The $90.6 billion Ohio Public Employees Retirement System (OPERS) said it is considering limiting the cost-of-living adjustments (COLA) for its retirees.
“Our retirees are living longer, requiring us to pay benefits for many more years than in the past. Further, we are in a decades-long period of low inflation,” said OPERS Executive Director Karen Carraher in a mailer to plan participants. “With this environment in mind, we have begun to gather feedback from members, retirees, and stakeholder groups about potential changes to the cost-of-living adjustment that would affect current retirees.”
OPERS started providing a COLA in 1970, and it has changed several times since then, according to Carraher, who said the purpose of a COLA is to lessen the effects of inflation on participants’ pension benefit, not to fully offset it. OPERS currently has a fixed 3% COLA for its retirees. For those who retired after January 2013, that COLA is scheduled to match the Consumer Price Index (CPI), with a maximum adjustment of 3% starting in 2019.
“The CPI has topped 3% only five times during the past 25 years, so OPERS’ fixed COLA has resulted in a net benefit increase for many retirees,” said Carraher. “Simply put, the COLA we are paying is exceeding the CPI in these low inflationary times.”
Because of this, OPERS has proposed a plan to base the COLA for all retirees, including current retirees, on the CPI capped at 3% starting in 2019. For plan members who retired before 1990, and who have seen inflation reduce their purchasing power, Carraher said OPERS could provide a one-time benefit increase.
“We are also looking at other options,” said Carraher, “including a COLA freeze and a COLA based on the CPI capped at 2.5% or 2%. There are many other scenarios that could be added as we gather feedback.”
Any changes to the COLA require approval by the OPERS Board of Trustees as well as the Ohio Legislature. According to Carraher, OPERS is funded at 80%, and is well within the state-mandated limits for pension fund solvency.
“However, we can’t always count on the future reflecting the past,” she said. “In order to retain our strong financial position, and continue to offer the COLA to current and future retirees, we are considering these steps now. As we go down this path together, it is important to stress we are gathering feedback and will move through a very open and public process to evaluate changes.”