In a move designed to shore up its long-term finances, Ohio’s largest public retirement system is calling for reducing the cost of living allowance promised to its 1 million retirees and members.
The Ohio Public Employees Retirement System board of trustees on Wednesday voted 7-2 to set the COLA at 2.25 percent or inflation, whichever is lower. Currently, retirees receive a 3 percent uncompounded COLA.
New retirees would also be required to wait two years before receiving their first COLA, up from one year.
The changes, which require legislative approval, are expected to lop off $4 billion of the $19 billion in unfunded liabilities for the system.
OPERS trustee Steve Toth, who represents retirees, argued against cutting the COLA and said that the system is in good shape.
“This is not right. This is not fair,” he said. “We can do better.”
OPERS trustee Jim Tilling responded that the current unparalleled economic expansion can’t last forever and it is prudent to take pro-active steps now to protect the financial health of the pension system in the long run.
“We aren’t here to make people unhappy. We’re here to protect people’s lives and their futures. Sometimes you just have to suck it up,” Tilling said.
OPERS Executive Director Karen Carraher said the system will try to win lawmaker approval by the end of next year. The goal is to implement the changes by January 2019.
Geoffrey Hetrick, director of the Public Employee Retirees Inc., said the retiree group reluctantly agreed to support a 2.5 percent COLA cap but OPERS set the limit at 2.25 percent. PERI has the option of lobbying lawmakers to raise it to 2.5 percent, he said.
The system sent a two-page survey to 194,000 current retirees to gauge their support for freezing or capping the cost of living allowance. The survey did not include a box for “no changes.” The two trustees who opposed the COLA cut are elected to represent retirees on the board.
With $90.6 billion in assets, OPERS is the largest of Ohio’s five public pension systems and the 12th largest public pension fund in the country.
OPERS is the latest Ohio retirement system to consider imposing cuts on its members. Ohio Police & Fire Pension Fund is considering revamping the health care package offered to retirees; the State Teachers Retirement System indefinitely suspended the COLA given to retirees; the Ohio Highway Patrol Retirement System is pushing to increase the retirement age for troopers hired after January 2020; and the School Employees Retirement System implemented cuts to its COLA too.
As in other states, Ohio’s public pensions are defined benefits systems. The pension benefit is based on age, years of service and final average salary and it’s guaranteed. Defined contribution plans, such as 401(k) funds, are more common in the private sector. Public employees in Ohio do not participate in Social Security.