In a move to tackle unfunded liabilities of approximately $24 billion, the board of trustees of the $87.8 billion Ohio Public Employees Retirement System (OPERS) voted to seek approval from state lawmakers to freeze cost of living adjustments (COLA) in 2022 and 2023 for all retirees. The pension system is also asking to delay COLAs for two years for all new retirees.
OPERS’ funding ratio at the end of 2018 was 78%. The system is already using the full 14% employer contribution rate to fund the pension plan and has run out of options. To make matters worse, the fund lost 3.38% in 2018 as a result of portfolio underperformance.
OPERS also has $2.9 billion in unrealized losses that will be recognized over the next three years, which means that even if the fund earns the assumed rate of return during that time, the realization of these losses will cause the amortization period to exceed the statutorily required 30-year period. Ohio law requires its public pensions to be able to meet 30 years of liabilities at all times.
At last month’s meeting, the board discussed four different packages of COLA reductions that the system said would reduce the pension’s unfunded liability by $3 billion –$4.5 billion depending on which package is implemented.
The current OPERS COLA varies based on when a participant retired. For those who retired before January 2013, it’s 3%. For those who retired after that the COLA is tied to inflation.