PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO

OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH 43215-4642

1-800-222-PERS (7377) www.opers.org

MEMORANDUM DATE: March 3, 2006 TO: OPERS Retirement Board Members FROM: Julie Reneau – Director, Benefits Administration Beverlon Hodge – Assistant Director, Benefits RE: IV. Action Items:

B. Follow-up on Service Credit Calculations Action Requested: That the Board authorize staff to pursue a statutory change for the service purchase types mentioned in the December 2005, ORSC study that would allow the Board the flexibility to establish the amounts charged to members, but not to be less than covering a specified percentage of the liability. A draft example of such language: For each year, or portion of a year, of service to be purchased, the member shall pay an amount determined by the public employees retirement board that shall be not less than [X] per cent of the additional liability resulting from purchase of that year, or portion of a year, as determined by the board’s actuary. Based on the actuary’s study, it is recommended that this percentage be between 50% and 75% of liability (note: The pending 20% of pay per year covers approximately 60% of the liability cost and 25% of pay per year covers approximately 75% of the liability). Executive Summary: The mandated Ohio Retirement Study Council (ORSC) study on service purchase costs revealed that Ohio PERS is subsidizing a substantial amount of the true cost of service credit purchases. These purchases are authorized in statute and cost calculations are also provided for in statute. Gabriel, Roeder, Smith & Co. (GRS), our system actuary, concluded that the Board may want to reexamine the current definition of “total additional liability,” and revisit a previous decision made in October 2004, to pursue legislative changes using a 20% of pay per year of service purchased as the total additional liability policy. GRS also

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recommended that the Board consider whether promotion of existing service should be used in determining the true cost of service purchases. The Board requested a review of actuarial methodologies that would bring Ohio PERS subsidization of such service purchases closer to covering the true liability. The action recommended above would accomplish this goal. Background: In February 2006, the Board discussed service credit purchases as they relate to the cost calculations and the system’s unfunded actuarial liability of such purchases. The Board asked staff to work with the actuary to develop calculation alternatives that would bring Ohio PERS closer to covering the full liability of such service purchases. The Board also asked for a member cost comparison for alternatives presented. It was also requested that a comparison chart be provided to compare service purchase options of the other Ohio retirement systems. The Board will discuss the information presented and give guidance to staff on whether to pursue statutory changes on service purchases. In February (See Attachment A-- February 3, 2006, Discussion Item – Purchase of Service Credit Calculations), the Board discussed the following service credit purchase history and information, highlights include: • Data related to purchases

o Over 20 different service purchases have been put in statute since the 1950s.

o Service purchases are popular with members. In 2005: 23,470 cost estimates were mailed; 9,233 purchases were made as lump sum payments; and 40,328 were paid via payroll deduction.

• Ohio Retirement Study Council (ORSC) study regarding service purchases

and Gabriel, Roeder, Smith & Company recommendations. o In April 2005, the ORSC asked each Ohio retirement system to conduct a

study of the types of service credit that may be purchased at a cost that is less than the full actuarial liability for the credit. The actuarial study needed to: 1) include the current methodology to determine liability; 2) determine if the current methodology is sufficient to cover the liability and if changes are required; and 3) determine how much of the liability is covered by the member and the system.

o Results of the GRS study show that Ohio PERS subsidizes a substantial

portion of the pension liability for the nine types of service purchases included in the study.

o GRS recommended that OPERS review policy decisions with respect to

whether members should be charged for the “promotion of past service” and to review whether to continue the practice of using a flat percentage of pay as the definition of “additional liability.” If a flat percentage is considered the best policy, then the level of the percentage should also be reevaluated.

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• 2004 Board direction to pursue legislative changes

o In October 2004, the Board gave direction to seek legislative action to modify the service credit purchase provisions to simplify the formula for service purchases that use a base percentage multiplied by the normal cost. In certain types of purchases, the Ohio Revised Code would remove the current cost formula and replace it with a formula, determined by GRS, that represents the full liability for the credit purchased. GRS applied the 20% of pay per year of service policy standard as

the full liability cost in their recommendation. The legislative change, tentatively planned to be included in HB 272,

is on hold due to the ORSC study.

• System funding implications of service credit purchases o The cost charged for service purchases is defined in statute. The cost to

provide the additional benefit that is in excess of the monies paid in by the member produces an unfunded liability to the system.

o As a matter of policy, Ohio PERS presently defines the “Total Additional

Liability “ in terms of 20% of pay per year of service. o The actual true cost liability of any purchase is highly dependent upon

individual circumstances. Circumstances affecting the liability to the system include:

• When the person takes a benefit o Will the person stay in service until reaching

retirement eligibility age? o Will the person quit with a vested, deferred benefit? o What was the timing of the purchase relative to the

benefit payout?

• The person’s age when service is purchased

• Did the service purchase have the effect of promoting past service?

• The current and pending (October 2004) cost calculations are

based on a straight percentage and do not take into account: • Age or sex of member at purchase • Length of time until benefit payout • Promotion of service

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Equity considerations or objectives

Individual equity: The calculation should be a fair measure of the value received by the member for the amount paid to Ohio PERS.

Public policy: In some cases, it is in the public interest that Ohio PERS subsidize certain service purchases. The Legislature provided these purchase options to enhance the pensions of the eligible groups.

Funding issues: System funding is affected by subsidizing service purchases. As of December 31, 2004, Ohio PERS pension system is funded at 87.9%, with a 24-year amortization period in which to fully amortize the current unfunded liability. Also, the closer we get to 100% funding the more likely assets could be used to fund the health care program. The current solvency period for health care program is 17 years (December 31, 2004).

Gabriel, Roeder Smith & Company Analysis (See Attachment B)

GRS Proposed Alternative Methods of Calculation GRS has provided an analysis showing the current method of calculation, the pending method of calculation, and three acceptable alternatives for the Board’s consideration. The Board will want to keep in mind the ultimate objectives in selecting a calculation choice as they consider each alternative.

Alternate Method 1 - Flat percentage of pay per year of service purchased. (Based on 25% of pay for each year of service, it would cover approximately 75% of the true cost of the service.) Advantages: Simplicity, understandability, and can be designed to result in approximate cost neutrality to Ohio PERS. Disadvantages: Will create winners and losers; may be subject to anti-selection; does not deal with promotion of existing service and does not recognize cost variation by age when purchased. Alternate Method 2 - Flat percentage of pay per year of service, plus additional flat percentage for each year of service that is promoted. (Based on 25% of pay for each year of service (same as Alternate Method 1) and 0.5% for each year of promoted service, it would cover approximately 95% of the true cost of the service.) Advantages: Reasonably easy to administer and to explain to members, and it accounts for promotion of service in an approximate manner.

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Disadvantages: Does not recognize cost variation by age; will appear unfair to members who do not, in fact, accelerate their retirement; may induce some to actually accelerate their retirement; and the factors will be very high at some age/service combinations and will likely discourage purchases. Alternate Method 3 – Age and service based actuarial calculation that recognizes promotion of service. (Based on initial actuarial calculations, this method would approximate 100% of the true cost of the service.)

Advantages: Strong theoretical basis; factors relate directly to Ohio PERS’ demographic experience; and can be approximately individually cost neutral. Disadvantages: It is more complicated and difficult to explain to members; requires complex software that requires periodic updating; and the factors will be very high at some age/service combinations and will likely discourage purchases. GRS Recommendations GRS recommendations are based on the Board’s possible objectives. 1. If the objective is for members to pay the full actuarial cost of a purchase,

Alternate Method 3 is recommended. 2. If the members are not to be charged for promotion of service, but to pay, on

average, for the full actuarial cost of a purchase, Alternate Method 1 is recommended. Use 25% per year purchased times the greater of the salary during the 12 months preceding the purchase or final average salary.

3. If the member is not to be charged for promotion of service, but in some or

all cases, Ohio PERS will continue to subsidize the cost, the percentage above (25%) can be adjusted accordingly. For instance, the pending policy of 20% could be maintained.

4. If the member should be charged for promotion of service, either

Alternate Method 2 or Alternate Method 3 is recommended. Alternate Method 2 (flat 25% per year before promotion plus 0.5% additional for each year that normal retirement is accelerated) or Alternate Method 3 (age and service based actuarial present value). GRS has a preference for Alternate Method 3, because it is more exact. However, the Board could reasonably select Alternate Method 2 because of its relative simplicity.

5. The 20% and 25% amounts correspond respectively to approximately 137%

and 170% of the normal cost for State and Local Government members. By defining the percentages as percentages of the normal cost, the factors could be adjusted automatically as conditions change. Such an action would also accommodate differences between State, Local Government and Law, and between the Traditional and Combined plans.

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Calculation Impact on Member Cost of Alternate Methods

On page 7, of GRS’ report, they reviewed actual cases that were used in the ORSC study and compared different costs under each method. The chart clearly indicates that whatever alternative the Board may select, the Ohio PERS subsidization of the purchase decreases, and the individual member cost increases. Because the alternatives are reflected in all eligible groups, this is one area that the Board may wish to discuss public policy as the calculation percentages apply to different groups.

Ohio Retirement Systems Purchase Option Comparison – Attachment C

The Ohio Systems Service Credit Purchase Comparison chart (See Attachment C) shows that the various systems have similar purchase options with a few exceptions. Ohio PERS, however, has purchase options specific to elected officials, simply because that group has coverage only under this system.

Systems applying full liability to service purchases is limited - Ohio Police & Fire Pension Fund (OP&F) - Currently, OP& F has one service purchase provision, the one applying to full-time, out-of-state or federal service. No one has purchased the service to date. The100% liability has not generated a lot of interest from the membership because it is cost prohibitive. In determining the cost, the actuary includes several components: increased pension liability, loss of employer and member contributions, and increased health care liability. Under this provision, a member must retire within 90 days of purchase. The present value of the benefit is measured using valuation assumptions and assumes a straight life annuity form and based on a cost-of-living benefit.

School Employees Retirement System (SERS)- Currently, SERS has one service purchase provision that provides for a full actuarial liability computation. It is the school board member service credit. In sum, it is based on age, service credit prior to purchase, the purchased credit, and final average salary. It is a percentage of the member's FAS. There is an additional charge if it makes the member eligible for health care.

SERS provided a detailed description of how the cost is calculated: Each year the actuary calculates the actuarial liability for all of SERS’ contributing members using the member's gender and current age, service credit and salary. The actuary then projects the member's future service credit and salary to the earliest date of normal retirement. The actuary then determines the actuarial liability for those future benefit payments and discounts that liability to a present value. He discloses both the present value and the full actuarial liability in SERS’ annual valuation report, but the present value is the only "apples to apples" comparison for purchased service. To determine the "true actuarial cost" of the purchased service, the actuary adds the additional years of service to the member's existing credit and re-calculates the present value of that future benefit using the additional years of service that were purchased. “Full actuarial liability” is the difference between the present value without

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the purchased service credit and the present value using the purchased service. In other words, what the member should have paid today for the increase in benefits that he/she will ultimately receive.

State Teachers Retirement System of Ohio (STRS) - Currently, the only service purchase that requires the full liability is school board service. The cost to the member is based on the extra reserves required to fund the additional liability of the retirement benefit resulting from the service credit purchased. Retirement must occur within 90 days of purchase or the purchase is refunded.

Please note that State Teachers Retirement System of Ohio has a provision for some purchases that specifically use a 50% liability factor along with an age and service component. This provision applies to members whose coverage under the system started after July 1, 1989. This also applies if members prior to July 1, 1989, but the purchasable service was after 1989. If members were covered under the system before July 1, 1989, and the purchasable service were both before July 1, 1989, the previous calculation continues to apply.

Other Considerations Implementing Change to Cost Calculations

Please note that although Ohio PERS cost statements do not show the actual calculation, if any change is made that dramatically increases the cost for someone who has inquired in the past, but not yet purchased, a new cost estimate could be quite alarming to an individual.

Transition is always an issue when it involves increased member costs. Applying any changes to new employees only would delay any positive impact on funding. Giving current members notice of a future change would be recommended. In November 2004, the Board had previously made the following decisions regarding implementation of the proposed service purchase changes:

Delayed Implementation: Allow members one year from the effective date of the legislation to purchase or begin purchasing service under the current formula; after that date all purchases are made under the new formula.

Members Currently Making Installments: Any member who is making installment payments for service purchases at the time the legislation goes into effect will remain under the current formula until the installments are completed to purchase the service. Members Who Have Made Partial Payments in the Past: Any member who has made a partial payment in the past will be given one year to either complete the purchase by a lump sum payment, initiate an installment plan (partial, periodic or annually), or make another partial payment to remain under the current formula. For members choosing to make partial payments,

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one payment a year is necessary to maintain the calculation under the current formula.

Rationale for Action The action recommended to pursue a statutory change for the service purchase types mentioned in the ORSC study that would allow the Board the flexibility to establish the amounts charged to members, but not to be less than covering a specified amount of the liability, is good public policy and sound for funding of the system. This provides the Board with maximum flexibility to establish the formula for determining “additional liability.” The formula would not be specified in statute. Second, assuming that minimum percent of additional liability to be charged would be set in statute by the General Assembly pursuant to ORSC’s recommendations (e.g. 50% or 75%), this formula provides the Board with the authority to establish different percentages of additional liability (above the statutory minimum) for each type of service. Based on the actuary’s study, staff recommends that this percentage be between 50 and 75% of liability (note: The pending 20% of pay per year covers approximately 60% of the liability cost and 25% of pay per year covers approximately 75% of the liability). Although for funding purposes, 100% is ultimately preferred, realistically it could be difficult to get such a change through the Legislature. Charging 100% of the liability to the members would also essentially make service purchases non-existent. They could become so costly that the average person could not afford to purchase the service. This would give the Board the flexibility to look at individual groups and charge more than the minimum if deemed good public policy. If the Board likes this option, we will work with the actuary to finalize the selected methodology given the Board’s objectives. Attachments

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OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH 43215-4642

1-800-222-PERS (7377) www.opers.org

MEMORANDUM DATE: February 3, 2006 TO: OPERS Retirement Board Members FROM: Julie Reneau – Director, Benefits Administration Beverlon Hodge – Assistant Director, Benefits RE: V. Discussion Items:

A. Purchase of Service Credit Calculations Purpose: To discuss service credit purchases as they relate to the cost calculations and the system’s unfunded actuarial liability of such purchases. This discussion is offered to keep the Board apprised of the Ohio Retirement Study Council (ORSC) activity regarding service purchases and to discuss whether the Board continues to be satisfied with the previous decision to pursue statutory changes regarding a unified service purchase formula these calculations. These topics will be addressed as they relate to good public policy and sound funding for the system. Background: There are over 20 different types of service purchases that have been added to the statutes since the 1950s. The service credit purchase types differ in eligibility criteria and cost calculations. The eligibility to purchase service credit and the cost calculation for each service type is defined in the Ohio Revised Code and in the Ohio Administrative Rules. Attached is a chart documenting the various service credit purchase types, current calculation methodologies, proposed calculations and the subsidization percentages determined in the actuarial study (See Attachment A – Service Credit Purchase Types). Service credit purchases are popular with members. In terms of volumes, 2005 statistics on service credit purchase activity (including restorations) at Ohio PERS is as follows:

• 23,470 cost estimates mailed • 9,233 purchased service in a lump sum payment

o 2,280 of these purchases included a rollover • 40,329 purchases were being paid via payroll deduction

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jantonoff

Attachment A

Ohio Retirement Study Council Request for Information on Service Credit Purchases At the April 2005, meeting of the ORSC, each of Ohio’s state retirement systems was asked to conduct a study of the various types of service credit that may be purchased by members at a cost that is less than the full actuarial liability for the credit. The ORSC wanted the report to:

(1) Explain the current methodology (formula) used by Ohio PERS to determine actuarial liability for purposes of service credit purchases and, in doing so, provide an opinion as to whether any changes to this formula are appropriate to ensure that Ohio PERS is receiving the full actuarial liability.

(2) Review the current formulas required for the service credit purchases, to

determine the percentage of actuarial liability that is paid by the member and Ohio PERS. The percentage of liability paid by the member should be determined based on Ohio PERS’ current methodology (formula) for determining 100% of the actuarial liability.

In December, Ohio PERS submitted the service credit purchase report to the ORSC. The study was completed by our actuary, Gabriel, Roeder, Smith & Company (see Attachment B, Ohio PERS Service Credit Purchases). The results of the study show that while the member pays a calculated amount as provided by the Ohio Public Employees Retirement System (OPERS) for this service, the system subsidizes a substantial portion of the pension liability for these purchases. The GRS recommendation in the report stated:

As part of this service purchase study, we recommend that OPERS review the policy decisions with respect to whether members should be charged for the “promotion of past service” for the relevant R.C. sections. In addition, we suggest a review of whether to continue the practice of using a flat percentage of pay as the definition of “additional liability.” Finally, if use of a flat percentage is considered to be the best ongoing policy, the level of such flat percentage should also be reevaluated.

In early 2006, it is expected that the ORSC will take up the topic of service purchase liability with the Ohio systems. The ORSC is interested in knowing how much the Ohio retirement systems are subsidizing service purchases, which in turn, increases each system’s unfunded liability and, thus, negatively effects funding status. System Funding Implications of Service Credit Purchases In each case, when a member purchases service, the service credit is added to the member’s record and is ultimately used in benefit calculations. The cost charged for the service is defined by statute. The cost to provide the additional benefit that is in excess of the monies paid in by the member produces an unfunded liability to the system.

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As a matter of policy, Ohio PERS presently defines the “Total Additional Liability “ in terms of 20% of pay per year of service. The actual true cost liability of any purchase is highly dependent upon individual circumstances. Circumstances that affect the liability to the system include:

• When the person takes a benefit o Will the person stay in service until reaching retirement eligibility age? o Will the person quit with a vested, deferred benefit? o What was the timing of the purchase relative to the benefit payout?

• What is the person’s age when service is purchased? • Did the service purchase have the effect of promoting past service?

Promotion of service can be thought of as, ‘Did the additional service now make the person’s benefit payable at and earlier time/age?’ Take for example, a member is age 50 with 28 years of service and purchases two years of service. Without those two years of service, the member would have been eligible to retire at age 52 (with 30 years of service). However, after the purchase, the member can retire at age 50, because the total service credit is 30 years. The current and proposed (October 2004) cost calculations are based on a straight percentage and they do not take into account:

• Age or sex of member at purchase • Length of time until benefit payout • Promotion of service

The fact that age, sex, time and promotion of service are not included in the cost formula, make the calculations less accurate in projecting the true cost. Since completing the ORSC study, we have worked with GRS on some potential alternatives that could get our cost calculation closer to the true cost of the service. The chart below was prepared by GRS to compare the true cost of the purchased service under our current 20% of pay calculation as compared to other potential methods that bring the cost closer to the actual true liability of the cost. This chart was developed using the actual sample cases provided by Ohio PERS for the ORSC study and applying various calculation methodologies. As you can see, including age and promotion of service provides a closer cost estimate to the true cost of a service purchase.

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R.C. Section145.01(Y) $ 175 $ 219 $ 219 $ 132 $ 228 $ 293 145.2 153,706 192,133 222,460 202,706 175,937 226,315 145.201 314,659 393,324 528,875 675,959 396,619 510,188 145.28 234,537 293,171 403,100 486,057 275,342 354,184 145.29 81,547 101,934 122,551 108,532 95,925 123,393 145.291 63,977 79,971 100,851 123,731 68,299 87,856 145.293(A)(1) and (2) 455,697 569,621 714,029 659,193 669,858 861,668 145.301(A)(B) and (D) 410,990 513,738 629,511 611,039 540,100 694,754 145.47 (leave of absence only) 29,313 36,641 40,081 31,245 31,050 39,941 Total $ 1,744,601 $ 2,180,751 $ 2,761,677 $ 2,898,594 $ 2,253,358 $ 2,898,594 True Cost $ 2,898,594 $ 2,898,594 $ 2,898,594 $ 2,898,594 $ 2,898,594 $ 2,898,594 Total as % of True Cost 60% 75% 95% 100% 78% 100%

service service of promoted svcof purchased of purchased for each year

Current Policy Alternate Method 1 Alternate Method 2

for each year for each year plus addl 0.5%25% of pay Alternate 1 Age/Service

calculation

basedactuarial

schedule offactors

for past service

Alternate Method 5Age based schedule of

factors adjusted

Alternate Method 3 Alternate Method 4Age based 20% of pay

2004 Board Direction to Pursue Legislative Changes In October 2004, the Board gave direction for staff to seek legislative action to modify the service credit purchase provisions to simplify the formula for service purchases that use a base percentage multiplied by the normal cost. In certain types of purchases, the Ohio Revised Code would remove the current 20% cost formula (Board action in the early 1990s, based on the actuary’s recommendation) and replace it with a formula, determined by our actuary, that represents the full liability for the credit purchased. GRS applied the 20% of pay per year of service policy standard as the full liability cost in their recommendation. These changes would make for a unified service purchase formula that would minimize the cost to Ohio PERS. Working with GRS’ recommendation, and as approved by the Board, it was determined that the base percentage would be 150% of the state division normal cost as noted below:

State/Local: 150% x state division normal cost of 14.20% (2003 rate) = 21.3% x FAS (or current salary) x service. Based on the 2004 (12/31/04 valuation) normal cost rate of 14.67% it would be 22.01% x FAS (or current salary) x service.

Law Enforcement: 150% x law enforcement division employer normal cost of 18.73% (2003 rate) = 28.1% x FAS (or current salary) x service. Based on the 2004 (12/31/04 valuation) normal cost rate of 18.72% it would be 28.08% x FAS (or current salary) x service.

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Combined Plan: Represented by ½ the value of the Traditional Plan service, or 10.65%. Based on the 2004 (12/31/04 valuation) normal cost it would be 11.01%.

Please note, that this change increases the cost from the current 20% of payroll per year of service purchased, but it does not come close to paying for the full cost of the service. The Board also directed staff to pursue legislation to simplify the method to calculate service purchase costs on redeposits for previously refunded service. Based on the actuary’s recommendation, that calculation was to change as follows:

Redeposits: Simplify the formula that requires a charge equal to the current member contribution rate times the FAS (or current salary) times the number of years of service.

Service Credit Purchase Changes on Hold It was staff’s goal to include the service credit purchase changes in HB 272, which includes other changes affecting Ohio PERS. However, due to the ORSC request for a service purchase study, staff has not yet pursued combining the Board’s changes into the current amendments offered to HB 272.

Issues: Defining Total Additional Liability Currently, as matter of policy, Ohio PERS defines “Total Additional Liability” in terms of 20% of pay per year of service. In October the Board did request changes that link the cost to 150% of the normal cost rate. This change increases the percentage rate to 22.1% for non-LE credit and 28.08% for LE credit. The question before the Board is whether the Board continues to feel comfortable with the definition as determined in October 2004, or whether you would like staff to work with GRS to bring options that bring us closer to collecting the true cost, or full liability. Considerations for Discussion

• Individual Equity. The calculation should produce a fair measure of the value received by the member for the amount of money paid to Ohio PERS. If the cost were to be 100% of the true cost, it may be cost prohibitive for many members to purchase. It would also negate the positive spirit of the service credit purchase legislation.

• Public Policy. In some cases it is in the public interest that Ohio PERS

subsidize certain service purchases. The Legislature provided these service purchase options to enhance the pensions of the eligible groups. Is it good public policy to continue subsidizing the groups as has been done to date?

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• Funding Issues. The system funding is affected by subsidizing service purchases. It produces an unfunded liability of those costs not paid by the member. As of December 31, 2004, Ohio PERS pension system is funded at 87.9%, with a 24-year amortization period in which to fully amortize the current unfunded liability. Also, the closer we get to 100% funding the more likely assets could be used to fund the health care program. The current solvency period for health care program is 17 years (December 31, 2004).

Next Steps: For the Board to determine if any change is necessary to the cost calculation of service credit purchases as set forth in October 2004. If a change is warranted, the Board should indicate what is the appropriate definition of total additional liability that should be used as service credit cost calculations. Staff will then work with the actuary to develop methodologies consistent with that direction. Attachments

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Attachment A

Ohio PERS Service Credit Purchase Types

STATUTORY CHANGES ARE PROPOSED FOR THE FOLLOWING SERVICE PURCHASE TYPES:

Payment Type Plan * Definition/Eligibility

OPERS' Subsidy % per GRS Study** Current Calculation Proposed Calculation

Elective/ Appointed Official

Denied Salary ORC Section 145.01

TP

When a member has been elected to an office, the term of which is two or more years for which an annual salary is established and in the event the salary is legislatively increased but the member cannot receive the increase because of Ohio's constitutional prohibition against in-term increases, the member may elect to have the amount of his contributions calculated upon the basis of the increase. A member who has not elected to have such amount withheld may at any time elect to purchase the denied salary.

-5.7%

Member contributions on the denied salary plus 6% compounded annual interest from the date on which the last contribution would have been withheld to the date of payment.

An amount equal to the member and employer contributions on the denied salary plus 6% compounded annual interest from the date on which the last contribution would have been withheld to the date of payment.

" CO ( same ) ( same ) ( same )" MD ( same ) ( same ) ( same )

Prior Elective Service

ORC Section 145.20TP

After contributing to OPERS for 18 months, a member may purchase credit for elective service in Ohio completed before the date of membership in OPERS, provided that service was not subject to Social Security.

81.3%

An amount equal to the contribution rate in effect when payment is made, multiplied by the full salary during all periods of non-contributing service, plus 6% interest from the beginning date of service to be purchased to the date of payment. A matching employer's share is billed to the employer.

Multiplying the member's current salary or FAS (whichever is greater) by a percentage rate set by the Retirement Board times the service credit to be purchased. No employer billing.

OAC Section 145.3.21

CO ( same ) ( same ) (same as above except at 1/2 the % rate)

n/a MD n/a n/a n/a

Additional Elective/ Appointed Service

(35%) ORC Section 145.201

TP

Any elected official who is a member of OPERS, or any member who has been appointed by the governor with the advice and consent of the Senate to serve full-time as a member of a board, commission or other public body may purchase 35% additional credit of any full-time terms served since January 1, 1935 which were not subject to Social Security.

70.7%

A member may pay an amount into the Employees' Savings Fund which is determined by multiplying the current employee contribution rate by 35% of the salary earned in each term of office for which the credit is sought. Member must also pay an equal amount into the Employer's Accumulation Fund. No interest payment is required on either of these amounts.

Multiplying the member's current salary or FAS (whichever is greater) by a percentage rate set by the Retirement Board times the service credit to be purchased.



n/a MD n/a n/a n/a

Exempt Service ORC Section 145.28 TP

A member of OPERS with at least 18 contributing months may purchase service credit which was previously covered by a valid exemption under OPERS.

13.4%

The cost is calculated by multiplying the member's salary for the 12 months of contributions preceding the purchase date by a percentage rate set by the Retirement Board (currently 20%), times the service credit to be purchased.



CO ( same ) 10% rate (same as above except at 1/2 the % rate)

n/a MD n/a n/a n/a1

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Prior Service ORC Section 145.29 TP

A member of OPERS may purchase credit for service performed for an employer prior to the date the employer joined OPERS. Credit may also be purchased by a member who has non-contributing service as a firefighter not covered by an approved exemption.

91.1%

The cost is an amount equal to the contribution rate in effect when the payment is made, multiplied by the full salary during all periods of non-contributing service, plus 6% interest from the beginning date of service to be purchased to the date of payment.




n/a MD n/a n/a n/a

Leave of Absence (interest) ORC

Section 145.291TP

Up to one year of credit may be purchased by a member who was off the payroll and on an authorized leave of absence. A member must have worked at least one year after returning from the leave.

56.9%

The cost is calculated by multiplying the member's earnable salary that would have been received during the leave by the contribution rate in effect at the time of payment, plus 6% interest from the time of the leave to the date of payment.




n/a MD n/a n/a n/a

Out of State, Federal, or Ohio

Municipal Retirement System

ORC Section 145.293

TP

A member can purchase credit for: 1) service with federal gov't; 2) service in another state which, had it been in Ohio, would have been covered by an Ohio Retirement System; or 3) contributing service in a municipal system in Ohio, only if not eligible to purchase as withdrawn service with the Cincinnati Retirement System. Maximum credit is 5 years or the total Ohio service credit, whichever is less. For persons retiring on a joint basis, a maximum of 5 years out-of-state service may be purchased between the non-uniformed systems: OPERS, STRS, and SERS. Service credit being used, or that will be in a retirement payment other than Social Security, may not be purchased.

52.9%

The cost of such purchase is the contribution for the first year of full-time Ohio credit after the service to be purchased, multiplied by the number of years purchased, plus 6% interest from the beginning date of OPERS membership after the service to be purchased to the date of payment.




n/a MD n/a n/a n/a

School Board Service ORC

Section 145.299TP

OPERS members may purchase credit for service as a school board member before June 30, 1991. A member must agree to retire within 90 days from the date of payment.

The cost is calculated my multiplying the member's earnable salary for the 12 months preceding the purchase date by a percentage rate set by the Retirement Board (currently 20%), times the service credit to be purchased.



CO ( same ) 10% rate (same as above except at 1/2 the % rate)

n/a MD n/a n/a n/a 3




Military Service ORC Section

145.301TP

A member may purchase up to five years of military service or an amount equal to accumulated Ohio service, whichever is less, if that service is not used for other retirement pay (except Social Security or reserve service). Also, if captured by the enemy, a member may purchase additional credit for up to five years spent as a prisoner of war. For persons retiring on a joint basis, a maximum of five years of either military or POW service may be purchased between all of the non-uniformed retirement systems: OPERS, STRS, and SERS.

50.2%

The cost is calculated by multiplying the member's salary for the 12 months of contributions preceding the purchase date by a percentage rate set by the Retirement Board (currently 10%) times the service credit to be purchased.


OAC Section 145.3.21 CO ( same ) (same as above except 5% rate) (same as above except at 1/2 the % rate)

n/a MD n/a n/a n/a

Plan Change Service Credit ORC Section

145.814 OAC Section 145.3.40

MD to CO

Members who are eligible to participate in all three plans may change their retirement plan selection during certain periods of service. Once the member elects to change their plan, OPERS will prepare a cost statement to allow the member to move (purchase) service credit from the prior plan into the new plan. The member will have 180-days from the effective date of the plan change to transfer funds from the previous plan in order to purchase the service credit. Any remaining balance may be paid in a lump sum payment or by payroll deduction.

The cost to purchase service credit in the new plan that was established in the previous plan is the greater of 1) 10% of your last 12 months of earnable salary; or 2) 10% of your final average salary (FAS) times the amount of service purchased.

(same as below except at 1/2 the % rate)

OAC Section 145.2.18 MD to TP ( same )



OAC Section 145.2.18 CO to TP ( same )



4

THE FOLLOWING SERVICE PURCHASE TYPES ARE CURRENTLY FREE OF CHARGE:



Free Military ORC Section 145.30 TP

Up to 10 years of free service credit if member left public employment for active duty in the armed forces. A minimum of one year of contributing OPERS service must have been established and no more than 3 months can elapse between the termination of the member's contributing service and the military entry date. Member must return to contributing status in one of Ohio's state retirement systems w/i 2 years after discharge and establish 1 year of service credit upon return to public employment.

no cost no cost


CO ( same ) ( same ) ( same )

n/a MD n/a n/a n/a

Workers' Compensation

ORC Section 145.01TP

Members are eligible to claim service credit for any period during which they were off the payroll due to an injury and received a weekly award through Workers' Compensation. A maximum of 3 such years may be claimed. The claim number and a record of the BWC time must be submitted.

no cost no cost

" CO ( same ) " "n/a MD n/a n/a n/a

Optional Service (prior to existence

of OPERS) ORC Section

145.01(E)

TPA member of OPERS may obtain credit for service performed as a public employee prior to January 1, 1935.

no cost no cost

n/a CO n/a n/a n/an/a MD n/a n/a n/a

5

SERVICE PURCHASES WHICH REQUIRE FURTHER REVIEW:



Restoration of OPERS Withdrawn

Service Credit ORC Section 145.31

TP

After returning to public employment for at least 18 months in a job covered by one of Ohio's state retirement systems, a member is eligible to redeposit any previously refunded contributions.

The cost of redeposit will include the amount refunded plus 6% interest from the date of refund to the date of payment.

A charge equal to the current member contribution rate times the current pay (or FAS if greater), times the number of years of service to be restored.



n/a MD n/a n/a n/a

Restoration of OPERS Withdrawn Service Credit with SERS/STRS ORC

Section 145.312

TP

A member of SERS/STRS with at least 18 contributing months of service credit in one of Ohio's state retirement system, may purchase previosly refunded service from OPERS by payroll deduction in SERS/STRS.

The cost of redeposit by payroll deduction, is the amount refunded from OPERS plus interest as determined by OPERS.



Plan Change - Restore Balance

Transferred at Plan Inception ORC Section 145.814


CO to TP

Service established in the traditional pension plan that was balance transferred to either the CO or MD Plan by members who had less than 5 years of service on December 31, 2002. Members who elect to change their plan selection back to the Traditional Pension Plan are eligible to restore this service.

The cost to restore the service will include the amount balance transferred plus 6% interest from the date of the balance transfer to the date of payment.


OAC Section 145.2.18 MD to TP (same) (same)


Purchase of Service Credit by Dependents ORC

145.452

TP

Upon death of member, surviving spouse or dependents may purchase any service credit the member would have been eligible to purchase.

Cost to the surviving spouse or dependent is the same cost calculation applicable to the member according to the type of service the member was eligible to purchase.

Discontinue allowing a non-spouse dependent to purchase service on behalf of the member. Allow a surviving spouse the ability to complete a service purchase the member had begun prior to death.


6

NO CHANGES ARE PROPOSED FOR THE FOLLOWING SERVICE PURCHASE TYPES:



Purchase/ Transfer of Ohio Police &

Fire, Highway Patrol, City of

Cincinnati Service. ORC Section

145.295/145.2910/ 145.2911/

145.2912/ 145.2913

TP

Service credit may be granted by a direct transfer of contributions to an OPERS member who has contributions on deposit with, but is no longer contributing to Police & Fire, Highway Patrol, or the City of Cincinnati Retirement System. If the other retirement system contributions were refunded and the member is no longer contributing to the other retirement system, the service credit must be repurchased in OPERS.

Member and employer contributions on deposit with the other retirement system are transferred to OPERS with interest at the assumed actuarial rate. For contributions refunded at the other retirement system and redeposited at OPERS, the cost of the redeposit is the amount refunded from the other system plus interest as determined by the former retirement system. Upon redeposit, the other retirement sytem must transfer any employer contributions on deposit with interest at the assumed actuarial rate.

No change to current formula.



n/a MD n/a n/a n/a

Purchase/ Transfer of OPERS Service to Ohio Police &

Fire, Highway Patrol, City of

Cincinnati ORC Section

145.295/145.2910/ 145.2911/

145.2912/ 145.2913

TP

OPERS service may be transferred to Police and Fire, Highway Patrol, or the City of Cincinnati Retirement System provided the member is no longer contributing to OPERS. If OPERS contributions have been refunded, the member must redeposit the service with the other system.

Upon request of the member, OPERS will transfer member and employer contributions plus interest at the assumed actuarial rate. If OPERS contributions have been refunded, OPERS must transfer any employer contributions on deposit plus interest at the assumed actuarial rate upon redeposit with the other system.



Early Retirement Incentive Credit

ORC Section 145.297 or 145.298

TP

An employer may adopt an early retirement incentive plan in order to purchase additional credit for eligible employees. The credit may allow the employee to retire earlier than expected or with a higher benefit and cannot exceed 5 years or 20% of the employee's total service credit.

The cost paid by the employer is the additional liability resulting from the amount of service purchased as determined by the OPERS actuary.



7




Interrupted Military Service ORC

Section 145.302TP

A member may purchase up to five years of Interrupted military service providing the member is working for a OPERS covered public employer, enters the military, and returns to the same public employer within three months of discharge.

The cost will be the employee contributions that would have been paid on the salary they would have earned had they not gone into the military. Interest will be added if not paid within the lesser of five years or a period which is three times the period being purchased beginning from the later of the members date of reemployment or October 29, 1996. The employer must also make the employer contributions on the earnable salary the member would have earned.





MD ( same ) ( same ) ( same )

Restoration of SERS/STRS

Withdrawn Service Credit ORC

Section 145.311

TP

A member of OPERS with at least 18 contributing months of service credit in one of Ohio's state retirement system, may purchase previously refunded service from STRS/SERS by payroll deduction in OPERS.

The cost of redeposit by payroll deduction, is the amount refunded from STRS/SERS plus interest as determined by the former system.



Service Credit Associated with Joint Retirement

ORC Section 145.37

TP

This type of credit represents contributions transferred to OPERS as a result of a joint retirement with SERS/STRS and includes service transferred as a University of Akron Law Enforcement Officer from SERS to OPERS.

Represents the member's contributions and a matching employer share equal to the member's contributions.



Unreported Public Service ORC

Section 145.483TP

An employer who failed to deduct retirement contributions from an employee during a period of employment for which contributions were required shall pay to the Retirement System the employee and employer contributions which should have been reported.

The cost shall be the employee and employer contributions which should have been reported based on the contribution rate in effect during the period of service plus 6% simple interest from the beginning year of service to the end of the year proceding the date of payment.


" CO ( same ) ( same ) ( same )" MD ( same ) ( same) ( same)

8




Balance Transfer - at Plan inception

ORC 145.814(C)(2) CO Plan Document

Article II Section 2.02

TP to CO

Members who has less than five years of total service credit as of December 31, 2002 has a 180 day enrollment period that ended June 30, 2003 to select an OPERS retirement plan. This credit represents service that was established in the traditional plan prior to January 1, 2003 that was balance transferred at the member's request to the retirement plan elected.

At member's request, service credit from the Traditional Plan was transferred to the Combined Plan at plan inception.

n/a

MD Plan Document Article II Section

2.02

TP to MD (same)At member's request, service credit from the Traditional Plan was transferred to the Member- Directed Plan at plan inception.

n/a

9

THE FOLLOWING SERVICE PURCHASE TYPES WOULD BECOME OBSOLETE:



Service Excluded from Membership

ORC 145.02TP

A) An employee who, prior to 8/20/76, had public service but was excluded from membership in OPERS because they were receiving benefits from a muncipal retirement system, may purchase this service. B) An employee who, prior to 11/21/69, had public service but was excluded from membership in OPERS because the employee was receiving benefits from a police or fire relief pension fund, the Ohio Police and Fire Fund, or the Sate Highway Patrol Pension Fund may purchase this service.

A) Member contribution rate at the time of payment, times the earnable salary the member earned during such period, plus interest compounded annually at a rate determined by the Board. The member must also pay an equal amount into the employer fund. B) Retirement contributions the employee would have paid into OPERS during the period of service at the member contribution rate in effect during such period, plus interest compounded annually at a rate established by the Board. An equal amount must be paid by the member into the employer fund.

n/a

CO n/a n/a n/a

MD n/a n/a n/a

Service for Employment at Municipal Zoo

(expired 11/18/88) ORC 145.292

TP

Within 90 days after 07/20/88, member may purchase credit for previous employment not covered by the retirement system as an employee of a municipal zoo.

An amount determined by mutiplying the member's salary by the employee contribution rate then in effect, plus an amount determined by multiplying the member's salary by the employer contribution rate then in effect.

n/a

CO n/a n/a MD n/a n/a n/a

Service under US Employment

Service ORC 145.42

TP

Members on a leave of absence pursuant to section 145.41, or who are employees of the United States employment service at the time of the return of these functions to the state, or who reach retirement age prior to such time, are eligible to purchase service with the United States employment service.

The cost is the member contribution rate in effect at the time of payment multiplied by the member's earnable salary for the period of service, plus interest on such payment compounded annually at a rate determined by the Board.

n/a

CO n/a n/a n/aMD n/a n/a n/a

Retroactive Service ORC Section 145.44 TP

Member of OPERS may purchase service credit for service prior to the date membership was established, who were employed by a governmental unit having its own retirement system. A member is ineligible for this service if they have received or are eligible for benefits from the retirement system of the governmental unit.

An amount equal to the contribution rate in effect during the period of service, multiplied by the full salary during all periods of non-contributing service, plus 6% interest compounded annually from the beginning date of service to be purchased to the date of payment. The governmental unit also has to pay the full liability as determined by the OPERS actuary, before the member is eligible to obtain the service credit.

n/a


CO ( same ) (same, but actuarial cost is based upon 1.00% / 1.25% multiplier). n/a 10

n/a MD n/a n/a n/a

11

THE FOLLOWING SERVICE PURCHASE TYPES WOULD BECOME OBSOLETE:



Leave of Absence (no interest) ORC

Section 145.47TP

A member may purchase up to one year of credit who was off the payroll and on an authorized leave of absence for less than one year and purchases that service within a 12 month period from the beginning date of the leave. 61.4%

The cost is calculated by multiplying the member's earnable salary that would have been received during the leave by the contribution rate in effect at the time of payment. There is no additional interest charge.

All Leave of Absence would be calculated as outlined under "Leave of Absence (Interest) - see first page

ORC Section 145.47 OAC 145.3.21 CO ( same ) ( same )

All Leave of Absence would be calculated as outlined under "Leave of Absence (Interest) - see first page

ORC Section 145.47MD n/a n/a n/a

* OPERS offers 3 Retirement Plans as follows: each listed here in the second column as TP, CO, and MD. - TP Plan is the "Traditional Pension Plan" or defined benefit plan, established under sections 145.01 to 145.79 of the Revised Code. - CO Plan is the "Combined Plan" which includes a defined benefit and defined contribution component, established under section 145.81 of the Revised Code. - MD Plan is the "Member-Directed Plan" or defined contribution plan, established under section 145.81 of the Revised Code and pursuant to rules and plan documents.

**OPERS Subsidy is defined as the total additional liability in terms of 20% of pay per year of service.

12

Attachment B

December 14, 2005 Mr. Aristotle Hutras, Executive Director Ohio Retirement Study Council 88 E. Broad Street, Suite 1175 Columbus, OH 43215 RE: Actuarial review of OPERS Service Credit Purchases Dear Mr. Hutras:

In response to your letter dated September 28, 2005, please find enclosed a report prepared by the OPERS actuary, Gabriel, Roeder, Smith & Co., that includes the results of an actuarial review of the cost of certain service credit purchases. We have provided the enclosed copies for your staff and for distribution to the members of the ORSC.

In your letter, you requested that the OPERS actuary examine the cost of certain types of

service credit and below is a chart that summarizes the contents of the report:

Type of service credit

Current cost formula Percentage of additional liability paid by member

Percentage of additional liability

paid by OPERS Denied compensation for elected officials (R.C. 145.01(Y))

Employee contributions on the denied compensation. Interest is added to partial payments.

105.7%

<5.7%>

Prior service for elected officials (R.C. 145.20)

Employee contribution rate at time of payment multiplied by salary for period of service, plus interest from beginning date of service to date of payment. Matching amount billed to employer.

18.7%

62.6% (OPERS)

18.7% (Employer)

Additional 35% credit for elected or appointed officials (R.C. 145.201)

Employee contribution rate at time payment multiplied by period of full-time service multiplied by two.

29.3%

70.7%

Exempt service (R.C. 145.28)

The member’s salary for the 12 months immediately preceding the payment multiplied by a percentage rate determined by the OPERS Board, currently 20%.

86.6%

13.4%

Mr. Aristotle Hutras December 14, 2005 Page 2 of 3

Type of service credit

Current cost formula Percentage of additional liability paid by member

Percentage of additional liability

paid by OPERS Prior service (R.C. 145.29)

Employee contribution rate at time of payment multiplied by salary for period of service, plus interest from beginning date of service to date of payment.

8.9%

91.1%

Leave of absence (R.C. 145.291)

Employee contribution rate at time of payment multiplied by the member’s salary at the time public service was interrupted, plus interest from date of leave to date of payment.

43.1%

56.9%

Out of state/ federal/municipal service (R.C. 145.293)

Employee contribution for first year of full-time Ohio service following the service to be purchased multiplied by the period of service to be purchased, plus interest from date of membership established to date of payment.

47.1%

52.9%

Military service—purchase (R.C. 145.301)

Amount determined by OPERS Board that is not less than 50% of the additional liability—calculated by multiplying the member’s salary for the 12 months immediately preceding the payment multiplied by a percentage rate determined by the OPERS Board, currently 10%.

49.8%

50.2%

Leave of absence (<1 year) (R.C. 145.47)

Employee contribution rate at time of payment multiplied by the member’s salary at the time public service was interrupted.

38.6%

64.1%

The data upon which this study was based is described in the attached report (Section C) and a more detailed analysis of the information summarized above may be found in Sections D and E of the report.

In addition to the information summarized above, you requested that the OPERS actuary study a proposal under which a member of the OPERS Law Enforcement (LE) Division would be permitted to pay to convert the member’s non-LE service credit in OPERS to LE service credit. This would result in the converted service credit being treated as LE service for the purposes of determining eligibility for and in calculating LE retirement benefits payable at age 48 or 52 (depending on primary duties). The cost of this service purchase (or “conversion”) has been proposed as the sum of the following: (1) the difference between the employee contribution rate for the non-LE service and the employee contribution rate for LE service for the period of service; (2) the difference between the employer contribution rate for non-LE service and the employer contribution rate for LE service for the period of service; and (3) compound interest. The attached report (Section F) summarizes the actuary’s findings on the cost of this

Mr. Aristotle Hutras December 14, 2005 Page 3 of 3 proposal based on the percentage of LE members who might utilize the ability to convert their non-LE credit. As you can see, depending on the number of LE members who might utilize such a provision, it is clear that this proposal would increase the amortization period for unfunded actuarial accrued liabilities for the LE Division beyond the number of years required by Ohio law.

If you have any questions, please feel free to contact me.

Sincerely, Thomas L. Sherman Government Relations Officer TLS/lv Enclosures

To: Ms. Deborah McCarthy, Assistant Government Relations Officer Public Employees Retirement System of Ohio From: Norman L. Jones, FSA and Brian B. Murphy, FSA Date: December 13, 2005 Subject: Ohio Retirement Study Council Actuarial Review of Service Credit Purchases A. INTRODUCTION This memorandum presents the findings of our analysis of service credit purchases in the Ohio Public Employees Retirement System (OPERS). The analysis was performed for the Ohio Retirement Study Council (ORSC) actuarial review of service credit purchases. B. CURRENT SERVICE PURCHASE COST FORMULAS Presented below are the sections of the Revised Code (R.C.) that were analyzed:

R.C. Section Brief Description of Service Credit Current Purchase Price Per Year 145.01(Y) Denied compensation for elected officials Member contributions on denied compensation +

Interest 145.20 Prior service for elected officials (Member rate in effect at time of payment x

Salary for period of service) + (Interest for service between 1/1/1935 and date membership is established)

145.201 Additional 35% credit for elected or appointed officials

Member rate in effect at time of payment x Salary for period of service x 2

145.28 Purchase of service credit for period of exemption Member salary for 12 months preceding purchase x Rate established by Board, currently 20%

145.29 Prior service (Member rate in effect at time of payment x Salary for period of service) + (Interest for service between 1/1/1935 and date membership is established)

145.291 Leave of absence (Member rate in effect at time of payment x Salary prior to leave) + Interest

145.293(A)(1) and (2) Out of state/federal/municipal service (Member contribution for first year of full-time Ohio service following termination of service to be purchased) + Interest

145.301(A)(B) and (D) Military service—purchase Determined by the OPERS Board, but not less than 50% of the additional resulting liability. Currently, 10% of pay per year of service.

145.47 (leave of absence only)

Leave of absence (<1 year) Member contribution due

C. SUMMARY OF DATA RECEIVED In order to perform the analysis of service credit purchases, 77 service purchase cases were received from OPERS staff. Of these 77 cases, 24 service purchase cases were from calendar year 2005 and the remainder were from calendar years 2001 through 2004. A summary of the data received is presented below:

R.C. Section145.01(Y) 1 51.5 yrs. $ 1,200 3.7 yrs. 0.7 yrs.145.2 10 54.7 23,070 10.7 4.5145.201 10 56.5 33,107 20.7 5.4145.28 10 50.4 42,824 16.4 3.6145.29 6 55.5 29,551 13.0 2.7145.291 10 46.0 46,916 19.7 0.7145.293(A)(1) and (2) 10 52.3 66,925 14.5 4.0145.301(A)(B) and (D) 10 53.9 53,876 15.4 3.7145.47 (leave of absence only) 10 47.7 43,163 11.2 0.3

Number ofService PurchaseCases Reviewed Age

ServicePurchased

Averages

Salary

ServiceBefore

Purchase

D. RESULTS OF SERVICE PURCHASE ANALYSIS Presented below are the results of the service purchase analysis. As a matter of policy, OPERS presently defines the Total Additional Liability in terms of 20% of pay per year of service. The figures in the chart below were developed based upon that policy. The actual effect of a service purchase on OPERS can vary widely based upon the individual’s service credit before the service purchase, the sex of the individual, and in most cases, the age of the individual at time of purchase.

PercentagePaid By

R.C. Section OPERS145.01(Y) $ 175 $ 185 $ (10) 105.7% -5.7%145.20 153,706 28,710 124,996 18.7% 81.3%145.201 314,659 92,156 222,503 29.3% 70.7%145.28 234,537 203,017 31,520 86.6% 13.4%145.29 81,547 7,257 74,290 8.9% 91.1%145.291 63,977 27,563 36,414 43.1% 56.9%145.293(A)(1) and (2) 455,697 214,430 241,267 47.1% 52.9%145.301(A)(B) and (D) 410,990 204,719 206,271 49.8% 50.2%145.47 (leave of absence only) 29,313 11,307 18,006 38.6% 61.4%Totals $ 1,744,600 $ 789,344 $ 955,257 45.2% 54.8%

Allocation Between Member and OPERSAdditional

Liability(in actual dollars)

TotalPercentage

Paid ByMember

Member Cost (in actual dollars)

OPERS Cost (in actual dollars)

12/13/2005 GABRIEL ROEDER SMITH & COMPANY -2-


E. COMMENTS AND RECOMMENDATIONS ON SERVICE PURCHASE COST FORMULAS There are competing objectives involved in determining the definition of “additional liability.” Among these factors are: individual equity, ease of explanation and computation, compliance with OPERS and federal statutes, cost to OPERS, public policy, etc. OPERS’ present definition of “additional liability” is based on ease of explanation and computation, and is only approximately related to the actual cost to OPERS, as would be measured by an actuarial valuation. Another important issue that arises in determining the cost of service purchase to a member is whether or not the member will be charged for “promoting past service.” A different way of expressing this is:

Should an individual be charged for the fact that his/her benefit may be payable at an earlier time due to the fact they become eligible to retire at an earlier age? The benefit that is considered for this determination is based upon service accrued at the time of purchase.

For example, consider a member who is age 50 with 28 years of service who purchases 2 years of service credit. Prior to the service purchase, the member would have been eligible to retire at age 52 (with 30 years of service). After the service purchase the member is eligible to retire at age 50. The question that arises is whether or not the member should be charged for the fact that his/her benefit based upon the 28 years of service is potentially payable 2 years earlier. The present policy regarding “additional liability” does not reflect the cost of “promotion of past service credit.” As part of this service purchase study, we recommend that OPERS review the policy decisions with respect to whether members should be charged for the “promotion of past service” for the relevant R.C. sections. In addition, we suggest a review of whether to continue the practice of using a flat percentage of pay as the definition of “additional liability.” Finally, if use of a flat percentage is considered to be the best ongoing policy, the level of such flat percentage should also be reevaluated.

F. ADDITIONAL REQUESTED LAW GROUP ANALYSIS

In addition to the service purchase analysis, we were also requested to review the following:

A proposal that would allow Law members to convert their non-Law service (i.e. State or Local service) to Law service. The formula proposed would require the member to pay the difference between the employer and employee contribution rates for the non-Law service and the employer and employee contribution rates for the Law service, plus compound interest.

Presented below is a summary of the active data as of December 31, 2004 that was used in the analysis:

Number ofActive

Members

Public Safety 113 37.4 yrs. 4,766,921$ 8.3 yrs. 6.5 yrs. 1.8 yrs.Law Enforcement 8,060 39.7 387,904,753 12.4 10.2 2.2Totals 8,173 39.7 yrs. 392,671,674$ 12.4 yrs. 10.2 yrs. 2.2 yrs.

ServiceAverages

Non-LawAge Salary Total Law

The results of the analysis are sensitive to the proportion of the eligible membership utilizing the proposed provision. Presented below are estimated results, as of December 31, 2004, assuming that 25%, 50%, 75% and 100% of the eligible membership utilize the proposed provision ($ in Millions):

12/31/2004Results

Unfunded Actuarial Accrued Liability (UAAL) 328.6$ 344.8$ 361.0$ 377.2$ 393.4$ Increase in UAAL 16.2 32.4 48.6 64.8

Amortization Years 41 46 53 63 77Increase in Amortization Years 5 12 22 36

100%% of Members Utilizing Proposed Provision

25% 50% 75%



Attachment BTo: Ms. Karen E. Carraher, Finance Director

Ohio Public Employees Retirement System From: Norman L. Jones, FSA and Brian B. Murphy, FSA Date: March 1, 2006 Subject: Service Credit Purchases INTRODUCTION This memorandum expands on the findings of our analysis of service credit purchases in the Ohio Public Employees Retirement System (OPERS) performed for the Ohio Retirement Study Council (memorandum dated December 13, 2005). CURRENT SERVICE PURCHASE COST FORMULAS Presented below are the sections of the Revised Code (R.C.) that were analyzed:

R.C. Section Brief Description of Service Credit Current Purchase Price Per Year 145.01(Y) Denied compensation for elected officials Member contributions on denied compensation +

Interest 145.20 Prior service for elected officials (Member rate in effect at time of payment x

Salary for period of service) + (Interest for service between 1/1/1935 and date membership is established)

145.201 Additional 35% credit for elected or appointed officials

Member rate in effect at time of payment x Salary for period of service x 2

145.28 Purchase of service credit for period of exemption Member salary for 12 months preceding purchase x Rate established by Board, currently 20%

145.29 Prior service (Member rate in effect at time of payment x Salary for period of service) + (Interest for service between 1/1/1935 and date membership is established)

145.291 Leave of absence (Member rate in effect at time of payment x Salary prior to leave) + Interest

145.293(A)(1) and (2) Out of state/federal/municipal service (Member contribution for first year of full-time Ohio service following termination of service to be purchased) + Interest

145.301(A)(B) and (D) Military service—purchase Determined by the OPERS Board, but not less than 50% of the additional resulting liability. Currently, 10% of pay per year of service.

145.47 (leave of absence only)

Leave of absence (<1 year) Member contribution due

SUMMARY OF DATA RECEIVED In order to perform the analysis of service credit purchases, 77 service purchase cases were received from OPERS staff. Of these 77 cases, 24 service purchase cases were from calendar year 2005 and the remainder were from calendar years 2001 through 2004. A summary of the data received is presented below:

R.C. Section and Description145.01(Y) 1 51.5 yrs. $ 1,200 3.7 yrs. 0.7 yrs.Denied compensation for elected officials145.20 10 54.7 23,070 10.7 4.5Prior service for elected officials145.201 10 56.5 33,107 20.7 5.4Additional 35% credit for elected or appointed officials145.28 10 50.4 42,824 16.4 3.6Purchase of service credit for period of exemption145.29 6 55.5 29,551 13.0 2.7Prior service145.291 10 46.0 46,916 19.7 0.7Leave of absence145.293(A)(1) and (2) 10 52.3 66,925 14.5 4.0Out of state/federal/municipal service145.301(A)(B) and (D) 10 53.9 53,876 15.4 3.7Military service—purchase 145.47 (leave of absence only) 10 47.7 43,163 11.2 0.3Leave of absence (<1 year)

Number ofService PurchaseCases Reviewed Age

ServicePurchased

Averages

Salary

ServiceBefore

Purchase

RESULTS OF THE ORSC SERVICE PURCHASE ANALYSIS Shown below are the results of the ORSC service purchase analysis. As a matter of policy, OPERS presently defines the Total Additional Liability in terms of 20% of pay per year of service. The figures in the chart below were developed based upon that policy. The actual effect of a service purchase on OPERS can vary widely based upon the individual’s service credit before the service purchase, the sex of the individual, and in most cases, the age of the individual at time of purchase.

PercentagePaid By

R.C. Section and Description OPERS145.01(Y) $ 175 $ 185 $ (10) 105.7% -5.7%Denied compensation for elected officials145.20 153,706 28,710 124,996 18.7% 81.3%Prior service for elected officials145.201 314,659 92,156 222,503 29.3% 70.7%Additional 35% credit for elected or appointed 145.28 234,537 203,017 31,520 86.6% 13.4%Purchase of service credit for period of exemption145.29 81,547 7,257 74,290 8.9% 91.1%Prior service145.291 63,977 27,563 36,414 43.1% 56.9%Leave of absence145.293(A)(1) and (2) 455,697 214,430 241,267 47.1% 52.9%Out of state/federal/municipal service145.301(A)(B) and (D) 410,990 204,719 206,271 49.8% 50.2%Military service—purchase 145.47 (leave of absence only) 29,313 11,307 18,006 38.6% 61.4%Leave of absence (<1 year)Totals $ 1,744,600 $ 789,344 $ 955,257 45.2% 54.8%

Allocation Between Member and OPERSAdditional

Liability(in actual $)

TotalPercentage

Paid ByMember

Member Cost(in actual $)

Cost(in actual $)

Current OPERS



SERVICE CREDIT PURCHASE DISCUSSION The focus of this memorandum is the re-consideration of the existing policy of setting the additional liability for service purchases equal to 20% of pay per year of service. As the Board focuses on the existing and alternate policies, two issues need to be kept in mind – promotion of existing service and competing objectives. PROMOTION OF EXISTING SERVICE

The value of a year of service depends upon the age of the member at time of purchase and the member’s expected date of retirement. (It also depends upon the member’s sex, and a variety of other factors.) Since the member’s eligibility for retirement depends upon the service credit before and after the purchase, purchasing a year of service can alter the member’s retirement eligibility date. Therefore, the cost of a year of service credit depends upon the service credit immediately preceding the purchase. Whether or not the dependency on service should be recognized is a policy matter, but from an actuarial perspective, such a dependency exists and in some cases can be significant. For example, if a person is 59 years old with 29 years of service, that person would normally have to wait until age 60 to retire with full benefits. If one year of service is purchased, the person is eligible to retire with full benefits immediately following the purchase. Effectively, the value of the original 29 years of service is increased (or “promoted”) because the related benefits are payable one whole year earlier. Therefore, the value of a year of service to a person who is 59/29 is much greater than the value of a year of service to the same person one year later, or to another person who is 59 but who already has 30 years of service. Because of this issue, which we refer to as “promotion of existing service”, the cost of a year of service credit is a complicated function of both the age and service of the individual. The function cannot really be encapsulated into a single flat number for all ages, or even into an age based column of numbers, without sacrificing accuracy. Various approximations can be made, but when that is done, it will always be possible to uncover cases for which the approximations do not work well. Some will pay too much, while others will get a bargain. COMPETING OBJECTIVES In establishing a policy with respect to service purchases, it is important to remember that there may be competing objectives in these types of calculations. Some possible objectives are listed below, not necessarily in order of importance.

• Individual Equity. The calculation should produce a fair measure of the value received by the member for the amount of money transferred to OPERS. There should be no individual winners or losers. However, if the person is required to pay the exact full cost of the added service, the only theoretical value to making the back payment is to lock in a favorable return on investment by means of OPERS’ attractive annuity purchase rates.

• Global Equity. OPERS should be neither advantaged nor disadvantaged by member service purchases.

• Portability. People should be able to move between Ohio Systems or from OPERS to the private sector and back, without significant loss of accrued benefits. Permitting certain types of service purchases at subsidized rates provides a measure of benefit portability for workers, although it violates both individual and global equity.

• Public Policy. In some instances, it may be determined to be in the public interest to permit/encourage subsidized service purchases.

• Consistency among methods used in other Ohio retirement systems.


ALTERNATE SERVICE PURCHASE COST METHODS

No single method for determining the additional liability associated with a year of credited service can accomplish all objectives equally well. The promotion of existing service issue is a major reason why this is so. Three alternate methods, each of which is appropriate for use in public sector retirement systems, were considered in this study.

Alternate Method 1. Flat percentage of pay per year of purchased service. This method would not impose an additional charge for promotion of existing service. Example: 25% of pay per year of service purchased. Advantages:

• Simplicity. • Understandability. • Can be designed to result in approximate cost-neutrality to OPERS if

promotion of existing service is not considered. Disadvantages:

• Will create winners and losers – some people will pay too much; others will not pay enough.

• May be more subject to anti-selection than other methods. • Does not deal with promotion of existing service. • Does not recognize cost variation by age at purchase.

Alternate Method 2. Flat percentage, plus an additional flat percentage for each year of service that is promoted.

Example: 25% of pay per year base charge plus 0.5% additional for each year that normal retirement age is reduced, that percentage then multiplied by the total service credit after the purchase.

Advantages:

• Still reasonably easy to administer and to explain to members. • Accounts for promotion of existing service in an approximate manner.

Disadvantages: • Does not recognize cost variation by age. • Will appear unfair to members who do not, in fact, accelerate their retirement. • May actually induce members to accelerate retirement, since they will see that they

are paying for the earlier retirement eligibility. • The factors will be very high at some age/service combinations and will be likely to

discourage people from purchasing service.


Alternate Method 3. Age and service based actuarial calculations that recognize promotion of existing service. This method is based upon formulas used in the Early Retirement Incentive Plan (ERIP), which assumes retirement at first eligibility for unreduced retirement. Although different retirement assumptions would produce different results, this type of method gives the best representation of the “True Cost.” Advantages:

• Strong theoretical basis. • Factors relate directly to OPERS demographic experience. • Can be approximately individually cost neutral.

Disadvantages: • More complicated and difficult to explain to potential purchasers. • Requires complex software that needs to be updated periodically. • The factors will be very high at some age/service combinations and will be likely to

discourage people from purchasing service.

SUMMARY OF RESULTS FOR 77 SAMPLE CASES

R.C. Section and Description145.01(Y) $ 175 $ 219 $ 219 $ 132 Denied compensation for elected officials145.20 153,706 192,133 222,460 202,706 Prior service for elected officials145.201 314,659 393,324 528,875 675,959 Additional 35% credit for elected or appointed officials145.28 234,537 293,171 403,100 486,057 Purchase of service credit for period of exemption145.29 81,547 101,934 122,551 108,532 Prior service145.291 63,977 79,971 100,851 123,731 Leave of absence145.293(A)(1) and (2) 455,697 569,621 714,029 659,193 Out of state/federal/municipal service145.301(A)(B) and (D) 410,990 513,738 629,511 611,039 Military service—purchase 145.47 (leave of absence only) 29,313 36,641 40,081 31,245 Leave of absence (<1 year)Total $ 1,744,601 $ 2,180,751 $ 2,761,677 $ 2,898,594 True Cost $ 2,898,594 $ 2,898,594 $ 2,898,594 $ 2,898,594 Total as % of True Cost 60% 75% 95% 100%

Alternate Method 320% of pay Age/Service

calculation

basedactuarial

Pending Policy Alternate Method 1 Alternate Method 2

for each year for each year plus addl 0.5%25% of pay Alternate 1


In the above chart, Alternate Method 3 gives the best representation of the true cost of providing the purchased service to the individuals who were included in the study. Different versions of Alternate Method 3 would produce different results, of course. This particular version was chosen for consistency with the factors used in the administration of the Early Retirement Incentive Plan. Alternate Method 3 does the best job of preserving both individual and global equity. However, it is the most complicated of the 3 alternate methods presented.


INDIVIDUAL TEST CASE ILLUSTRATIONS

R.C. Section and Description145.01(Y) 51.5 yrs. $ 1,200 3.7 yrs. 0.7 yrs. $ 185 $ 175 $ 219 $ 219 $ 132 Denied compensation for elected officials145.20 45.2 45,716 11.5 2.6 744 24,074 30,093 38,578 31,544 Prior service for elected officials145.201 50.8 17,545 15.2 5.3 13,425 18,422 23,028 31,380 30,528 Additional 35% credit for elected or appointed officials145.28 55.9 65,783 26.6 2.5 32,721 32,721 40,901 64,707 105,253 Purchase of service credit for period of exemption145.29 63.5 21,647 6.0 1.4 402 6,204 7,755 7,755 6,927 Prior service145.291 51.2 60,178 26.2 1.0 5,752 12,036 15,045 23,243 36,107 Leave of absence145.293(A)(1) and (2) 46.1 29,521 11.9 3.7 13,022 22,023 27,529 36,141 30,407 Out of state/federal/municipal service145.301(A)(B) and (D) 49.5 69,094 17.8 4.0 27,766 55,275 69,094 99,264 115,387 Military service—purchase 145.47 (leave of absence only) 39.4 33,212 13.2 0.7 1,767 4,431 5,539 7,080 6,975 Leave of absence (<1 year)

Cost(in actual dollars)

MemberBefore Service

Age Salary Purchase Purchase

Member DataService

Pending Policy Alternate Method 1 Alternate Method 2

for each year for each year plus addl 0.5%


Age/Service

calculation

basedactuarial

CurrentAlternate Method 3

20% of pay 25% of pay Alternate 1

In the above chart, Alternate Method 3 gives the best representation of the true cost of providing the purchased service to the individuals who were included in the study. Different versions of Alternate Method 3 would produce different results, of course. This particular version was chosen for consistency with the factors used in the administration of the Early Retirement Incentive Plan. Alternate Method 3 does the best job of preserving both individual and global equity. However, it is the most complicated of the 3 alternate methods presented.


COMMENTS AND RECOMMENDATIONS

Whether or not and how much actual cost is associated with a purchase of prior service is a pure actuarial issue. Additional service credit increases a person’s benefit. The increased benefit has a value. What is that value? The answer to that question can be complicated, and is necessarily based upon assumptions and judgment. How much a person should pay to receive the service credit is, however, a pure policy matter. The answer may depend on the type of service being purchased, and on various policy objectives set by the Board or others. There can be policy reasons that would lead to a desire to encourage certain types of service purchases, and to discourage others. For example, former OPERS members might be more willing to rejoin the public workforce if previously forfeited service could be reestablished at an attractive rate. Policy Issues. It is OPERS’ objective to establish consistent service purchase rates among the various code sections set forth on page 1. In order to proceed, the following policy issues need to be addressed:

• Under which code sections should purchasers be charged for the promotion of existing

service? In some cases, members could argue that a charge for the promotion of existing service is unfair, because the service being purchased was rendered fairly early in the career. However, promotion of existing service, whenever it occurs, is a real cost to OPERS (provided that purchased service can be used to determine eligibility for retirement).

• Which types of service purchases, if any, should be subsidized and what should be the extent of such subsidy?

• What is the relative importance of ease of understanding versus mathematical accuracy? • How important is it that amounts charged by different Ohio Systems for service

purchases be similar?

GRS Recommendations. Of all the cost methods that we have discussed, Alternate Method 3 provides the truest measure of the actual incidence of cost. To the extent that the Board elects an alternate other than Alternate Method 3, it is important that the Board be aware of the level of costs that are so incurred. Subject to policy established by the Board, we offer the following alternatives.

• If purchasers are not to be charged for the promotion of existing service, but otherwise are to be charged, on average, for the full cost of the added service, GRS recommends Alternate Method 1: the use of a flat 25% per year purchased times the greater of (i) salary during the 12 months preceding purchase, or (ii) final average salary.

• If purchasers are not to be charged for the promotion of existing service, but in some or all cases it is the policy to subsidize the remaining cost, GRS recommends that the percentage shown above be adjusted accordingly, for example in this case, the present 20% of pay per year of service figure could be maintained.

• If purchasers are to be charged for the promotion of existing service, GRS recommends the adoption of either Alternate Method 2 (flat 25% per year before promotion plus 0.5% additional for each year that normal retirement is accelerated) or Alternate Method 3


(age and service based actuarial present value). We have a preference for Alternate Method 3, because it is more exact. However, we believe the Board could reasonably select Alternate Method 2 because of its relative simplicity. • The 20% and 25% figures correspond respectively to approximately 137% and 170% of

the normal cost for State and Local Government members. By actually defining the percentages as percentages of the normal cost, the factors could be adjusted automatically as conditions change. Such an action would also accommodate differences between State, Local Government and Law, and between the Traditional and Combined plans.

The percentages shown in this report are approximate and do not reflect any potential increase in the value of retiree health benefits. Once policy decisions have been made, GRS will work with the Board and staff to fine tune the factors in this memorandum and to bring the matter to conclusion.


Offered Maximum Years Calculation or % Liability Y/N Allowed Member Pays Per Year Purchased Benefit Calculation Health Care Matching Refund %

* Denied OPERS Y Member contribution on denied + 6% interest Y Y NCompensation STRS

for Elected Officials OPFPFORC 145.01(Y) SERS*Prior service

Elecitve ORC 145.20Optional ORC 145.29*Additional 35% for OPERS Pre 1/1/01Elected/Appointed

Officials ORC 145.201 5 N

* Exempt/WaivedORC 145.28 STRS Y Preceding 12 month salary x 100% Liability factor PO N/A-Interest Only

OPFPF N/A-Interest Only SERS Y Preceding 12 month salary+ Interest Y Y N/A-No Interest

OPERS Y 2 Missed Contributions (Interest after limited time) Y Y N * Leave of AbsenceORC 145.291 & .47

STRS <2 yrs after leave Missed Contributions Only

STRS >2 yrs after leave Missed Contributions & Interest for EE & ER

OPFPF Y Missed Contributions & Interest N/A-Interest Only SERS Y 2 EE & ER Contributions & Interest Y Y N/A-No Interest

* Federal/Municipal & OPERS Y 1st Year Contributions + 6% Interest Y PO N Out of State (OOS) STRS pre 7/1/89 Y 1st yr Pub Svc contributions + 8% Interest Y Y

ORC 145.293(OPERS) STRS post 7/1/89 Y 50% Liability factor/ age & svc based Y YOPFPF Y 100% Actuarial Liability Y N/A-Interest OnlySERS Y Cannot Exceed OH Credit Preceding 12 month salary + Interest Y N N/A-No Interest

OPERS Pre- 3/17/00 1st yr Salary x Old Rate x 6% InterestOPERS Post 3/17/00 Preceding 12 month salary x 10% /yr PO

* Prior MilitaryORC 145.301 Y N/A-Interest Only

STRS post 7/1/89 Y 50% Age & Svc based Liability Factor OPFPF Y 1st yr salary x (>Old Rate or 4%) x Interest Y N/A-Interest Only SERS Y Based on Current Contributions Y N N/A-No Interest

Page1

Up to 5 w/ Municipal

N

STRS pre 7/1/89 Y 1st yr Pub Svc contributions + 4% Interest

Y

Y

5 (Plus 5 POW)

Y

N/A-Interest Only

Y Y N/A-Interest Only

STRS Maternity Resignation

Y

Combined total of 2 years

1st yr return salary x old rate x 8% Interest

Preceding 12 month salary x 20% Y(Premium Only)

PO

OPERS Post 1/1/01

OPERS YNo Max

Y

YNo Max

Earnings x Contribution Rate at time x 35% x 2 Y Y N

Service Type and OPERS Statute System

Can be used toward

* Covered in GRS report

OPERS ONLY Y No Max Earnings x Current Contribution Rate x 6% Interest Y Y

** Contribution Rate Difference-OPFPF charges a higher contribution rate than the other system and requires the difference to be paid for service transferred or purchased, otherwise credit is pro-rated. Additionally, OPFPF only allows the purchase of fulltime service (37 1/2 hours per week).

Information provided has been gathered from the system websites and is simplified and summary in nature. It is not to intended for use other than general comparison of the service credit offered. Only credit from the Defined Benefit plans of each system has been portrayed. Information unavailable left blank.

Ohio Systems Service Credit Purchase Comparison Attachment C


OPERS Y Y PO N/A Free Military STRS Y Y Y N/A-Interest OnlyORC 145.30 OPFPF Y Y N/A-Interest Only

SERS Y Y N N/A-No InterestOPERS Y 3 0 Free Y Y N/A

Workers' STRS N/A-Interest Only Compensation OPFPF

ORC 145.01 SERS Y 3 0 Free Y Y N/AOptional Service OPERS 0 Free Y Y NPrior to OPERS' STRS

Existence OPFPF ORC 145.01 (E) SERS

OPERS Y Withdrawn + 6% Interest Y Y YRestoration of OPERS STRS Y Withdrawn + 8% Interest Y Y N/A-Interest Only

Withdrawn Service OPFPF Y Withdrawn + Interest* Y Y N/A-Interest OnlyORC 145.31 SERS Y Withdrawn + 7.5% Interest Y Y N/A-No Interest

Restoration of OPERS Y No Maximum Amount refunded + 6% Y Y YOPERS' Withdrawn STRS

Service with SERS/STRS OPFPFORC 145.312 SERS

Plan Change - Restore OPERS Y Amount Balance Transfer + 6% Y Y YBalance Transferred at STRS

Plan Inception OPFPFORC 145.814 SERS

Purchase of Credit OPERS Same as member would have paid Y Y Yby Dependents STRSORC 145.452 OPFPF

SERSUniformed or Ohio OPERS Y 5 w/OOS & Federal Refund amount + Interest (Other System Rate) Y Y Y

Municipal Retirement STRS Y 5 w/OOS & Federal 50% Liability factor/ age & svc based Y Y N/A-Interest OnlyORC 145.295 OPFPF Y Only Fulltime (37 1/2 hrs/wk) ** Contribution Rate Difference N/A-Interest Only

SERS Y 5 w/OOS & Federal Prior salary x SERS Rate + Interest Y Y N/A-No InterestYEarly Retirement OPERS Y 20% of Service Up to 5 Employer Pays Additional Liability Incurred Y PO N

Incentive STRS Y Employer PaysORC 145.297 & .298 OPFPF N N/A N/A

SERS Y 5 Employer Pays N/A-No Interest

Page 2

* Covered in GRS report ** Contribution Rate Difference-OPFPF charges a higher contribution rate than the other system and requires the difference to be paid for service transferred or purchased, otherwise credit is pro-rated. Additionally, OPFPF only allows the purchase of fulltime service (37 1/2 hours per week).


Ohio Systems Service Credit Purchase Comparison (Continued)

No Maximum


Can be used toward

10 0 Free


OPERS Y 5 Missed Contributions Y Y Y Interrupted Military STRS Y 5 (Interest After Limited Time) Y Y N/A-Interest Only

ORC 145.302 OPFPF Y 0 (Only Employer contributions) Y N/A-Interest Only SERS Y Y N N/A-No Interest

Restoration of OPERS Y Refund amount + Interest (Other System Rate) Y Y NSERS/STRS Withdrawn STRS Y 50% Liability Factor-Age & Svc Based Y Y N/A-Interest Only

Service OPFPF Y ** Contribution Rate Difference Y Y N/A-Interest Only ORC 145.311 SERS Y Refund Amount + Interest N/A-No Interest

Service Credit OPERS Y Transferred Contributions Y Y Retirement OnlyAssociated with Retirement OnlyJoint Retirement

ORC 145.37 OPFPF Y Pro-rated Service or Contribution Rate Difference Y Y N/A-Interest Only Retirement Only

Delinquent Contributions OPERS Y Employer Pays All Contributions + 6% Interest Y Y N ORC 145.483 STRS Y Missed Contributions + Interest Y Y N/A-Interest Only

OPFPF N/A-Interest Only SERS Y Employer Pays For Any Service After 7/91 N/A-No Interest

School Board Service OPERS Y Preceding 12 month salary x 20% Y Y NORC 145.299 STRS Y 100% of additional reserve required Y PO N/A-Interest Only

OPFPF Y N/A-Interest Only SERS Y 100% Actuarial Liability Y Y N/A-No InterestY

OPERS Y Public Service Only Submit to STRS or SERS Y Ohio only Retirement Only

STRS Y5 w/ OOS, Fed &

Municipal Public-See Fed & OOS/Private See Non-Ohio Public Only Y-OH Public N/A-Interest OnlyORC 145.2910 & OPFPF Y Public Service Only 100% Actuarial Liability Y Y N/A-Interest OnlyORC 145.1911 SERS Y 5 1st Year Contributions + Interest Y Y N/A-No Interest

No Layoff OPERS N N/A N/A N/A N/A N/ANo OPERS STRS N N/A N/A N/A N/A N/A-Interest Only Equivalent OPFPF Y 2 100% Actuarial Liability Y Y N/A-Interest Only

SERS N N/A N/A N/A N/A N/A-No Interest

Page 3

No Max

No Max

Purchase Transfer of OPERS Servcie to

OPFPF/Hwy P./Cincinnati

** Contribution Rate Difference-OPFPF charges a higher contribution rate than the other system and requires the difference to be paid for service transferred or purchased, otherwise credit is pro-rated. Additionally, OPFPF only allows the purchase of fulltime service (37 1/2 hours per week).

* Covered in GRS report

Y Y

No Max Y

SERS

No Max


See Free Military

STRS Y Transferred Contributions Y

Y Transferred Contributions


Can be used toward

Ohio Systems Service Credit Purchase Comparison (Continued)

Documents

PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO