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4/27/11 OPERS Comments on National Report on State Pension and Retiree Health Care Costs
On April 26, the Pew Center on the States released its most recent report, entitled “The Widening Gap: The Great Recession's Impact on State Pension and Retiree Health Care Costs” Staff members at the Ohio Public Employee Retirement System (OPERS) have reviewed the report and point out that, while there are several points in the report that they agree with, there are inconsistencies that should be noted. In particular, in a blog post, OPERS staff comments:
- Over the long term, the median public pension plan investment return was 9.3% well above the 8% rate of return that most pension funds, including OPERS, use when calculating liabilities and contribution requirements.
- Ohio is one of only a few states that have money set aside for retiree health care OPERS has a separate health care fund and annually reviews health-care coverage for its retirees. In the last Pew Center report, Ohio was rated a “Solid Performer” for maintaining this separate fund and for effectively managing its pension liabilities.
- Pension legislation is needed in Ohio OPERS submitted a series of pension plan design changes in fall 2009 to the Ohio General Assembly and has since been advocating for their passage.
OPERS also noted several inconsistencies and issues with the report, which include:
- Using fiscal 2009 data The Pew Center cited figures that were cut off at the end of June 2009, shortly after the beginning of an economic recovery. The National Association of Retirement Administrators said in a report issued this month that market values have grown since mid-2009 by nearly 25 percent. During calendar year 2009, OPERS posted an investment gain of 20.6% and followed that up with an increase of 13.9% last year.
- Generalizing on the funded status of Ohios pension systems The Pew Center reports that the state's systems, as a whole, are 66% funded. OPERS currently is 75% funded and is within the statutorily mandated 30-year window for paying off its unfunded liabilities. The report, generated from the State of Ohios Comprehensive Annual Financial Report, appears to cover only three of Ohios public pension funds that are reflected in the state budget.
- Questioning the rate used to discount future cash flows. OPERS uses an industry-standard 8% assumed return rate. Over the past 30 years, the average annual gain on OPERS investments was 8.99 %, nearly a full percentage point higher than the assumed rate. The OPERS investment staff and the newly hired consultant to the OPERS Board of Trustees are confident they can maintain that average return rate over the ensuing 30 years.
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