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COLA Update

How did OPERS do in 2017?

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In order to maintain the fiscal health of the plan for the long term, OPERS regularly evaluates the benefits provided relative to the revenue sources. OPERS has made adjustments to the benefits of active participants including extending the length of the working career required to earn an unreduced benefit, increasing the number of years included in the final average salary, reducing the formula benefit factors, increasing the cost of purchased service credit, reducing the impact of spiking, adjusting early retirement factors, increasing the minimum level of salary earned to qualify for service credit and many other changes.

For example, prior to any member purchasing additional service credit paid on average about 20 percent of the true cost of that service and the other 80 percent of the cost added to the unfunded liability.

Similarly, prior to , any member retiring early with a reduced benefit received a greater benefit than was supported by the funding sources and the remainder added to the unfunded liability. These types of shortfalls and many others have been addressed since This is evidenced by the initial granting of a 1. Increasing annual adjustments would be totally unaffordable to the System. But even with a simple COLA, given that we have been in a low inflationary time for an extended period, 86 percent of our retirees are at or above percent of purchasing power.

Social Security is facing significant funding challenges and the Social Security trust fund is projected to be depleted by Not only are they facing funding challenges, but Social Security is also a redistributive plan meaning lower wage earners receive a higher percentage of their salary and higher paid workers receive a much lower percentage. For example, Social Security averages the highest 35 years of service to determine average indexed monthly earnings.

They then apply different percentages to different break points to determine the benefit. Experience tells us no one prefers changes to their benefits.

We did not need a survey to tell us that information. We were trying to use the survey to help us understand preferences between changes being considered and evaluated. OPERS has a fiduciary duty, to all members and retirees, to maintain the long-term sustainability of our pension plan. If we make changes to the COLA to strengthen our System, we'd like to know which changes would be more acceptable to our retired members.

We mailed approximately , surveys to our retirees. As of mid-September, we received more than 72, completed surveys and we are reviewing all the surveys. Those are really two separate issues. The COLA was to provide an offset against inflation. OPERS has been fortunate enough to be able to provide health care coverage and some subsidy to offset health costs for eligible participants. Health care costs continue to increase and are a challenge for everyone. OPERS' goal is to provide a health care subsidy for as long as it is financially feasible.

When we passed pension legislation in , that's exactly what we did. The pension changes included requiring members to work longer, reducing the formula benefit, increasing the years included in their final average salary, increasing the cost of service purchase, increasing the minimum level of salary to be eligible for a benefit, adjusting early retirement factors, reducing the impact of spiking, modifying the disability program, and other changes.

At some point, further reductions in benefits for active members could result in members not electing to participate in the defined benefit plan, which would be detrimental to the plan. The COLA is a very expensive benefit. We have modified it for the active members and continue to evaluate other changes. This index is the measure used by the Social Security Administration as well as other pension systems.

There's also an experimental index called the CPI-E, designed for elderly costs. Comparative data shows that all three indices are comparable. We're surveying retirees to solicit their feedback on proposed changes to the COLA.

All retirees will receive a survey in the mail this month, and it will give you the best opportunity to voice your opinion about a number of changes being considered. Responses are requested back by Sept. Keep in mind that our Board has taken no action up to this point, and it will be both a public and legislative process. Any actions by the Board will be shared with you. No changes would take effect until on or after Jan. We are exploring multiple options and taking your input into consideration, so please complete this important survey.

OPERS regularly reviews its plan design, and we don't wait for a financial crisis to arise to make adjustments. Prudent planning can avert a crisis. Research shows the average number of years that year-olds can expect to live in retirement has increased by eight years for men and more than nine years for women since OPERS was founded. On average, our members are 57 when they retire and contributed to our system for 23 years. Thus, they can expect to live in retirement longer than they contributed.

This creates financial challenges. Pension redesign in addressed this issue for active members. Active members will work longer and contribute more before they're eligible to retire, and they'll have lower monthly pensions than current retirees if they retire early.

The purpose of a cost-of-living adjustment is not to meet or surpass inflation. Rather, it's to lessen the effects of inflation. Because of the low inflationary time, we've seen that, over time, a flat, 3 percent COLA is exceeding the impact of inflation on retiree benefits. We've also adjusted the COLA several times since first offering it in at the rate of 1. It was initially based on the U.

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