Across the nation, pension funds are updating mortality assumptions and lowering assumed rate of investment returns. STRS dialed back its investment return rate from 7.75-percent to 7.45 percent per year.
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Dropping the assumed rate of return drives higher contribution rates for government units in the pension systems in other states, Moody’s said, but STRS’ ability to suspend the COLA “highlights the flexible legal framework surrounding public pension benefits in Ohio.”
Despite the move by STRS, Moody’s warns that the fund’s new 7.45 percent assumed rate of return is still higher than the 7.0 percent rate recommended by actuarial consultants.
STRS has $72 billion invested for 490,000 teachers, retirees and beneficiaries. Employee and employer contributions as well as investment returns fund the pension checks.
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Like in other states, Ohio’s public pensions are defined benefits systems. The pension benefit is based on age, years of service and final average salary and it’s guaranteed. Defined contribution plans, such as 401(k) funds, are more common in the private sector. Public employees in Ohio do not participate in Social Security.
Depending on the pension system, employee contribution rates range from 10 percent to 14 percent of their salaries while employer contribution rates range from 14 percent to 26.5 percent.