Pension system OKs benefit cuts
The Ohio Public Employee Retirement System voted Wednesday to cut benefits, a move that will affect all of its more than 1 million members, current retirees and future ones.
The board approved a plan to reduce cost-of-living adjustments to match the Consumer Price Index, subject to a 2.25 percent cap, to save about $4 billion. The vote was 7-2, with one member absent and another seat unfilled on the 11-member board.
The proposal must be approved by the General Assembly.
OPERS has provided annual cost-of-living adjustments since 1970. The benefit amount has changed several times but is now fixed at 3 percent for those who retired before January 2013. Those who retired after that date have their COLA matched to the Consumer Price Index, not
to exceed 3 percent, beginning in 2019.
“It’s very balanced,” board chairman Ken Thomas, who represents municipal employees, said of the proposed changes. “It’s a good, solid start.”
“I think we have very a sound, solid investment plan moving forward. Due to low inflation, a lot of low returns and the everincreasing retirees ... it’s going to be a challenge ... and there could be more (changes) necessary down the road,” Thomas said.
“I know there is anxiety out there amongst our retirees that inflation is going to (rise) ... I’d like to believe maybe it isn’t here in the U.S.”
But critics questioned the need to make the cuts given OPERS stable financial position.
“We don’t have to do any of this,” said Steve Toth, a board member representing retirees. “Everything I see, everything I read ... says we are financially strong ... in fact, I would say this is a solution in search of a problem.”
The fund is 80 percent funded for the future, falling within the 30-year requirement under state law for paying off pension liabilities unlike some other pension plans forced to make cuts.
“Our retirees have been hit by a one-two punch. They have had to deal with rising cost of premiums, rising cost of prescription drugs and out-of-pocket expenses and in 2012, we went through the health care reform” which made numerous reductions in benefits, Toth said.
“This is a pay cut for these folks.”
Under the proposal, cost-of-living adjustments, or COLA, would be tied to the Consumer Price Index beginning in 2019. However, implementation would be delayed two years for OPERS members who retired from 2010 to 2012. In addition, the first COLA for future retirees would be delayed until their second pension anniversary.
The cost-of-living benefit, state officials say, is intended to lessen and not completely offset the effects of inflation on pension benefits. Retirees, they say, have benefited financially from the setup because the Consumer Price Index topped 3 percent only five times meaning retirees got a cost of living increase bigger than inflation.
James Tilling, an investment expert appointed to the board by the General Assembly, said no one wants to cut benefits, but the board’s job is to make tough decisions that will protect OPERS members.
“There is no right or wrong answer on this issue. It’s a matter or relative judgment on what the future might bring,” said Tilling, who retired from state government in 2003.
“We’re not here to make people unhappy. We’re here to protect people’s lives and their futures and sometimes you just have to suck it up and do something even though you know, and I know, it’s gonna hurt me. I’m gonna have to go home and explain this to my wife. ‘You did what?’”
But, Tilling believes it’s important to save in good economic times to weather the bad times.
“We’re in an unparalleled expansion period,” Tilling said. “At some point, the market cycle is going to go down.”
“I’m not minimizing any of the sacrifices. I wish it didn’t have to happen.”
OPERS, is the largest pension fund in Ohio and 12th biggest in the U.S., with more than $90.6 billion in assets, and about 347,000 active public employee members, 536,000 former public employees and 208,000 retirees.