Q&A: OPERS Benefit Cuts, What's Coming And Why
The Ohio Public Employees Retirement System (OPERS) dropped the hammer on proposed changes to shore up the solvency of its health care trust fund. In a 9-2 vote Wednesday, OPERS' Board of Trustees approved cuts to its health care benefits that will affect its current and future retirees. "Morning Edition" host Amy Eddings got into the details with OPERS spokesman Michael Pramik.
Let's start with OPERS retirees who are eligible for Medicare. OPERS provides a stipend to help them purchase plans on the open market. Why did the board feel comfortable approving a reduction in that stipend?
We're lowering the base allowance, which is money we put into what's called a Health Reimbursement Arrangement (HRA) account for these retirees from $450 a month to $350 a month. The way [it] works is, they purchase service on the open market. They pay for it and then they apply for reimbursement from the account that we've set up for them. We found that last year, when we did research on it, average retirees had something north of $3,500 banked in these HRA accounts. In other words, the money that we were providing them was more than sufficient for them to purchase — and most people were purchasing Medigap plans [Medicare Supplemental Insurance]. A lot of people also purchased Medicare Advantage plans. We took a look at this and as we were trying to extend this health care trust fund as long as we can, the board decided to lower that base allowance to $350 starting in 2022.
For retirees who are not yet eligible for Medicare, OPERS is dropping their health care plan entirely. OPERS will give them a stipend to buy a plan on the open market. Do you know how much that monthly stipend will be?
The base allowance for the first three years will be $1,200 a month. The amount [a retiree] actually receives will be a percentage of that, based on age and service.
These changes will extend the health care trust fund's solvency from 11 years, when it was expected to run out of money, to 18 years. That's just an additional seven years. What's supposed to happen after that?
Essentially... that's almost 20 years from now. We can't predict that far ahead what exactly will happen. The only thing we can do is to steadily reduce those costs until the time comes that we can start funding the plan again.
OPERS's primary responsibility is to fund members' pensions. It hasn't been able to make those discretionary payments to the health fund because its pension is struggling, too, with a record high of $24 billion in unfunded labilities. It has $3 billion in market losses to account for in the next three years. How did that happen? The stock market has been doing well for years now, including the last three under President Donald Trump. People are seeing high returns in their 401(k)'s.
If you're comparing a 401(k) to an institutional investment fund, you're talking about apples to oranges. We see these comments from our members, "Why don't you just put all your money into this one Vanguard fund, because look what it did last year?" We're going to take $90 billion and put it in a Vanguard fund! And then watch it, over the next year...What if it makes 5 percent? We're supposed to make 7.2. What if it loses 5 percent? We diversify our funds. We have stocks, we have bonds, we have alternative investments. Bonds don't pay what they used to because interest rates are so low. Your 401(k), most people, they put that money in that account and it just grows and grows and grows and you never touch it. We're taking out $5-plus billion every year out of that account. That makes a big difference.