An Ohio House Representative introduced legislation that aims to cap how much retirement benefits school employees can receive.
House Bill (HB) 146, sponsored by State Representative Adam Bird (R-New Richmond), would establish a School Employee Retirement System contribution-based benefit cap to prevent pension spiking.
The School Employee Retirement System benefit formula multiplies 2.2 percent of a member’s final average salary by years of service to determine a pension amount. The member’s final average salary is the best 3-year average of compensation.
According to Bird, pension spiking occurs when an individual has years in the final average salary that are significantly higher than expected from traditional compensation increases, the individual monetary contributions are not proportional to their final average salary. To support the retiree, other School Employee Retirement System contributors must cover the inflated benefit.
To prevent “spiking,” HB 146 would implement a Contribution Based Benefit Cap. The Ohio Public Employees Retirement System has used a Contribution Based Benefit Cap for the last 10 years.
In the legislation, the Contribution Based Benefit Cap is calculated by the actuarial equivalent of the Member’s employee contributions, multiplied by a factor selected by the retirement board. The formula benefit or the Contribution Based Benefit Cap method, whichever is smaller, is the limit on a member’s pension.
Bird said that the Contribution-Based Benefit Cap won’t affect benefits from typical income growth, promotions, or job moves. It will only apply in instances when a School Employee Retirement System contributor’s employment has included an excessive wage increase.
According to Bird, this legislation helps ensure all retirees get the compensation they deserve.
“Simply put, House Bill 146 aims to align with the premise that a member’s contributions plus investment earnings over time should fund the member’s pension. We want to ensure all retirees get the compensation they deserve,” he said.
Senate Republicans introduced a similar bill, Senate Bill (SB) 347, last year but stalled in the Ohio State Senate Insurance Committee.
The Ohio Retirement Study Council and School Employee Retirement System stakeholder organizations School Employee Retirees of Ohio and Protect Ohio Pensions support HB 146. There are currently no organizations opposed to the proposal.
According to Steve Buehrer from Protect Ohio Pensions, HB 146 represents prudent policy.
“We believe that HB 146 represents prudent policy that will allow the Board of Directors of the School Employees Retirement System to take necessary steps to administer the pension in a way that will ensure long term stability of its defined benefit mission,” Buehrer said.
The Ohio State House Pensions Committee approved the legislation late last month, and now moves to the house floor for additional consideration.
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Hannah Poling is a lead reporter at The Ohio Star and The Star News Network. Follow Hannah on Twitter @HannahPoling1. Email tips to [email protected]
