Ohio State University



OPERS update for October 2020

Information from OPERS website

Deb Zang

September OPERS Board meeting was held on September 15 and September 16, 2020 per Zoom

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Update regarding COLA for 2021

Those who retired before Jan 2013, will continue to receive the 3% cost of living in 2021.

For those retired after that date, COLA is based on the government inflation index. The COLA for these retirees will be 0.5% in 2021.

Member-to-retiree ratio keeps declining

1 Important pension metric is moving the wrong way for various reasons

By Betsy Butler, Ohio Public Employees Retirement System

Jan. 30, 2020 – “Why do you think the number of new members is not growing?” a Facebook follower recently asked us.

That’s an important question, because the ratio of active members to retirees is an important indicator of a pension’s ability to fund itself, as higher ratios are better for pension systems. Fifty years ago that ratio was almost 6-to-1. As recently as the 1990s, it was 2.8-to-1. Today, it’s only 1.3-to-1, inviting a closer look as to why it keeps declining.

First, the stock market crash of 2008 not only substantially reduced the funded status of state and local pensions. It also impacted the workforce, prompting reductions to both benefits and employer payrolls. Since then, state and local governments have continued to struggle to recruit and retain employees.

Budgetary restraints, compensation levels (particularly in fields such as information technology and health care), cuts to pension benefits and younger workers’ desire for quick career advancement and work-life balance challenge state human resources directors to attract productive, engaged workers who will commit to a public service career.

Cutting costs and increasing profitability are popular ways to stay competitive in business, and the public sector is no exception. Automating certain tasks once carried out by workers and employing artificial intelligence have been cited as ways not only to save money and allow for more transparent government spending, but also to improve service efficiency and redirect money for other public-sector employment.

Privatization is another factor. Prior to the 1980s, governments took on more varied activities that the private sector had previously performed. Then, the tide of public-sector expansion began to turn, and management of government services began to be privatized. Why? To eliminate spending deficits, balance budgets, improve efficiency, reduce taxes and shrink the size of government. The 1990s saw federal, state and local governments turning over electrical utilities, prisons, sports-and-recreation facilities, roadways and more to private managers.

While paying fewer government workers helps budgets, it does nothing to lower a pension plan’s costs. We try to prevent losing OPERS members, but there’s not a lot we can do in some cases to thwart this national trend.

We track our active-to-retiree ratio to stay abreast of how these trends can potentially impact us.

During the 1970s, the growth in the number of employer units – especially in counties, cities and villages – led OPERS’ active membership to increase over 41 percent. About half of that increase was in active membership, while retirees increased by 80 percent. Inactive members more than doubled, as they left their contributions in the system to earn interest. The retiree-to-active member ratio declined from 5.75-to-1 to 4-to-1.

Membership during the 1980s continued to increase, but at a much slower pace. While the number of employers was on the rise, total members increased by 17 percent for the decade, with active members only increasing by 3 percent, the bulk occurring in inactive members and retirees. Thus, the active to retiree ratio continued to decline, from 3.4-to-1 to 2.5-to-1.

The 1990s saw the largest growth in membership, a 260,587-member increase that took membership to the three-quarter-million mark. The largest portion of the increase occurred in new inactive members, followed by new active members. Significant hiring by employers improved the ratio to 2.8 actives per retiree.

During the 2000s, total membership increased 21.2 percent. But most of this increase occurred in inactive members; active members decreased by 10 percent, and the active-to-retiree member ratio declined from 2.8 to 2.

In the just-concluded decade, the decline continued. Currently OPERS has an active-to-retiree ratio of 1.3-to-1, as reported in our 2018 Comprehensive Annual Financial Report.

On the bright side, research shows public servants are generally satisfied with their jobs and benefits. The National Institute on Retirement Security’s November 2019 report, “State and Local Employee Views on Their Jobs, Pay and Benefits,” also found that public workers value the opportunity to be of service despite high levels of stress and take-home pay that may be lower than their private-sector counterparts.

Public workers also acknowledge the competitive importance of benefits, citing that while retirement plans are not the initial attraction to a career in public service, they are important to older workers and those with longer tenures.

At the same time, the National Association of State Retirement Administrators indicated local governments gained an estimated 13,000 jobs, marking the sixth-consecutive month of improvement in aggregate state and local employment. If that trend continues, perhaps we could in the future again see an increase in active members to retirees.

 

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