Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
Ohio STRS Submits Funds Reform Package
According to a STRS news release, the plan includes an increase in contributions; an increase in final average salary years; a change in eligibility for retirement; a change in the benefit formula; and a reduction in the annual cost-of-living adjustment.
“Without these changes, STRS Ohio would eventually
be unable to pay future benefits,” officials said in the
news release. “This plan enables the Retirement Board and
staff to meet their fiduciary responsibility to help
ensure the long-term solvency of STRS Ohio for future
generations of teachers. ”
STRS Ohio projects that the changes would save $8.99
billion in future liabilities and would bring the pension
fund to a 33.4-year funding period from its current
status of infinity, the announcement said. Further, the
current 1% employer contribution to the health care fund
continues.
The news release said STRS and Ohio’s four other public pension systems will present their plans to the Ohio Retirement Study Council (ORSC) on September 9 for either maintaining or returning to a 30-year funding period. The ORSC is then expected to help draft proposed legislation to present to the Buckeye State’s legislature and governor to implement the suggestions.
Before the market downturn, STRS Ohio had a funding period of 41.2 years, exceeding state statute’s 30-year maximum funding period. Factors such as members living longer caused a reduction in available funds to pay off accrued liabilities over time.
Contribution Increase
Increase member contributions by 0.5% per year beginning
July 1, 2011, to a total of 2.5% on July 1, 2015.
Increase employer contributions by 0.5% per year
beginning July 1, 2016, to a total of 2.5% on July 1,
2020.
Currently, STRS Ohio members pay 10% of their salary to
STRS Ohio, and employers pay 14% of total teacher payroll
in lieu of paying into Social Security. This plan
component increases member and employer contributions by
a total of 5% by July 1, 2020. The member increase would
be phased in at 0.5% per year, beginning July 1, 2011,
until 2.5% is reached on July 1, 2015. The employer
increase would be delayed for five years, when it would
be phased in at 0.5% per year, beginning July 1, 2016,
until 2.5% is reached on July 1, 2020. Ultimately, STRS
Ohio members would contribute 12.5% and employers would
contribute 16.5%.
Increase in Final Average Salary (FAS)
Years
FAS calculation to be based on five highest years of
earnings beginning August 1, 2015, versus the current three
years, beginning August 1, 2015.
Change in Retirement Eligibility
Increase years of service required for retirement,
beginning August 1, 2015.
The recommended change increases the number of years
required to be eligible for retirement. Beginning August 1,
2015, members can retire at any age with 35 years of
service; at age 60 with 30 years of service; or at age 65
with five years of service. Members who meet age and
service eligibility for service retirement as of July 1,
2015, under the existing rule retain their eligibility.
Benefit Formula Change
New formula would be 2.2% per year for the first 30
years of service; 2.5% per year thereafter, beginning
August 1, 2015.
The 35-year enhanced benefit is no longer needed to
encourage teachers to work longer and is eliminated. Those
who have 30 years of service; who are age 55 with 25 years
of service; or who are age 60 with five years of service as
of July 1, 2015, receive the greater of:
(a) The benefit as of July 1, 2015, under the current
formula; or
(b) The benefit upon retirement under the new formula.
Members who are eligible for service retirement will
receive no less of a base pension benefit than they could
have received on July 1, 2015. Under the new formula, at
the end of a 35-year career, teachers would receive 78.5%
of their final average salary; teachers who retire at age
60 with 38 years would receive 86% of final average salary.
COLA Reduction
Beginning July 1, 2011, current retirees would receive an annual 2% COLA; members retiring on July 1, 2011, or later would receive a 1.5% COLA each year. Currently, the COLA is 3%.
The news release said the proposal's overall goals were to:
- Preserve the defined benefit plan for Ohio's public educators. STRS Ohio members do not have to worry about outliving their benefits.
- Continue to offer a retirement plan that will help Ohio's public schools, colleges and universities recruit and retain quality educators.
- Allow for current and future active members, retirees and employers to collectively contribute to a solution.
- Provide a transition period for those teachers who are close to retirement, while recognizing that those further out from retirement have more time to plan for their future financial security.
- Allow members to continue to control their retirement decisions and not be "forced" out. This mitigates a potential "stampede" of members who want to retire before changes go into effect.
- Preserve all past cost-of-living adjustments (COLAs) and ad hoc increases for current retirees.
- Allow retirees' pensions to continue to grow in the future, but at a slower rate.