Note: These are my preliminary assessments of the information provided to ORSC. For definitive information, call OP&F (614-228-2975 Local; 800-860-9599 Retirees and Survivors; 888-864-8363 Active Members; 614-221-3846 TTY).
With that said, here’s the short form: There is bad news for just about everyone with a stake in OP&F. It does seem like the Board has tried to spread the pain around, and that they’re asking the least of people who have the least time to plan for changes.
I’ve listed changes sorted by the parties directly affected.
Retirees
Your future pension checks may not be what you have been expecting.
COLAs Could be Delayed
Cost-of-living adjustments (COLAs) currently take effect 12 months after the effective date of retirement. The proposal would delay the commencement of COLAs until age 55 for all members except beneficiaries and survivors.
Note that the OP&F proposal specifically states that current retirees would not be grandfathered, so those who have received COLAs up to now would see them stop until age 55.
Comment:
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It's not clear from the OP&F proposal whether any prior COLAs are to be reduced, thus reducing retirees' current monthly checks. We believe this is unlikely, as other aspects of the plan show the OP&F Board's interest in minimizing impacts on those in or close to retirement.
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Many private-sector pensions provide no COLA whatsoever, so this is still better than nothing. As bitter pills go, it could have been much worse.
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If this is the worst that’s being imposed on retired police and firefighters, it may not be any fun, but it’s OK to breathe a sigh of relief.
Members Still Working
You would see the greatest number of different changes to your pension.
COLAs could be delayed
See the section above describing changes to the COLA for retired members.
Employee Contributions Would Increase
The percent of an employee’s pay contributed to OP&F would increase beginning in 2010.
- Current Employee Contribution Level: 10.0%.
- Beginning 2010: 10.5%
- Beginning 2011: 10.0%
- Beginning 2012: 11.5%
- Beginning 2013: 12.0%
Average Annual Salary (AAS) Would Be Reduced for Some
Monthly pension amounts are based in part on the employee’s AAS. Presently, this is figured by averaging the member’s three years of highest earnings. The higher the AAS, the higher the monthly pension in retirement.
Under the proposal, members with fewer than 15 years of service as of the implementation date of the pension plan change would have their AAS calculated by averaging the five years of highest earnings. Since this includes two additional years that weren’t included before (and probably are years in which the member didn't earn as much), this would likely pull the average down, reducing the AAS (and therefore the monthly pension amount), for most benefit recipients with fewer than 15 years of service as of the new law's implementation date.
Health Insurance Costs Could Increase
Current OP&F retirees receive a subsidy of 75% toward the cost of their OP&F-provided health insurance. The proposal would tie the subsidy to years of service for new retirees, who would earn a 3% subsidy per year of service, with a maximum or 75%.
While the OP&F proposal doesn't specifically state that this applies only to those who have not yet retired, we believe that is the intent. The written proposal doesn't state that there is no grandfathering, in contrast to their discussion of changes to the COLA. Also, ORSC's summary of the proposal specifically states that this provision is "for new retirees."
Strength of the Health Insurance Fund Could be Reduced
Currently, 6.25% of the employer's contribution to OP&F is allocated to health care. The proposal would reduce that by 1.5%, plus an additional 0.45% reduction caused by tying health insurance premiums to years of service (for a total reduction of 1.95%). Those contributions no longer going toward health insurance would be allocated to reduce the shortfall in funds for employee pensions.
OP&F projects that this would reduce the health care fund such that it would remain solvent for another 15 years, down from the 20 years of current solvency.
Comment:
The monthly pension amount is mandated by state law. The health care subsidy is not. Reallocating funds to support the pension seems reasonable to us, particularly in light of the uncertainty surrounding the future of the health care system. We believe it is fair to say that no one can accurately predict what the health care payment system will look like in 15 years. We are confident some aspects of health care will look very different than they do today. Changes to sources for pension funding, on the other hand, do not seem nearly as likely.
Change to DROP: Work Longer, Receive Less
Members at least 48 years old with at 25 years of service credit are eligible to participate in the Deferred Retirement Option Plan (DROP). DROP allows the member to remain employed and begin collecting their pension and annual COLAs in a tax-deferred account, along with specified portions of their plan contributions. These balances earn interest, currently at the rate of 5%.
The proposal would reduce the DROP interest rate from 5% to 3% for all drop participants, both new and existing.
DROP participants currently must work at least 3 years to retain their DROP benefits. Those who work fewer lose their accumulated interest. The OP&F Board proposal would increase this to 5 years for new participants.
Future Employees
In addition to all the provisions that apply to current employees, those not yet hired are subject to an additional change.
Retire at an Older Age
Normal retirement age for current employees is age 48 with 25 years of service. The OP&F Board's proposal increases that retirement age for members hired beginning in 2011. Employees who are hired on or after January 1, 2011 would be eligible to retire with 25 years service at age 52, four years later than their currently-employed counterparts.
Comment:
This two-tier approach, requiring a later retirement age for newer employees, puts more of the burden on those who will have more time to plan for it, reducing the sacrificies that current employees (including those near retirement) are asked to make. It also requires longer work from a demographic group that is expected to see a longer career as being appropriate, even if it isn't entirely in law enforcement or firefighting.
Employers
Employers have some additional burdens under the proposal as well.
Employer Contributions Would Increase
The percent of an employee’s pay that the employer’s would contribute to OP&F would increase beginning 2010.
- Current Police Employer Contribution Level: 19.5%.
- Beginning 2010: 20.0%
- Beginning 2011: 22.0%
- Beginning 2012: 24.0%
This would bring the employer's contribution for police to the same rate as for firefighters.
Then, in 2013, the rate of employer contributions for both police and firefighters would increase to 25%.
Employer Contributions for both Police and Firefighters:
- Beginning 2012: 24.0%
- Beginning 2013: 25.0%
Comment:
As before, the member’s contribution from their own paycheck would remain less than the employer’s. And as before, the more money the employer is required to contribute to OP&F, the less they have available to offer to employees as salary, or to upgrade facilities, or to provide supplies to staff, or to meet their other financial obligations.
OP&F