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OPERS Recommended Benefit Changes

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Title: OPERS Recommended Benefit Changes


1
OPERS Recommended Benefit Changes
  • Ohio Staff Councils of Higher Education
  • January 29, 2010

2
Why Are We Considering Benefit Changes Now?
  • OPERS has a long history of proactively
    addressing issues as early as possible (examples
    include the Choices Health Care Plan, the
    Healthcare Preservation Plan, separating pension
    trust from healthcare trust).
  • OPERS has a long history of responsible funding
    and conservative fiscal practices (examples
    include intergenerational equity value, funding
    healthcare benefits at inception in 1974, best
    practices in actuarial assumptions).
  • OPERS is committed to member involvement and
    communication.

3
Goal Finding the Right Balance
More Than Needed
Less Than Needed
May cause undue hardship on members
May create need for more drastic changes later
Key to Achieving Balance Incremental
Changes Over Time
4
What is Driving the Consideration of Benefit
Changes Now?
  • Retirees living longer in retirement and we need
    to adjust our benefits to recognize that
  • Eliminate unfair subsidization of benefits of
    subsets of members
  • Encourage member engagement in their retirement
    planning
  • Economic environment

5
Retirees Living Longer in Retirement
6
Growth in Retirees
7
How Does This Impact OPERS Funding?
8
Key Funding Measures
  • Funded Ratio the ratio of assets accumulated to
    pay pension benefits to corresponding liabilities
  • Amortization years reflects how long it will
    take to fund our unfunded liabilities based on
    expected inflows and outflows

9
Key Measures of OPERS Funding ( in Millions)
10
(No Transcript)
11
2007 Pension Plan In-Flows and Out-Flows (Dollars
in Billions)
12
Historical Fluctuation of Market Returns
Top 4 Market Losses Top 4 Market Losses
2008 -26.9
2002 -10.7
2001 -4.6
2000 -0.70
Top 5 Market Gains Top 5 Market Gains
1982 28.3
1985 25.6
2003 25.4
1995 20.5
1989 18.4
Data regarding OPERS investment returns is
available back to 1979. A review of this
historical data shows that OPERS has only had 4
years with negative investment returns since 1979.
13
Recent Changes in Key Funding Measures
2007 2008 Projected 2009
Funded Ratio 96 75 73
Amortization Years 14 30 36

Healthcare Solvency 31 years 10 years 9 years
In order to stay within 30 years of funding,
OPERS adopted a schedule of decreasing healthcare
funding down to 0 by 2015, which means the
healthcare fund would run out within 10 years
14
Keys to Changing Funding
15
What Do We Want To Do?
Actuary helped define goals for savings from plan
design changes. GOALS
Correct underlying issues Longer life expectancy Eliminate unfair subsidization of benefits of subsets of members Encourage member engagement in their retirement Restore healthcare funding to a level of 4 / year Ensure amortization period remains under 30 years through 2012 in order to give the investment market time to recover
Target Goals
Liability Reduction 4 - 8 billion
Amortization Reduction 15 22 years
16
Recommended Benefit Changes
Age Reduction Factors Actuarially Neutral
Eliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially Neutral
Limit Retroactivity to Within 90 Days of Application Receipt
New Hires After Date of Legislation in New Package
Assumptions
Age Benefit Formula COLA FAS
Service Benefit Formula COLA FAS
Components
17
Current
Changes in Retirement Age and Service (A) (current)
General
Unreduced - 30 years/ any age, or age 65 w/5 yrs of service Reduced - age 55 w/25 yrs of service, or age 60 w/5 yrs of service
Law
Unreduced - age 48 w/25 yrs of service, or age 62 w/15 yrs of service Reduced - age 52 w/15 yrs of service
Public Safety
Unreduced - age 52 w/25 yrs of service or age 62 w/15 yrs of service Reduced - age 48 w/25 yrs of service, or age 52 w/15 yrs of service
Benefit Formula (B) (current)
General
Unreduced - 2.2 x FAS for first 30 yrs of service, 2.5 thereafter
Law
Unreduced - 2.5 x FAS for the first 25 yrs of service 2.1 thereafter Reduced - age 52 and 15 yrs of service - 1.5 x FAS x yrs of service
Public Safety
Unreduced - 2.5 x FAS for the first 25 yrs of service 2.1 thereafter Reduced - age 52 and 15 yrs of service - 1.5 x FAS x yrs of service Reduced - age 48 and 25 yrs of service
COLA (C) (current)
Percentage - 3 simple COLA Timing - COLA begins 12 months after retirement
FAS (F) (current)
3 year FAS
18
Age Service Benefit Formula COLA FAS
General Unreduced retirement at 67/5 yrs, or at any age with 32 yrs Reduced retirement at 62/5 yrs or 57/25 yrs Minimum age to retire is 55 Law Unreduced retirement at 50/25 yrs or 64/15 yrs Reduced retirement at 48/25 yrs or 54/15 yrs Public Safety Unreduced retirement at 54/25 yrs or 64/15 yrs Reduced retirement at 50/25 yrs or 54/15 yrs General 2.2 for all yrs of service up to 35 2.5 for yrs after 35 yrs COLA CPI, not to exceed 3 5 year FAS
Proposed
19
Age Service Eligibility
CURRENT
General
Unreduced any age/30 years of service or age 65/5 yrs Reduced - age 55/25 yrs of service or age 60 w/5 yrs
Law
Unreduced - age 48/25 yrs of service or age 62/15 yrs Reduced - age 52/15 yrs
Public Safety
Unreduced - age 52/25 yrs of service or age 62/15 yrs Reduced - age 48/25 yrs or age 52 /15 yrs
PROPOSED
General Unreduced - age 55/32 yrs of service or age 67/5 yrs Reduced age 57/25 yrs of service or age 62/5yrs Law Unreduced -age 50/25 yrs of service or age 64/15 yrs Reduced - age 48/25 yrs or age 54/15 yrs Public Safety Unreduced - age 54/25 yrs or 64/15 yrs Reduced - age 50/25 yrs or 54/15 yrs
20
Benefit Formula
Current
General
Unreduced - 2.2 x FAS for first 30 yrs of service, 2.5 thereafter
Law
Unreduced - 2.5 x FAS for the first 25 yrs of service 2.1 thereafter Reduced - age 52 and 15 yrs of service - 1.5 x FAS x yrs of service
Public Safety
Unreduced - 2.5 x FAS for the first 25 yrs of service 2.1 thereafter Reduced - age 52 and 15 yrs of service - 1.5 x FAS x yrs of service (no age reduction factors apply) Reduced - age 48 and 25 yrs of service 2.5 x FAS x yrs of service (age reduction factors apply)
Proposed
General Unreduced - 2.2 for all yrs of service up to 35 2.5 thereafter Law No change to benefit formula Public Safety No change to benefit formula
21
COLA
Current
Percentage - 3 simple COLA COLA begins 12 months after retirement
Proposed
COLA CPI, not to exceed 3 COLA begins 12 months after retirement
22
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23
FAS
Current
3-year FAS
Proposed
5-year FAS

24
Assumptions
Age reduction factors for early retirement will be determined by actuary, not statute. (Similar to SERS change enacted previously)
Minimum benefit calculation (86 per year x years of service) will be eliminated.
Intersystem transfers would be actuarially neutral.
Limit retroactive benefit effective dating to within 90 days of application receipt date.
New hires as of the effective date of legislation (example 2010) would be under new package (no delay until 2015).
25
Recommended Benefit Changes
Age Reduction Factors Actuarially Neutral
Eliminate Minimum Benefit Calculation
Intersystem Transfers Actuarially Neutral
Limit Retroactivity to Within 90 Days of Application Receipt
New Hires After Date of Legislation in New Package
Assumptions
Age Benefit Formula COLA FAS
Service Benefit Formula COLA FAS
Components
26
Transition Plan
  • How we transition to this new plan will be
    important. The Board recommended the following
    three-group phase-in once legislation is passed.
    This will ensure adequate notice of the
    transition to our members.
  • Group A Must be eligible to retire within five
    years after the effective date of the
    legislation. Grandfathered under current plan
    design except for COLA provision.
  • Group B Must be eligible to retire within 10
    years after the effective date of the
    legislation. Grandfathered under current plan
    design except for COLA provision. Those seeking
    an early retirement will have their pension
    reduced to reflect longer life expectancies.
  • Group C All others. All elements of the new
    plan design apply.

27
Other Board Changes
  • Purchase Service credit eliminate subsidization
  • Increase minimum earnable salary to 1,000/month
  • Establish a statute of limitations on membership
    determinations
  • Grant Board authority to establish mitigating
    rate
  • Disability program changes
  • Corrective changes

28
Other Board Changes
  • Disability changes
  • Eliminate post-separation eligibility, unless
    condition began during employment or is work
    related
  • Add exclusions for disabilities resulting from
    illness/injury from felony, or elective cosmetic
    surgery
  • After three-year period of receiving benefits
    change to any occupation standard
  • Require offset for SSDI benefits
  • Limit employer responsibility for reinstatement
    to three years
  • Limit unfunded service match (minimum 2 / max 5)
  • Require applicant to be physically out of work
  • Implement industry-accepted standards for
    eligibility determinations
  • Adopt case management model

29
2009-10 Funding Plan
Amortization
Purchase Service Credit actuarially neutral
Increase Minimum Earnable Salary to 1,000 per month
Establish Membership Determination statute of limitations
Board authority to establish mitigating rate
Disability changes
Retirement Age Eligibility/Benefit Formula/FAS/COLA (Alternative Plan Design)
Change RMA vesting schedule to 5 years
Estimated 12.26 years
Estimated Total Impact
Does not require statutory authority for change
30
Next Steps
  • Continue communication to members, stakeholders
  • Work with legislators

31
Questions
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