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Pension Spotlight: Ohio


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Pension Spotlight: Ohio


Credit Summary By Sector

  • State of Ohio: We consider Ohio well positioned to manage its pension liabilities, but challenges exist. In our view, the state's historical pension funding discipline is only adequate, as total plan contributions have generally performed below the level necessary to maintain static funding, indicating minimal expected improvement in its funded status if this contribution practice continues.
  • Local governments: Overall pension and other postemployment benefit (OPEB) costs have been manageable for most of Ohio's municipalities and counties, averaging approximately 7.2% of governmental expenditures for rated entities. But the plans' somewhat aggressive assumptions could lead to future cost escalations. If the state were to raise its statutory contribution rates, we believe that most local governments could manage the increases, given their generally strong financial position.
  • School districts: School districts have been able to absorb retirement costs without exhibiting budgetary stress, though challenges might arise should future costs escalate. Absent additional state aid or other revenue offsets, districts will likely face difficult budget decisions to maintain their fund balances. Overall costs currently average about 6.5% of governmental expenditures among rated entities, which we consider manageable given a positive state aid revenue environment for the next biennium and generally strong financial position.
  • Other sectors: S&P Global Ratings maintains ratings on various issuers that also participate in cost-sharing multiple-employer (CSME) plans, including higher education institutions. Should pension-related contributions increase materially, this could further pressure these issuers' operating margins.

Plan Summary

All statewide plans are subject to the oversight of the Ohio Retirement Study Council (ORSC), which ensures compliance with state statute and reports on the actuarial soundness and health of public retirement systems throughout the state.

Ohio local governments participate in two CSME plans:

  • The Ohio Public Employees Retirement System (OPERS), and
  • The Ohio Police & Fire Pension Fund (OP&F).

Local school districts participate in two CSME plans:

  • The State Teachers Retirement System (STRS), and
  • The School Employees Retirement System (SERS) of Ohio.

Excluded plans for this report:

  • The State Highway Patrol Retirement System (SHPRS), because the plan's responsibility is not limited to the state; and
  • The city of Cincinnati's single-employer retirement plans, because the plan only applies to that city.

Of the plans noted above, state employees only participate in the OPERS plan and account for more than 30% of its liability. Contributions are statutorily determined for all four statewide plans but have the stipulation that amortization periods not exceed 30 years--a long amortization length that we view as an excessive deferral of costs to the future. Calculated amortization periods will change from year to year, due to actual results differing from assumptions.

If the amortization period is calculated to exceed 30 years as a result of negative results, a schedule must be developed to reduce it to 30 years or less. In the past, the state enacted various pension reforms that included benefit changes, such as updating retirement eligibility, altering cost-of-living adjustments (COLAs), or changing the benefit calculation formula. Except for STRS, the plans' amortization practices underlying the statutory contributions are longer than our guideline of 20 years. Generally, we view longer amortization periods combined with a level percent of payroll amortization as increasing the risk of persistent underfunding, as contributions are likely to be deferred into the future.

Plan Details


As of Dec. 31, 2022, OPERS served approximately 1.25 million, predominately nonuniformed, employees across nearly 3,700 employers. With a total pension liability of $122 billion, the system is the largest in the state and among the largest nationally, in terms of its net asset base. The system carries three main plans, a traditional plan (defined benefit), a combination plan (hybrid plan), and a member-directed plan (defined contribution).

Statutory contribution rates have remained consistent since 2011, with an employer rate of 14% and an employee (local employees) rate of 10%. The plan lowered its discount rate to 6.9% in 2020 from 7.2% in 2019, which increased the reported liability for future contributions. However, we still consider the discount rate elevated, relative to our guideline of 6.0% for a typical plan, which could lead to contribution volatility. The funded ratio has remained fairly stable in recent years, but contributions have generally fallen short of our minimum funding progress (MFP) metric. OPERS also faces increasing challenges given the demographic maturity of the plan, with a ratio of active members to retirees dropping to 1.32 in 2022 from a high of 2.0 in 2009, which reduces the system's ability to increase employee contributions to offset benefit payments.

While the state has voluntarily contributed toward OPEBs in the past, there are no dedicated statutory contributions.


All full-time police and firefighters participate in OP&F. The plan offers pensions as well as a health care stipend. We view the plan's statutory contributions negatively since they do not result in full funding. The rates are at the statutory maximum.

Table 1

Ohio Police & Fire Pension Fund Contribution Rates
(%) Employee Employer
Police 12.3 19.5
Fire 12.3 24.0

While incremental increases to the state statutory maximums were proposed by Ohio lawmakers in 2022, the legislation failed to gain traction in the state general assembly. OP&F's 7.5% discount rate far exceeds our 6.0% guideline and is among the highest of all the large state plans. This means that much of the funding burden is placed on ever-riskier assets and could lead to future volatility and escalating costs. Due to its limited statutory contributions, the plan fell short of not only our MFP metric, but also static funding in 2021. We expect this will continue, meaning the OP&F's unfunded liabilities are expected to increase, even if all assumptions are met.


Teachers, faculty members of public school boards and state-supported colleges and universities participate in the STRS pension plan, which currently serves 1,121 employers. STRS administers three plans: a traditional defined-benefit of which 91% of its members participate, a defined-contribution plan, and a combined plan that reduces the defined benefit by half (to 1.0% of pay from 2.2%). Employees and employers each contribute 14% of pay as the statutory funding amount. The discount rate was lowered to 7.0% in 2021, which we consider elevated as it is above our 6.0% guideline. We believe the elevated discount rate could lead to future contribution volatility.

The STRS board plans to phase in the final changes proposed in its 2013 pension reform plan by August 2023. During the last four years, the overall funded level slightly improved, with the calculated funding period at 11.5 years in 2022. A notable change made by the board was to increase its COLA to 3% in 2022 after five years of no COLA increases. While the COLA increase raised the overall liability, the board voted for a 1% COLA for the subsequent year, effective July 1, 2023. We believe the risks of slow funding progress and contribution volatility persist due to the plan's statutory contributions and aggressive assumed returns.


SERS administers benefits for retired school employees in nonteaching positions. Plan benefits include pensions, as well as OPEB Medicare Part B reimbursements. Contributions are capped at 24%, with employees contributing 10% and employers contributing 14%. Contributions are allocated not only to these plans, but also to other, smaller plans. Once the pension's funded ratio exceeds 90%, any excess will go toward the OPEB plan, which was funded at 21.2% in 2022. We believe that some of the plan's funding assumptions are aggressive and could lead to contribution escalations.

The plan's discount rate was lowered to 7.0% in 2021, which we consider elevated as it is above our 6.0% guideline and could lead to future contribution volatility. As of Jan. 1, 2018, the board designated COLAs as discretionary, with future COLAs capped at 2.5% and tied to Consumer Price Index for Urban Wage Earners and Clerical Workers with a 0% floor. In September 2022, the board unanimously voted to approve a 2.5% COLA increase for eligible retirees and beneficiaries in 2023, which increases the plan's overall liability.

Benefit Changes Improve State's OPEB Position

The ability to modify plan benefits and assumptions in the state partly mitigates the risks surrounding liability and cost growth; frequent changes during the past 10 years and significant OPEB reform across the nonschool-related plans exemplify this flexibility. We note that OPEBs are not statutorily required for the retirement systems but are offered through each plan.


The OPERS board recently voted to change the structure of its OPEB health care benefits for active employees and current retirees, which credit-wise we view positively, given the reduced risk associated with claims volatility and increasing medical costs. Effective for 2022, the board changed the benefit structure for pre-Medicare retirees to a stipend model from a coverage model, then reduced the stipend for post-Medicare retirees. The changes are estimated by OPERS to extend the life of the OPERS health care trust fund to 25 years from 11 years. These reforms have also somewhat offset OPERS' liability growth and rising future contributions resulting from past underfunding, though the immediate benefits to employer budgets will be limited. Local employers have not made OPEB contributions since 2018 under the OPERS funding formula, which shifted previously OPEB-allocated contributions to the pension plan. Benefit payments since then have been made from accumulated trust assets.


As of Jan. 1, 2019, OP&F's OPEB plan position was strengthened by similar changes: It transitioned from paying 75% of covered retiree health care costs to pension-like stipends for members to buy their own coverage. The health care stipend program is funded by 0.5% employer contributions, which are included in the statutory employer contribution rates and a portion of investment income.


The STRS OPEB plan is 174% funded. No changes were made to its structure in 2022.


The SERS OPEB plan was funded at 21.2% in 2022. SERS is predominately funded on a pay-as-you-go-basis, though we believe its net liability of $2.02 billion is fairly manageable when spread across the multitude of employers.

Guidance and FAQ Links

Criteria Guidance: Assessing U.S. Public Finance Pension And Other Postemployment Obligations For GO Debt, Local Government GO Ratings, And State Ratings, Oct. 7, 2019


Table 2

Defined Benefit Pension Plan Details
--Dec. 31-- --June 30--
2022 2022 2022 2022
Funded Ratio 76.07% 62.90% 78.88% 75.82% Poorly funded plans increase the risk of rising contributions for employers.
Discount Rate 6.90% 7.50% 7.00% 7.00% A discount rate higher than our guideline indicates higher market-driven contribution volatility than what we view as within typical tolerance levels around the country.
Total Plan ADC (millions) $3,789 $929 $3,739 $900 All four plans' statutory contributions have generally matched the actuarially deteremined amount, which we view as a plan toward 100% funding.
Total Actual Contribution (millions) $3,789 $929 $3,739 $900 Employer and member contributions.
Actual contribution as % ADC 100% 100% 100% 100% Historically contributing 100% of ADC demonstrates some commitment to funding obligations.
Actual contribution as % MFP 89% 70% 114% 99% Under 100% indicates funding slower than what we view as minimal progress last year.
Actual contribution as % SF 95% 83% 131% 114% Under 100% indicates negative funding progress in the year and expected increasing unfunded liability if this continues.
Amortization Method:
Period Closed Open Closed Closed Contributions are statutory for all plans, so "open" refers to a plan that has hit its "cap".
Length 16 29 23 22 Amortization length (dependent variable) is calculated based on the statutorily determined contributions. Length greater than 20 generally correllates to slow funding progress and increased risk of escalation due to adversity. The state limits amortization length to 30 years, otherwise a plan will have to be developed to reduce funding period.
Basis Level % of payroll Level % of payroll Level % of payroll Level % of payroll Level % explicitly defers costs, resulting in slow or even negative near-term funding progress. Escalating future contributions may stress affordability.
Payroll Growth Assumption 2.75% 3.75% 3% 3.25% The higher this is, the more contribution deferrals are incorporated in the level percent Basis. There is risk not only of market or other adversity causing unforeseen escalations to contributions, but of hiring practices not keeping up with assumed payroll growth leading to contribution shortfalls.
Longevity Generational Generational Generational Generational --Static: when progress towards full funding is limited due to contributions only being equal to service and unfunded interest costs. --Generational: reduces the risk of contribution “jumps” due to periodic updates from experience studies.

This report does not constitute a rating action.

Primary Credit Analysts:Stephanie Megas, Englewood 3032486397;
Alex Tomczuk, Hartford 1-617-530-8314;
Randy T Layman, Englewood + 1 (303) 721 4109;
Secondary Contacts:Todd D Kanaster, ASA, FCA, MAAA, Englewood + 1 (303) 721 4490;
Christian Richards, Washington D.C. + 1 (617) 530 8325;
Rob M Marker, Denver + 1 (303) 721 4264;
Geoffrey E Buswick, Boston + 1 (617) 530 8311;

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