The annual 3 percent cost of living adjustment guaranteed to Ohio’s retired public school workers through the School Employees Retirement System, or SERS, is at stake if current law and funding remain unchanged, according to a northwest Ohio lawmaker.
If the status quo is maintained, Sen. Cliff Hite, R-Findlay told fellow senators seated on the Insurance and Financial Institutions Committee, the system is not forecast to hit the 70 percent funding level until 2030, causing problems with SERS pension fund and health care provisions.
Hite has sponsored Senate Bill 151, the aim of which is to permit the retirement system shore up its health care fund, which could be depleted in as few as seven years, and to provide SERS the flexibility it requires to manage its cost of living adjustment program.
SB 151 would make the adjustment permissive and link future increases to the Consumer Price Index with a 2.5 percent cap, beginning Jan. 1, 2018.
The bill also would authorize the retirement system board to adjust a cost of living increase, before granting one, if the board’s actuary determines an adjustment does not materially impair the retirement system’s fiscal integrity or is necessary to preserve its fiscal integrity.
“After two years of discussions, these adjustments were agreed upon solutions by both the board and the majority of SERS’ member and retiree advocacy groups to address immediate financial challenges and long-term funding goals,” Hite said. “With the cost of living adjustment changes, the system is expected to reach 70 percent funded by 2018, and 90 percent funded by 2034.
“Ninety percent funded is an important benchmark to meet because, at that level, a larger portion of the employer contribution will again be able to go into health care.”
He said the changes will put the pension fund in a much better position to withstand another market downturn, protecting the long-term health of the system.
SERS Executive Director Richard Stensrud characterized SB 151’s fixes as a remedy to pressing financial issues.
“While our pension fund is stable, we have identified immediate financial challenges and long- term funding goals that require immediate attention to prevent a bigger problem down the road,” he reassured committee members during testimony in support of the bill.
Stensrud seemed confident that placing cost of living adjustments in the purview of the systems board was the right move.
“The board takes seriously its fiduciary obligations to plan for the retirement security of its 76,000 benefit recipients, and 125,000 active members,” he said. “The board’s priorities are to protect retiree benefits as much as possible, ensure intergenerational equity, and not to overcorrect based on short-term economic conditions.
“We believe the proposed cost of living adjustment changes are a fair and balanced approach to address the pension fund’s current financial challenges.”
According to analysis of the bill provided by the Ohio Legislative Service Commission, no cost of living adjustment would be granted in any year in which the Consumer Price Index did not increase during the preceding period.
Hite noted the importance of the health care component of SERS offerings to retirees in a time when the U.S. Congress has failed to come up with a fix to the Affordable Care Act, also known as Obamacare.
“The SERS board knows it is critical to be able to continue to provide health care to retirees,” the lawmaker said. “As you know, health care is not guaranteed by the state. This is a discretionary benefit, but one many retirees count on in this time of health care uncertainty.”
SB 151 had not been scheduled for a third hearing at the time of publication.