As bad as this report is, the Social Security system is probably much worse.
Board approves 2-year COLA freeze
The OPERS Board of Trustees has approved a proposal that would freeze the retiree cost-of-living adjustment for calendar years 2022 and 2023 and then return to current conditions after the two-year freeze.
The decision made during the September board meeting is part of an ongoing effort to reduce OPERS’ unfunded actuarial accrued liability, which currently stands at $24 billion. Freezing the COLA will reduce that liability by more than $3.4 billion. The liability reflects the difference between what we owe current and future retirees for their pension benefit and the actuarial value of the assets we’ve accumulated to pay the pensions.
It also would positively impact our amortization period, the time in which we expect to pay off those unfunded liabilities, reducing it from 27 years to 21 years.
OPERS now will work with the Ohio legislature to enact the change. In addition to freezing the COLA in 2022 and 2023, the measure includes delaying COLAs for future retirees for two years after retirement, instead of one, and restoring 85 percent purchasing power to some retirees.
After the two-year freeze, the COLA will return to current conditions of a 3 percent COLA for those who retired before Jan. 7, 2013, and a CPI-based COLA for those who retired thereafter.
The reduction of the unfunded actuarial accrued liability now is an important step to sustain our funding. Our current funded ratio – what we have on hand to pay what we owe retirees – stands at 78 percent. The amortization period – the length of time it would take to pay off the unfunded liability – is at 27 years. State law requires public pension funds to submit a plan of revision to the Ohio Retirement Study Council if that amortization period exceeds 30 years.
Because we have $2.9 billion in unrealized losses that must be recognized over the next three years, even if we were to achieve our 7.2 percent assumed investment rate of return annually over that time frame, the amortization period would increase to 31 years with the funded ratio decreasing to 75.7 percent without the COLA freeze.