Ohio Public Employees Retirement System

1. Ohio Public Employees Retirement System OPERS Overview Ohio Association of Public Treasurers Tom Sherman Government Relations Officer Chris Lowe Legal/Legislative Research Analyst October 4, 2007

2. OPERS At a Glance • OPERS serves more than ½ million Ohioans: • 381,000 active members • 200,000 retirees and benefit recipients • $78 billion in assets as of 12/31/06. • Overall investment return for 2006 was 15% (assumption rate of 8%). • OPERS pension funding ratio is 93%. • Solvency period for OPERS health care fund estimated at 22 years (27 years in 2007).

3. Fund Overview • Total Fund • Segregation of Pension and Health Care Assets Completed in 2007 • Total OPERS Assets as of July 31, 2007 was $ 81.1B • Total Return as of July 31, 2007 was 5.07% Total Fund $ 81.1 Billion Defined Benefit Fund $ 68.1 Billion Health Care $ 13.0 Billion

4. Program Review Defined Benefit Fund Seek Broad Exposure to the Markets Asset Allocation – Defined Benefit Fund As of July 31, 2007 $0.9 $1.7 $4.9 U.S. Equity Global Bonds $14.8 $30.1 Non-U.S. Equity Real Estate Private Equity Cash Equivalents $15.7

5. Program Review Health Care Fund Seek Broad Exposure to the Markets Asset Allocation - Health Care Investments As of July 31, 2007 $0.1 $0.5 U.S. Equity $2.2 Universal Bonds $3.8 TIPS Short Duration Non-U.S. Equity $1.9 REITS Cash Equivalents $2.6 $1.9

6. Asset Base: $78 billion

7. Challenges Ahead The Baby Boom Tidal Wave • Retiree Population Growth • Past 5 years – increased by 21,000 • Next 5 years – will increase 25,000 • Next 10 years – will increase 60,000 • Next 20 years – will double to 272,000 Active Workers Growth • Past 5 years – increased by 41,000; declined last year Total Retirees Worker/Retiree Ratio 2001: 2.6 2006: 2.2 2011: 1.8 2016: 1.5 2021: 1.4

8. Challenges Ahead • Climate of ‘pension envy.’ • Baby Boomers increase service demands. • Legislative challenges – state and federal. • Increasing cost of providing access to retiree healthcare.

9. OPERS Responds • Educate lawmakers and interested parties on the value of defined benefit pension plans. • Continuous investment in technology – member/retiree self-service. • Advocate for members’ / retirees’ interests. • Ongoing incremental changes to retiree health care program. • ORSC Service Credit Study – Study recently completed; recommendation is to charge full actuarial cost for the purchase of service credit.

10. OPERS Responds 1/1/06 1/1/07 1/1/08 1/1/09 1/1/10 1/1/11 Pre Phase-In Through Through Through Through Through Through Rate 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 Employer Rate: Local 13.55% 13.70% 13.85% 14.00% 14.00% 14.00% 14.00% State 13.31% 13.54% 13.77% 14.00% 14.00% 14.00% 14.00% Law Enforcement 16.70% 16.93% 17.17% 17.40% 17.63% 17.87% 18.10% Public Safety 16.70% 16.93% 17.17% 17.40% 17.63% 17.87% 18.10% Employee Rate Local 8.50% 9.00% 9.50% 10.00% 10.00% 10.00% 10.00% State 8.50% 9.00% 9.50% 10.00% 10.00% 10.00% 10.00% Law Enforcement* 10.10% 10.10% Public Safety 9.00% 9.00% 9.50% 10.00%

11. Pension and Healthcare Funding Basics • Funding mandatory pensions take first priority. • The healthcare fund receives what is not needed to fund pensions. • Over all pension amortization 26 years. • *Healthcare allocation to increase to 7% in 2008. 14.00% Employer Contribution 5.50% Healthcare* Pension Funding 18.50% 10.00% Employee Contribution 24.00% Totals 24.00%

12. Current State Legislation H.B. 151 – Divestiture bill • Prohibits state retirement systems from acquiring direct holdings in publicly traded companies with scrutinized business operations tied to Iran or Sudan. • Re-referred to House Rules & Reference Committee. • Executive Directors of the state retirement system sent a letter to Speaker Husted agreeing to work with their board to develop a voluntary divestment policy consistent with their fiduciary duty. • OPERS Board approved Iran/Sudan investment policy at its September meeting. Fiduciary duty to act in the best interest of our members is still the first priority.

13. Current State Legislation H.B. 240 – Reemployment bill Requires a public employer that seeks to reemploy a retired “administrative employee” in the position held at the time of retirement to have the employment approved by the state retirement system board that covers the employment. • Limits the annual compensation of such a retirant to 60% of the retirant's final average salary and specifies that the retirant may not receive non-monetary compensation for the employment other than health care coverage. • Currently pending in House Financial Institutions, Real Estate & Securities Committee. • OPERS is an interested party at this time.

14. Current State Legislation H.B. 270 – Reemployment bill Generally prohibits a retiree from returning to work, less than 180 days after the retirement commenced, in the same position with the same public employer by which the retiree was employed at the time of retirement. Provides the following if the retiree is not reemployed within these parameters: • During the period of reemployment, forfeiture of the portion of the retirement allowance funded with employer contributions. • During the period of reemployment, suspension of the portion of the retirement allowance funded with employee contributions until reemployment ceases. • The reemployed retiree is not entitled to an annuity benefit for the period of reemployment; instead the retiree is only entitled to a refund of the employee contributions.

15. Current State Legislation H.B. 8 – Forfeiture bill (As Passed by the House) Requires a member of a state retirement system who pleads guilty to or is convicted of a felony while engaged in the performance of the member’s duties to forfeit the right to a retirement allowance or disability benefit or any other right earned by being a member except for the member’s accumulated contributions. • As drafted, the bill would apply to certain felonies. • Currently pending in Senate Judiciary – Criminal Justice Committee. • OPERS is an interested party at this time.

16. Current State Legislation S.B. 3 – Forfeiture bill (As Passed by Senate) If a public employee pleads guilty to or is convicted of a felony while serving in a position of “honor, trust, or profit,” the employee would forfeit the right to a retirement allowance or disability benefit or any other right earned by being a member except for the member’s accumulated contributions. • As drafted, the bill would apply to certain felonies. • Currently pending in House State Government & Elections Committee. • OPERS is an interested party at this time.

17. Current Federal Issues • Mandatory Social Security coverage • No action anticipated in 2007 • Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) • H.R. 82 and S. 206, a companion bill, were introduced in Congress in January. • Both bills seek to repeal the GPO and WEP requirements. • OPERS supports this legislation due to the negative financial impact on our members (retirees) to the extent they do not result in mandatory social security coverage for Ohio’s public employees. • House Ways and Means Subcommittee on Social Security may hold hearings on H.R. 82 this fall.

18. Questions? govtrelations@opers.org www.opers.org