At the Statehouse
Ohio Retirement Study Council update
The Ohio Retirement Study Council (ORSC) held meetings in November and December, covering a wide range of topics. The primary focus of its Nov. 14 meeting was the biennial Investment Performance Review from the ORSC’s investment consultant RVK. The consultant commented that all the systems were investing their funds prudently. RVK reported that for the period ending June 30, 2019, returns for Ohio’s statewide public retirement systems ranged from 10.5% for the Ohio School Employees Retirement System (SERS) to 12.5% for the Ohio Public Employees Retirement System’s (OPERS) separate health care fund. STRS Ohio’s total fund performance for this time period was 11.1%, which was equal to its benchmark. Over the 10-year period ending June 30, 2019, all plans outperformed their current actuarial assumed rate of return.
The Council also received the long awaited fiduciary audit of OPERS. AON conducted the audit and found that, overall, OPERS is well run. AON’s audit produced 56 recommendations, and one key recommendation was to expand the expertise requirement to require that one of the OPERS Retirement Board appointees have financial audit or internal controls expertise or, as an alternative, that the system retain a qualified audit committee financial expert consultant to advise the board’s Audit Committee.
AON also noted four statutory limitations that are not consistent with best practices and run contrary to OPERS’ ability to carry out its fiduciary duty to act in the sole interest of the beneficiaries and participants. AON recommended Ohio law be amended to rectify the identified statutory impediments: (1) the system’s inability to select its legal advisers, financial auditor and custody bank; and (2) the requirement that the custody bank be in Ohio.
The Council also received calendar year 2020 budgets from OPERS, the Ohio Police & Fire Pension Fund (OP&F) and the Ohio Highway Patrol Retirement System (HPRS). Additionally, OP&F presented its 2018 actuarial valuation and its updated communication plan. OP&F’s reported funding period was 29 years.
HPRS informed the Council that its board had voted to increase the employee contribution rate from 12% to 14%. Additionally, retirees will receive no cost-of-living adjustment next year and the system will be unable to allocate money for health care. Like STRS Ohio, the HPRS board has authority to set the employee contribution rate and COLA, within certain limits.
In other business before the Council, SERS presented its amended ethics policy. Among the updates was to further define board member limitations around having unlawful interest in a public contract.
The Council’s Dec. 12 meeting was very brief and included approval of the fourth amendment of the health care Memorandum of Understanding (MOU). ORSC staff receives health care coverage through STRS Ohio, and the MOU provides that if the plan costs of the ORSC staff exceed the premiums they pay each year, OPERS, SERS, OP&F and HPRS will share the excess cost on a pro rata basis based on their percentage of the combined assets of all five systems.
Staff also reviewed and Council approved a standard format for the statutorily required disability report for the non-uniformed systems. Additionally, staff reviewed an issue brief regarding the amortization of unfunded actuarial accrued liabilities and a memo documenting ORSC staff activities during 2019.
The Council is scheduled to meet next on Jan. 9, 2020.
On Capitol Hill
U.S. Senate Republicans introduce multiemployer pension legislation
A previous issue of Legislative News noted that HR 397, a bill that addresses the solvency of multiemployer pension plans — sponsored by Congressman Richard Neal (D-MA) — was passed by the House in late July. This was just one of several attempts by Congress to solve this ongoing concern.
More recently, Senate Finance Committee Chairman Chuck Grassley (R-IA) and Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN) released a proposal in November addressing the funding challenges of multiemployer plans. Their approach would also provide relief for the Pension Benefit Guaranty Corporation (PBGC) program supporting such plans, which is facing its own funding obstacles and is expected to become insolvent in 2025.
Sens. Grassley and Alexander’s proposal — the Multiemployer Pension Recapitalization and Reform Plan — would cap the discount rate that these plans could use and would also create a new hybrid plan as an alternative to the defined benefit model currently in use. In sharing news of this proposal with members of the National Council on Teacher Retirement, federal relations director Leigh Snell noted the proposal does not contain any language intended to guard against future federal bailouts of governmental pension plans. Nor does the proposal contain language that in the past has been included in the Public Employee Pension Transparency Act (PEPTA), which was effectively an effort by governmental defined benefit plan detractors to make them look financially unstable, thus providing an impetus to convert them to defined contribution plans.
By contrast, HR 397 would establish the Pension Rehabilitation Administration and a related trust fund within the Treasury Department to make loans to multiemployer plans in critical and declining funded status that are approved by Treasury to reduce benefits, or to plans that are already insolvent but not terminated. Loan applicants would have to prove that the loan will enable them to avoid insolvency and they will be reasonably able to pay benefits and repay the principal in 30 years. Treasury would issue bonds to finance the loan program and oversee the portfolio, which would require annuity contracts and fixed-income portfolios matched to the current benefit obligations. Plan sponsors would also apply for financial assistance from the PBGC, which would gain more funding to provide the assistance.
Multiemployer pension plans typically cover the workers of two or more unrelated companies in accordance with a collective bargaining agreement. Currently, there are about 1,400 such multiemployer plans covering about 10 million people across the country. Not all face problems, but about 125 multiemployer plans are expected to become insolvent over the next two decades. Several large plans — including the Teamsters’ Central States Pension Fund and the United Mine Workers Pension Fund — predict they will go insolvent in the next few years.
View a report from the National Association of State Retirement Administrators (NASRA) on reforms to public pension plans in progress around the country. We will include this report monthly as part of the Legislative News.