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ORSC Reviews Retirement Systems’ Investment Performance

The Ohio Retirement Study Council (ORSC) is a legislative body that provides oversight for Ohio’s public retirement plans. On May 12, 2022, the ORSC received a review of the pension systems’ investment performance by Jim Voytko, president of RVK, the council’s investment consultant.

The results showed very strong returns, net of fees, for OPERS, SERS, and STRS over the 2021 calendar year. During this period, STRS posted the highest return with 19.24%, followed by SERS with 17.13% and OPERS with 15.34%. Below is a chart that shows the net return for each of the three systems over a one, three, five, seven, and 10-year period.

Compared to pension plans across the United States, the Ohio systems performed better than most public plans with at least $1 billion in assets. These comparisons were made on gross returns because net return data is not available for all funds.

ORSC Chair Representative Phil Plummer (R- Dayton) asked Voytko to respond to concerns that STRS investment performance is particularly bad. He responded that there is no data to support those claims. “If you look at their performance versus their benchmarks…they have done well. And if you look at their returns against a large number of other public pension plans, they rank anywhere from the top quartile to top decile,” Voytko said. “There’s no number here in any form that would lead me to that conclusion” that STRS had performed badly.

2021 Investment Returns Improve OPERS Funding Status

At the May OPERS Board meeting, OPERS staff gave a review of the system’s 2021 investment returns and funding status. The OPERS Defined Benefit portfolio posted an investment return of over 15% for 2021. The overall funding of the pension plan improved from 82% to 84%.

The funding period of the pension plan represents the amount of time it would take to pay off the unfunded liabilities (reach 100% funded) if all current assumptions were met. Based on the financial status of the plan at the end of calendar year 2021, the funding period of the OPERS plan was 16 years. This represents an improvement from a funding period of 21 years at the end of 2020.

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

STRS Board Increases Health Care Subsidies for Retirees and Makes Plan Improvements

At its April meeting, the STRS Board approved an increase in health care premium subsidies for retirees and made several improvements to the health care program. These changes will lower costs for STRS retirees. Plan changes will go into effect on January 1, 2023.

The Board voted to increase the premium subsidy to 2.2% per year of service from 2.1% per year of service (up to 30 years maximum). For retirees with 30 or more years of service this means that STRS would pay 66% of the monthly premium, up from 63%. Additionally, the current Medicare Part B reimbursement will be converted to a premium credit of $30 and will now be applied to eligible surviving spouses who do not currently receive the reimbursement.

Changes in plan design include: a decrease in the maximum out-of-pocket drug costs to $4,000 from $5,100; improvement to the primary care physician copay in the Medical Mutual and Aetna Basic plans to a $20 copay for each visit; and a change in the pharmacy network that will reduce costs by $2.4 million a year. Savings from the change in the pharmacy network will be used to lower member premiums.

Health care premiums will be approved at the June meeting. However, initial estimates show over a 14% reduction in the premium for the Aetna Medicare Advantage plan and a slight increase of 1% in the most popular plan for pre-65 retirees. When factoring in the change in subsidies, a retiree with 30 or more years of service is projected to pay $23 less a month in the Medicare Advantage plan and $30 less a month in the most popular pre-Medicare plans.

SERS to Extend Health Care Contracts

At its March meeting, the SERS Board approved recommendations to extend contracts with Aetna to provide Medicare Advantage PPO and non-Medicare services to SERS retirees. Buck consulting, which reviewed SERS medical plans, concluded that the current program structure was financially positive, and that SERS should re-negotiate with the provider for cost savings. SERS is expected to realize $21.5 million in savings over the length of a new five-year contract. Additionally, Aetna agreed to no increase in administrative fees for the duration of the contract.

At its April meeting, the SERS Board directed staff to negotiate a new three-year contract with Express Scripts to provide pharmacy management services. Express Scripts has provided these services to SERS since 2008 and offered the lowest net pricing of five respondents to a request for proposals.–

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

VICTORY: STRS Board Votes to Pay a 3% COLA, Improves Retirement Eligibility

On Thursday, March 17, 2022, the STRS Board voted to approve a 3% cost-of-living adjustment (COLA) to eligible retirees for the 2022-2023 fiscal year and remove the age 60 requirement for retirement eligibility with full benefits that was scheduled to take effect in 2026. OEA members on the STRS Board championed these changes and OEA and its members have advocated for them. OEA welcomes this action that benefit both active and retired teachers in the system.

After the Great Recession, the STRS fund was projected to run out of money. This required changes for both active and retired members to improve the funding status of the plan so that reliable benefits would continue to be available for all current and future retirees. Because of the stewardship of OEA members on the STRS Board, the fund is in a healthier financial position, enabling the restoration of some benefits now.

The cost-of-living adjustment of 3% will be calculated on a retiree’s base benefit and will be added to each monthly payment beginning on their anniversary date during the next fiscal year (July 1, 2022 – June 30, 2023). Under Ohio law, STRS members who have been retired for 60 months are eligible for the COLA. STRS Board member Rita Walters proposed costing out a COLA amount of 3% rather than 2%. The STRS actuary stated that this change coupled with the change in retirement eligibility would not materially impair the fiscal integrity of pension leading to its approval by the Board.

The change in retirement eligibility will provide some needed relief to teachers who saw their possible retirement date pushed out by seven or eight years by pension reform legislation. Under current law, in addition to being eligible to retire at age 65 with at least five years of service, STRS members are eligible to retire with 34 years of service at any age. On August 1, 2023 through July 1, 2026 eligibility will be 35 years of service at any age. Prior to this change by the Board, a requirement of having 35 years of service and being at least age 60 was set to go into effect August 1, 2026 and thereafter. The Board removing the age 60 requirement means that the eligibility for full benefits with 35 years of service and beyond will be in effect from August 1, 2023 and thereafter.

OPERS Reports 15.3% Investment Return in 2021

The Ohio Public Employees Retirement System (OPERS) received an investment return of 15.3% for the pension fund during the 2021 calendar year. The pension fund ended the year with $109.3 billion in assets.

OPERS has an annualized investment return of 14.9% for the past three years, 11.4% for the past five years, and 10.1% for the past ten years.

The investment return for the OPERS health care fund was 14.3% for calendar year 2021. The health care fund has a different asset allocation than the pension fund based on taking on less risk due to the expected solvency of the fund. The health care fund ended 2021 with $14.5 billion in assets.–

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