The stock market’s year-end losses in December resulted in every state pension scheme in Ohio losing money for the 2018 calendar year.
“Of course, it’s not good for the US if we don’t meet our target return [pension] System, ”said Mark R. Atkeson, executive director of the Ohio Highway Patrol Retirement System (HPRS), via email to The Center Square.
“However, we are operating in a calendar year and the timing of the losses in December had a negative impact on our fund at the end of the year,” said Atkenson. “The 2018 loss was mainly due to a decline in December, which immediately recovered in January. Since the beginning of 2019, HPRS has increased by approx. 11.1 [percent]. ”
According to the Dayton Daily NewsThe HPRS posted a loss of 4.73 percent. The Ohio Public Employees Retirement System (OPERS) lost 2.99 percent, the Ohio Police and Fire Pension Fund lost 1.78 percent, the State Teachers Retirement System lost 1.75 percent, and the School Employees Retirement System (SERS) a loss of 1.28 percent. There are approximately 1.9 million people who are either currently dependent on pension funds or will have to rely on them in retirement.
“Last year was a bad year for all investors – the Dow Jones Industrial Average fell 3.48 percent and the S&P 500 fell 4.38 percent. The performance-driven portfolio of OPERS lost 2.99 percent in 2018, “Michael Pramik, spokesman for OPERS, told The Center Square via email. “Annuities measure the return over decades and do not base your investment decisions on the performance of a year – good or bad.”
OPERS has also recovered so far this year. In the first quarter of 2019, which ended on March 31, the pension fund rose by 7.15 percent.
Although SERS also took a loss in calendar year 2018, spokesman Tim Barbour said they calculate returns based on the fiscal year rather than the calendar year. In the 2018 financial year, SERS achieved a return on investment of 9.68 percent.
“Ohio SERS did not have a fiscal year loss. The losses in the final quarter of 2018 were mainly due to US equity losses. During the fourth quarter (October 1, 2018 – December 31, 2018) the US stock market was down [14.3 percent]This was the worst quarter for stocks since 2011, ”Barboud told The Center Square via email. “Ohio SERS continuously evaluates the performance of its investment portfolios and makes adjustments to improve the performance of the portfolio and the fund as a whole. US equities volatility continues to be a challenge, and SERS is addressing this issue with a more passive equity investment strategy. “
Greg Lawson, a research fellow at Buckeye Institute, emailed the center that a bad year won’t shake the pension system as much, but that these results show how unstable the system is. The Buckeye Institute is an Ohio-based free market think tank.
“To fund defined benefit annuities in the proportions required, the systems had to seek riskier assets in order to generate the required returns,” said Lawson. “While this can lead to high returns, it also opens the door to serious losses. In addition, Ohio has problematically been paying higher and higher investment fees to outside fund managers. This takes away significant funds for the actual plan benefits. “
Lawson said the current structure of the pension system is unlikely to be sustainable in the future. He said if the schemes couldn’t self-finance pensions, taxpayers would likely be burdened.
The Buckeye Institute is advocating extensive pension reform, including ongoing pensions that are more like a 401 (k) or an IRA. Lawson said this was the only way to avoid a taxpayer bailout or a profound cut in retirement benefits.
Ohio’s underfunded pension obligation is more than $ 300 billion, according to the Mercatus Center.
Corrections and clarifications
This story has been edited since it was first published to correct the percentage of investment losses in the school employee pension system in the 2018 calendar year.