped at the actual premiums paid
  • The rebate is non-taxable and will be in the December benefit payment

The actuarial valuation of the health care plan showed a funding level of 230% for the health care plan. The improved funding level was due to changes in demographics (lower enrollment), assumption changes, lower claims among Medicare enrollees, and reduced trend assumptions. This level of funding is a strong indicator that improvements to the plan can be made without jeopardizing the long-term funding of the health care plan and its availability for future retirees.

The bidding process for pharmacy benefits manager and health insurance administrator resulted in substantial savings. STRS will move to CVS as its pharmacy benefits manager, replacing Express Scripts. CVS provided a savings of roughly $214 million (18.6%) over projected costs. Aetna was selected as the sole medical administrator. Aetna offered significant savings for the Medicare population, was the only finalist that provided lower pricing for the non-Medicare population, and provided a $32 million cost reduction for the 2023 plan which will be passed along in direct premium reductions.

Medicare Announces Lower Part B Premiums

Medicare Part B premiums and deductibles will decline in 2023. Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical and health services not covered by Medicare Part A.

The Centers for Medicare and Medicaid Services announced a premium of $164.90 per month, down over five dollars from the current year. The annual deductible will be $226, a decrease of about seven dollars.

Actuarial Valuation of STRS Pension Plan Shows Improvement and Warning Signs

The actuarial valuation of the STRS pension plan was presented to the STRS Board at its October meeting. Cheiron, the actuarial consulting firm for STRS, reported on the financial status of the plan as of June 30, 2022. The actuarial valuation of assets shows a funding level of 80.9%, up slightly from 80.1%. The funding period (the amount of time needed to pay off the unfunded liabilities) improved from 14 years to 11.5 years.

Again, these numbers are based on the actuarial value of assets where investment gains and losses are recognized over a four-year period through a process of smoothing. STRS investments had a large positive return in fiscal year 2021 and those results are still being phased in. In contrast, fiscal year 2022 had an investment loss that will be recognized over four years. Using market value, the funding status of the plan dropped from 87.8% to 78.9%.

The drop in the funding level is not solely due to investment losses. In fiscal year 2022, STRS paid out over $7.1 billion to retirees and beneficiaries. This far outpaces the amount contributed by employees and employers resulting in negative cash flow. Positive investment returns on the assets are needed to offset this.

Click here to download a copy of this October 2022 Report to the OEA Board of Directors. Previous Retirement Systems Updates can be viewed under the Affiliate Resources tab on the OEA website.