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Special Report

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Attention:

• Ohio Highway Patrol Troopers

• Trooper Cadets

• Members of the Radio Division hired before November 2, 1989

Highway Patrol Retirement System Proposes Changes to Pension Plan—Nothing Has Changed Yet

What's happened?

The HPRS Board met on August 27, 2009 and approved a proposal that they described in a summary to their members. (Similar information is expected from each of the other four public employee pension systems in Ohio.)

Nothing is final yet—the proposed changes will require a change to state law, so you’ll have a chance to make your voice heard with your state legislators.

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We expect these further steps before there are any changes in HPRS pensions:

1. The Board will formally present its proposal to the Ohio Retirement Study Council (ORSC) on September 9.
2. HPRS and ORSC would collaborate on the drafting of a bill to be introduced in the Ohio General Assembly.
3. The Ohio House and Ohio Senate would consider, possibly revise, and vote on a bill to change the pension rules.
4. The Governor would have to sign the bill, or it would have to become law without his signature.

Should anything about these proposals prompt you to withdraw your HPRS account if you're able to, and invest it yourself? Probably not. Withdrawing your account is almost always a really bad idea. In any case, the proposed changes are far from being a done deal. If you have opinions to share with decision-makers, there’s still time.

What did the HPRS Board propose?

Note: These are my preliminary assessments of information provided to me in September by an HPRS representative. I have confirmed them by telephone. For definitive information, call HPRS at (800) 860-2268, or (614) 431-0781 in the Columbus area.

With that said, here’s the short form: There are changes for just about all HPRS participants, both those currently serving and those who are already retired. It does seem like the Board has tried to ask less of those who have less time to plan for changes. In the words of a Board representative, the Board's proposal is better than many other possibilities such as a more restrictive plan imposed by the Ohio General Assembly.

In their one-paragraph, six bullet-point statement, the Board said the proposal “contains the following elements…” A representative of the Board advises that there are no other elements in the Board's proposal. While it is possible that the ORSC or the legislature may come up with something different, any such changes are not what your Board has proposed.

Current retirees

Depending on your age, your pension might not change much, but there would be a reduction in checks you may have been expecting in the future.

COLAs would decrease

If you’re already retired under HPRS, your annual cost-of-living adjustment (COLA) would be reduced. You’d keep all the COLAs you’ve received up to now. Future COLAs will drop from 3% of your first year’s pension to 2%.

There’s an exception: benefit recipients who are at least age 65 and who are receiving benefits of $22,000 or less per year (calculated as 185% of the federal poverty level) would continue to receive 3% per year. A Board representative has advised that as proposed, a 65-year-old retiree with a $21,990 benefit would continue to be eligible for the 3% COLA even if those COLAs bring the total benefit to more than $22,000.

The Board would be free to return the COLA to 3% for all members when funds are available.

Comment:

• The glass is half-empty: the reduction would be an actual reduction in benefits you may have been expecting.
• The glass is half-full: HPRS wouldn’t recalculate COLAs applied to date—you’d keep those. Future COLAs, on top of those earlier 3% COLAs, would be smaller, at 2%.
• 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.
• If this is the worst that’s being imposed on retired members, it may not be any fun, but it’s OK to breathe a sigh of relief.

COLA eligibility age would increase

To be eligible for a COLA, the retiree would have to be 60 years old, up from the current age-53 requirement. A Board representative advises that this would not apply to a retiree who is, for instance, age 56 and already receiving a pension. The higher age would apply only to participants who retire after the effective date of any change passed by the Ohio General Assembly.

Funding for health care would be reduced

The summary states that the allocation to the health care fund would drop “by an amount … sufficient to bring the plan to a thirty-year or lower amortization period.” This is the goal set for each state retirement plan by the ORSC. The summary states that this reduction in health care funding is expected to be 1.0% of payroll.

Comment:

At first blush, this appears to be robbing Peter to pay Paul. As details of the plan become known, there may be a more benign interpretation of this detail. It would be a disservice if we did not note that the Board’s obligations are to first meet their statutory duties of providing a pension with certain benefits. These pension benefits are written into the Ohio Revised Code. The health care benefits are not. So it's easy to understand the Board’s duty to protect the statutorily-required benefits first. It is possible that by doing so, health care funding under HPRS would be weakened, with consequences at which we can only guess. The worst-case scenario would seem to be that HPRS might, at some future date, be unable to support health insurance for retirees. But that outcome is far from certain. A Board representative advised, "It is hoped that current cost-reduction measures will offset any reductions in health care funding."

Currently-serving members

Those not yet retired, with more time to plan and make adjustments, would have to bear more significant changes than their already-retired colleagues.

COLAs would decrease

See the section above describing changes to the COLA for retired members.

The COLA eligibility age would increase

See the section above describing changes to the COLA eligibility age for retired members.

The employee contribution rate would increase

Employees currently contribute 10% of salary to HPRS. This would rise to 11%, “with the additional 1% being contributed to the HPRS rather than a member’s DROP account.”

Comment:

• The glass is half-empty: this change would mean a reduction in the percentage of a member’s salary that ends up in take-home-pay.
• The glass is half-full: this change is small in comparison to what other public employees will be asked to sacrifice. Teachers under Ohio’s State Teachers Retirement System (STRS), for instance, would be asked under their Board’s proposal to bear contribution increases of 0.5% per year for five years, until their contributions top out at 12.5% of their salaries. In short, it could have been worse, and for many Ohio public employees, it may well be.

Final Average Salary (FAS) Would Likely Be Reduced

Under the proposal, beginning January 2015, new retirees would have their FAS 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 employee didn't earn as much), this would likely pull the average down, reducing the FAS (and therefore the monthly pension amount) for most benefit recipients retiring January 2015 or later.

The employer

While the summary makes no mention of increased contributions on the part of the employer, the employer contribution rate increased by 1% to 26.5% effective July 1, 2009.

Comment:
This means the current HPRS employer contribution rate is already higher than increases that have been proposed for any other Ohio retirement plan.

What's next?

Check here for links to updates on this report. You can also likely find updated details as they’re available at the HPRS website: http://www.ohprs.org. Log in to the secure section of the website where you will likely find the latest and most complete details. You can call HPRS at (800) 860-2268, or (614) 431-0781 in the Columbus area.

You can also log into the HPRS website to read the announcement related to the August 27, 2009 Board meeting.

This is, and will likely remain, a hot news story. Keep a close eye on reliable, non-sensationalist news sources. As HPRS is, by far, the Ohio public retirement system serving the fewest members, it’s not likely to get the headlines that, for instance, STRS will. We will need to check information sources carefully to be sure that what we hear about HPRS is factual. Because emotions on the pension plan changes are riding high, it’s very important to check out any rumors you hear, and to respond only to what you have independently verified for yourself. Always consider the source of your information.

And beware of financial scoundrels who want to get rich by preying on your fears. It’s probably very difficult to have a more secure retirement through your own investment of your HPRS funds—be very wary of anyone who says you should withdraw your account and invest it yourself instead of taking an HPRS pension.

—Kenneth F. Robinson, JD, CFP^®

HPRS participants with questions may call Ken Robinson at 216-688-3737.

Copyright © 2009 by Kenneth F. Robinson, JD, CFP^®

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