Public pensions in Ohio

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Ohio public pensions
Flag of Ohio.png
Pension system
Number of pension systems 5
State pension systems: Ohio Public Employees Retirement System
School Employees Retirement System
State Teachers Retirement System
Police and Fire Pension Fund
Highway Patrol Retirement System
System type: Defined benefit plan; hybrid
Pension health (2011)[1]
Fund value: $145,228,855,121
Estimated liabilities: $215,637,903,686
Unfunded liabilities : $70,409,048,565
Percent funded: 67.35%
Percent funded change: Decrease.svg1.52%[2]
Percent funded rank: 27[3]
Pension fund members (2012)
Total members: 1,393,240
Active members: 672,358
Other members: 720,882
Other state pension information
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Policypedia
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Pension policy
Public pensions
State public pension plans
Public pension health by state
Ohio public pensions are the state mechanism by which state and many local government employees in Ohio receive retirement benefits. Five systems administer benefits to eligible retirees:
  • Ohio Public Employees Retirement System (OPERS)
  • School Employees Retirement System (SERS)
  • State Teachers Retirement System (STRS)
  • Police and Fire Pension Fund (PFPF)
  • Highway Patrol Retirement System (HPRS)

According to the United States Census Bureau, the state has one locally-administered pension system.[4]

A 2012 report from the Pew Center on the States noted that Ohio's pension system was funded at 67 percent at the close of fiscal year 2010, well below the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[5]

Taken together, the funding ratio for the state's pension systems decreased from 82.28 percent in fiscal year 2006 to 67.35 percent in fiscal year 2011, a decrease of 14.93 percentage points, or 18.1 percent. Likewise, unfunded liabilities increased from just under $30 billion in fiscal year 2006 to more than $70 billion in fiscal year 2011.[6][7][8][9][10]

Features

Pension plans

In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports, Ohio had a total of 672,358 active members in its retirement plans.[6][7][8][9][10] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[11]

The following data was collected from the systems' Comprehensive Annual Financial Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value varied by system in fiscal year 2012 (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[12][13] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[14]

Basic pension plan information -- Ohio (2011)**
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[15] State figure SBS figure[15]
Ohio Public Employees Retirement System[6] $65,436,000,000 77% N/A[16] $19,094,000,000 N/A[16] 348,235 active members
School Employees Retirement System[7] $10,378,000,000 65.2% $5,532,000,000 121,811 active members
State Teachers Retirement System[8] $58,110,495,000 58.8% $40,655,709,000 173,044 active members
Police and Fire Pension Fund[9] $10,681,000,000 69.4% $4,703,000,000 27,623 active members
Highway Patrol Retirement System[10] $623,360,121 59.5% $424,339,565 1,645 active members
TOTALS $145,228,855,121 67.35% 34% $70,409,048,565 $287,373,800,000 672,358 active members
**Because the most recent valuation dates vary by system, information from calendar year 2011 is included here, as that was the most recent information available for each system. State Budget Solutions used the most recent valuation data for each system in its calculations. Membership totals are from 2012.

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Ohio paid 67 percent of its annual required contribution.[5][17]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[18] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[19]

ARC historical data
Fiscal year OPERS SERS STRS PFPF HPRS
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $1,232,149,213 100% $376,816,938 100% $3,248,651,000 41% N/A N/A $30,488,160 77.95%
2011 $1,256,283,361 100% $355,959,304 100% $2,715,523,000 51% $492,650,000 57% $26,956,449 85.20%
2010 $1,124,144,201 100% $378,201,685 100% $2,623,624,000 52% $459,798,000 62% $22,872,487 92.74%
2009 $1,042,979,659 100% $268,645,839 100% $1,502,240,000 89% $506,496,000 55% $19,978,427 102.38%
2008 $913,046,745 100% $242,314,851 100% $1,329,498,000 100% $370,765,000 75% $21,221,089 95.67%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2006 $138,931,543,046 $168,856,784,712 $29,995,241,666 82.28%
2007 $155,194,371,707 $177,718,897,394 $22,595,525,687 87.33%
2008 $147,547,273,803 $189,204,870,377 $41,657,596,574 77.98%
2009 $132,165,215,505 $197,433,039,346 $65,267,823,841 66.94%
2010 $141,786,230,500 $205,877,439,449 $64,091,208,949 68.87%
Change from 2006-2010 $2,854,687,454 $37,020,654,737 $34,095,967,283 -13.41%

Rate of return

OPERs and HPRS presume an 8 percent return rate on their pension investments.[6][10] SERS and STRS presume a 7.75 return rate on their investments, and PFPF presumes an 8.25 percent return rate.[7][8][9]

Analysis

Percent funded status of pension plans
in the 50 states as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPolicypediaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded ration of state public pension plans as compiled by State Budget Solutions.

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[22] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[23] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[24] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[25] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[26]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[27] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[28][29][30][31][32]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[27]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[33]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Ohio's public pension plans were 34% funded, making it the 30th most funded state.[34]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Ohio) instead of the state-reported assumed rates of return (8.00 percent for Ohio's largest plan as of July 1, 2011).[35]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[35]

The adjusted net pension liability for Ohio in fiscal year 2011 was ranked the 23rd highest in the nation.[35] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Ohio
Governmental revenue* Personal income State GDP Per capita
State findings 19.6% 2.2% 2.0% $847
National ranking 42nd 42nd 42nd 43rd
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[35]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[36]

The table below presents the information collected by MPPI for Ohio and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Ohio had significantly higher total net assets and total management fees.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
Ohio 2012; 2011 $165,091,688,276 $159,507,551,615 $528,693,965 0.32% 1.56%
Illinois 2012 $57,424,347,944 $57,821,599,899 $313,400,624 0.55% 0.70%
Indiana 2012 $25,755,673,000 $25,564,126,000 $106,484,000 0.41% 0.20%
Michigan 2012 $46,106,071,669 $50,540,016,325 $190,537,882 0.41% 1.50%
Wisconsin 2012 $82,485,576,190 $80,271,452,828 $253,704,610 0.31% 2.10%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[36]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013

Reforms

Enacted reforms

2012

After clearing the Ohio General Assembly with nearly unanimous support in September 2012, Governor John Kasich signed into law a series of bills proposing significant reforms to each of the state's pension systems.[37] Most notably, the legislation promised to:[37]

  • Increase employee contributions (from 10 percent to 14 percent for members of STRS and HPRS and from 10 percent to 12.25 percent for members of PFPF; employee contributions to OPERS and SERS were not changed)[38]
  • Raise retirement eligibility ages
  • Establish revised methods for calculating benefits and cost-of-living adjustments

The reforms were set to take effect in January 2013. It was expected that current retirees would remain largely unaffected.[37][39][40][41][42][43]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has one locally-administered pension system.[4]

Transparency

See also: Public pension disclosure and Governmental Accounting Standards Board
  • Annual reports are available for each of the state's pension systems.[6][7][8][9][10]
  • Names of recipients and amounts paid to recipients are not published.
  • Pension fund investment information, including overall assets and portfolio performance reports, is available on the OPERS website.[44]
  • Ohio does not appear to have a history of pay-to-play pension scandals.
  • The Ohio Retirement Study Council oversees the state's pension plans. Independent consultants test the pension systems’ actuarial assumptions and review their investment performance.[45]

Recent news

This section displays the most recent stories in a Google news search for the term "Ohio + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Ohio Public Pensions News Feed

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See also

Additional reading

External links

References

  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.0 4.1 United States Census Bureau, "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," April 30, 2012
  5. 5.0 5.1 Pew Center on the States, "Widening Gap Update: Ohio," June 18, 2012
  6. 6.0 6.1 6.2 6.3 6.4 6.5 Ohio Public Employees Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 18, 2013
  7. 7.0 7.1 7.2 7.3 7.4 7.5 The School Employees Retirement System of Ohio, "2012 Comprehensive Annual Financial Report," accessed November 18, 2013
  8. 8.0 8.1 8.2 8.3 8.4 8.5 State Teachers Retirement System of Ohio, "2012 Comprehensive Annual Financial Report," accessed November 18, 2013
  9. 9.0 9.1 9.2 9.3 9.4 9.5 Ohio Police and Fire Pension Fund, "2012 Comprehensive Annual Financial Report," accessed November 18, 2013
  10. 10.0 10.1 10.2 10.3 10.4 10.5 Highway Patrol Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 18, 2013
  11. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  12. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  13. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  14. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  15. 15.0 15.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  16. 16.0 16.1 Analysis only available for system totals and not individual funds.
  17. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  18. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  19. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  20. The School Employees Retirement System of Ohio, "2011 Comprehensive Annual Financial Report," accessed November 18, 2013
  21. State Teachers Retirement System of Ohio, "2011 Comprehensive Annual Financial Report," accessed November 18, 2013
  22. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  23. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  24. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  25. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  26. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  27. 27.0 27.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  28. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  29. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  30. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  31. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  32. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  33. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  34. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  35. 35.0 35.1 35.2 35.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  36. Cite error: Invalid <ref> tag; no text was provided for refs named report
  37. 37.0 37.1 37.2 Cleveland Plain Dealer, "Ohio lawmakers give final OK to public pension reforms," September 12, 2012
  38. Pensions and Investments, "Ohio governor inks 5 state pension reform bills," September 27, 2012
  39. General Assembly of the State of Ohio, "129th General Assembly - Substitute Senate Bill Number 340," accessed November 18, 2013
  40. General Assembly of the State of Ohio, "129th General Assembly - Substitute Senate Bill Number 341," accessed November 18, 2013
  41. General Assembly of the State of Ohio, "129th General Assembly - Substitute Senate Bill Number 342," accessed November 18, 2013
  42. General Assembly of the State of Ohio, "129th General Assembly - Substitute Senate Bill Number 343," accessed November 18, 2013
  43. General Assembly of the State of Ohio, "129th General Assembly - Substitute Senate Bill Number 345," accessed November 18, 2013
  44. Ohio Public Employees Retirement System, "Welcome to Investments," accessed November 18, 2013
  45. Columbus Dispatch, "Hutras helped Ohio’s pension oversight earn respect," January 3, 2012