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COLUMBUS, Ohio - The Ohio Police & Fire Pension Fund (OP&F) today proposed increases to pension contributions and announced changes to its retiree health care plan as a way to meet its fiduciary responsibilities to members and Ohio's statutory funding requirements.
The pension fund, which serves 54,000 active and retired police officers, firefighters, dependents and survivors outlined its proposals in a presentation to the Ohio Retirement Study Council (ORSC), a legislative advisory board focused on pension matters.
"We are proposing a course correction that will allow us to keep our commitment to Ohio's retired police officers and firefighters, their dependents and survivors," said Ken Gehring, president of the OP&F Board of Trustees. "This plan shares responsibility evenly and will require a cooperative effort by OP&F, our members, their employers and the Ohio General Assembly."
Ohio's public pension funds are required to pay all current and future benefit obligations over a 30-year funding period, or develop a plan to meet this requirement. A January report by Milliman Global, an actuarial consultant for the ORSC, noted that that OP&F's current funding formula will not support its existing obligations within that term.
"OP&F pensions are secure, and will be well into the future," said William J. Estabrook, OP&F's executive director. "The Milliman report concerns only the long-term funding aspects of OP&F. The actuarial analysis required of the state's public pension funds provides a built-in barometer that allows us to understand our needs well into the future so that we can make appropriate adjustments before the fund becomes endangered."
The issues facing OP&F are similar to those facing each of Ohio's five public pension funds, only two of which now meet the 30-year funding requirement. Three years of a sluggish stock market did not produce investment returns at predicted levels. And, skyrocketing health care costs have required pension plans to pay benefits out at a much faster rate than revenues brought in from contributions. The OP&F Board has been working since late 2004 on solutions that would allow contributions to catch up with expected payouts over time.
The changes proposed today fall in three areas: member contributions, employer contributions, and the health care plan OP&F sponsors for retirees.
Employers � municipalities and townships � currently pay into the pension system differently for police officers and firefighters, paying 19.5 percent of each paycheck for police officers and 24 percent for firefighters. In a January 9, 2006, letter to the ORSC, Milliman Global recommended that employer contributions be equalized for both categories. The OP&F plan recommends raising the employer contribution for police officers to 24 percent over the next five years.
OP&F has also recommended that pension contribution withholdings for active police officers and firefighters be raised from the current 10 percent to 12 percent over the same five-year period.
OP&F's plan suggests adjusting the reimbursement amount it pays to its Medicare-eligible retirees. Currently, OP&F reimburses the full premium amount retirees pay for Medicare Part B coverage. The OP&F plan recommends capping these reimbursements at $115 per month.
Finally, OP&F is recommending changes to the health care options currently offered. While state law does not require the state's public pension funds to offer any health care plan to their retirees, OP&F has typically offered health coverage as an optional service.
"While we are committed to providing our retirees with health care alternatives that are both appropriate and affordable, the options as currently funded are not sustainable," Estabrook said. "Last year, OP&F paid 66 percent of the health insurance premium for the retirees, dependents and survivors enrolled, a cost that is constantly rising. In fact, our portion of the premiums has risen so fast that it is taking needed funds away from the OP&F's primary mission, which is funding retirement benefits."
OP&F has suggested offering one plan for which retirees would pay larger deductibles and co-pays for medical services, physician visits and prescription drugs. OP&F's current health plan serves approximately 30,000 individuals.
The final decision on any changes in pension contributions or changes in the Medicare reimbursement level rests with the Ohio General Assembly.
"We look forward to working with state legislators to reach a solution that provides retirement security both to current retirees and those who retire decades from now," Gehring said.
OP&F has suggested several changes to pension contributions and adopted changes to the retiree health care plan. The health care plan adjustments have been adopted and will be in affect beginning Jan. 1, 2007. The remaining proposals are awaiting consideration by the Ohio General Assembly.
All Ohio public pension funds must have an income that, sustained over 30 years, will meet all expected payouts. While OP&F is fully able to meet its current obligations, our income is not currently adequate to meet the 30-year requirement. This has been caused by skyrocketing increases in the cost of health care and by a three-year period in which the stock market did not keep pace with expectations.
No, the fund is not in danger; funding levels are adequate to pay all foreseeable obligations. However, course corrections must be made now to assure the long-term strength of the fund.
OP&F has suggested raising both contribution withholdings for active members—the portion taken out of each paycheck for active police officers and firefighters. OP&F also has recommended raising the contribution percentage paid by police employers.
Both police officers and firefighters currently set aside 10 percent of their pay. It has been recommended that this amount be gradually increased to 12 percent over the next five years.
Employers currently pay into the system differently for police officers and firefighters, paying 19.5 percent for police and 24 percent for firefighters. A January 9, 2006, letter from ORSC's actuary, Milliman Global, recommended we correct this inequitable situation. OP&F is recommending that the firefighter contribution remain the same and that the police officer contribution be increased to 24 percent over the next five years.
OP&F has offered a health care plan to retirees as an additional optional benefit, even though Ohio law does not require it. Over the past few years, OP&F has paid a significant percentage of its retirees' health insurance premium, a cost that is constantly rising. In fact, its portion of the cost has risen so fast that it is taking needed funds away from the OP&F's primary mission: pension funding. While we remain committed to making effective, affordable health care options available to retirees, OP&F's current contributions are not adequate in the long term.
To prevent health care services from becoming a drain on our pension obligations, it will be necessary to increase members' share of costs. To simplify administration only one plan will be offered, instead of several options.
We understand why members would be concerned about these proposals. However, the OP&F Board of Trustees believes this plan evenly distributes responsibility for getting our long-term funding back on track. Employers, active members and retirees have all been asked to share this responsibility.
The health care plan changes are effective January 1, 2007. Other recommendations require legislative action. OP&F will communicate ant actions or news concerning these recommendations to members.
Achieving the 30-year funding level will not happen overnight but will occur gradually. Reaching our goals will require shared commitment by employers, members, OP&F and the Ohio General Assembly.
The situation at OP&F is not unique. Two of Ohio's five public pension funds is meet the 30-year requirement (OPERS and SERS), and all have been hit hard by rising health care costs. OP&F is acting now to secure its long-term funding.
In fact, the OP&F Board of Trustees has been working on solutions since late 2004. We are announcing our proposals now so they can be fully debated and so appropriate decisions can be made. (Newsletters, letters to members, and the monthly Board Report have alerted readers to this situation since August 2005.)
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Contact: Dave Graham, (614) 628-8396.