March 25, 2026 · Public Insurance and Pensions Committee · 14,168 words · 10 speakers · 172 segments
House Public Insurance and Pensions Committee. Call me in your order. Clerk, please call the roll. Chair Peterson? Yes. Vice Chair Tesco? Yes. Ranking Member White? Present. Representative Byrd? Yes. Representative Claggett? Has checked in. Representative Brennan? Here. Representative Glassburn? Here. Representative Matthews has checked in. Representative Miller? Representative Rumer has checked in. Representative Swearingen? Representative Thomas has checked in. Representative Young? Here. Thank you. We have a quorum, so we'll continue as a full committee. The first item in business is the minutes from the previous meeting have been distributed. Are there any additions or corrections to those minutes? If not, I move that they be approved without objection, and seeing no objection, they are approved. First, we'd like to call up Substitute Senate Bill 263 for its first hearing.
Senator Rogner, thank you for joining us. Thank you, Chairman. Chair Peterson, Vice Chair Teska, Ranking Member White, and members of the House Public Insurance and Pensions Committee, thank you for the opportunity to provide sponsor testimony this morning on Senate Bill 263, which upon enactment would make changes regarding professional employer organizations and alternate employer organizations under the unemployment compensation law. I was contacted by a business in my district, Group Management Services, GMS, which is headquartered in Richfield, Ohio. They had identified an issue with our Ohio Revised Code that was causing them to file many more reports than was necessary. They had reached out to ODJFS, who had agreed with them in principle, but pointed out that the law needed to be amended to correct this inefficiency. Quite simply, Substitute Senate Bill 263 would allow professional employer organizations, whether they would like to file unemployment wage and contribution reports with ODJFS on behalf of their clients in one filing rather than filing individual reports for each client. The bill does this by providing an exception that, quote, a professional employer organization or professional employer organization reporting entity may elect to report shared employees of a client employer under the account and experience rate of the professional employer organization or professional employer organization reporting entity by giving notice to the director, end quote. The committee will hear directly from a representative from GMS who will be able to share firsthand experience of how cumbersome the process is today and what Senate Bill 263 would mean for them in terms of cutting government red tape and increasing efficiency. I'm also thankful for the work that ODJFS put into helping us draft this legislation, and I'm grateful that they are in full support of this bill. The committee will also hear from ODJFS, as they will be providing proponent testimony as well on Senate Bill 263. I'd also like to thank Bob Blazer and the National Association of Professional Employer Organizations for helping us refine this bill. In summary, Senate Bill 263 seeks to clarify the language of Ohio Revised Code 4141.24. This section currently states that a PEO is the employer for reporting purposes and requires that each shared employee of a single client employer be reported under a separate and unique subaccount of the professional employer organization. The proposed change to 4141 will provide clear authority for the PEO to file under one concurrent employer account aligning with the intent of the Common Paymaster Program I would like to thank again Chair Peterson for allowing the proponents to come in today as well And I thank you for the opportunity to provide testimony today. I'd be happy to answer any questions at this time, although I will say some of the more detailed questions would be better for the proponents. With that, thank you for your attention.
Thank you for your testimony. Other questions for the witness? Representative Brennan.
Thanks, Madam Chair. And if you prefer me to save the question for the proponents, that's okay. Thanks for coming in, Senator.
My pleasure.
You've had a busy week.
Yes.
So to what extent could this proposal enable businesses to reduce their unemployment tax liability
by affiliating with a PEO or AEO that have a more favorable experience rating? Yeah. So to the Chair, to Representative Brennan, thank you for the question, and I would like to defer that question to our proponents that are here today.
Yes, Representative White with a question.
Thank you, Chair, and thank you, Senator, for coming over. And as a fellow legislator, I wanted to ask you, how do you feel that this would help people in our districts by supporting this legislation?
Well, thank you to the Chair and to the Representative for your question. So this bill will not only help, PEOs help small businesses, right, small businesses that would like to focus on their core competencies of whether they're creating a product or a service and then basically delegate their administrative work. And PEOs handle everything from hiring to firing, sort of the HR component. They're managing that. So the businesses can focus on what they do best. So, you know, helping PEOs to do their work more efficiently will also then, you know, thereby help the small employers and thus in some small way also help the employees as well. This bill, I did neglect to mention, passed unanimously out of the Senate committee, also passed the Senate floor unanimously as well.
Other questions? Thank you for being with us.
Thank you. Have a great day. Thanks.
And because of some of the technical nature, we did go ahead and have Will Hart, Mr. Hart. Thank you for being with us today.
Thank you. Good morning. Chairman Peterson, Vice Chair Tesco, ranking member White, and members of the House Public Insurance Pensions Committee, thank you for allowing me to testify today as a proponent of Senate Bill 263, and thank you, Senator Rogender, for introducing this legislation. My name is Will Hart. I'm the vice president of peril tax at Group Management Services, GMS. We're a PEO, professional employer organization, headquartered in Richfield, Ohio. To begin, I'd like to provide a high-level overview of the services delivered by a PEO. PEO manages comprehensive human resource functions for small and medium-sized businesses, streamlining the higher determination processes and policies. This enables business owners to focus on their core competencies while we handle essential but non-revenue generating administrative responsibilities. We manage employment processes starting with new hire applications, screening, onboarding, and tax setup. Throughout the duration of employment, we calculate and fund payroll from a PEO bank account. We pay child support and maintain a full complement of benefit and 401k packages. We also manage workers comp claims safety policies voluntary benefits and unemployment claims Our service agreement covers the full suite of HR responsibilities GMS is recognized federally under Title 26 Section 3511 of the Certified Professional Employer Organizations. To maintain our certification, we are required to maintain a $1 million federal bond and undergo mandatory quarterly audits by an accredited CPA. Being certified by the IRS makes GMS the successor for tax purposes and allows us to file one federal payroll return and one set of W-2s under our Fed ID number. 21 U.S. states already offer PEO-friendly programs, which allow the PEO to file unemployment tax returns under their account. In December of 2024, ODJFS approved a rule change which allowed for a concurrent employer program, also known as a common paymaster, effective January of 2025. A concurrent employer is defined in Section 4141.13 as the employment of an individual with at least two substantially commonly owned, managed, or controlled employers during the same period of time. GMS has no control or ownership stake with the client employers. However, our co-employment agreement does permit us to manage HR benefits, workers' comp, unemployment, payroll tax, and other responsibilities. The purpose of the Paymaster Program allows the PEO to file a consolidated tax return, combining reports for co-employers instead of filing separate returns for each employer. As highlighted in the Senator Rogner's testimony, Senate Bill 263 seeks to clarify language of the Ohio Revised Code, Section 4141-24. The section currently states that a PEO is the employer for reporting purposes and requires that each shared employee of a single client employer be reported under a separate and unique subaccount of the PEO. The proposed amendment to 4141-24 will provide clear authority for the PEO to file under one concurrent employer account, aligning with the intent of the Paymaster Program. While my written testimony could go much longer, I'd like to respect the time of the committee and allow for questions. Thank you.
Thank you for your testimony. Would you like to address Representative Brennan's question about experience rating, whether it can be hidden specifically within the group, or do you want to punt to Mr. Barger?
No, I can address that, Chairman. The Common Paymaster Program combines the experience of the employers in that program. So if a client has a 1% and someone has a 6%, ultimately the Paymaster Program combines the experience of all those employers under one rate. So yes, an employer might have a 1% rate, but we're going to be paying it 3%. Someone might have an 8% rate, but we're going to be paying it 3%. whatever the combined rate is of the clients in the Paymaster program is going to create one rate combined with all of them.
Other questions for the witness? Professor Brendan.
Thank you, Madam Chair. Thanks for being here today. Appreciate it. What's that? Did I say Madam? I didn't say Madam. Mr. Chair.
You may ask the question.
I just came out of another committee, so I apologize. I haven't had my coffee yet, if you can't tell. Well, thank you. So could this proposal enable businesses to reduce their unemployment tax liability and workers' compensation premiums by affiliating with a business like yours that would have a higher rating?
Through the chair, no, sir. First, workers' comp and unemployment are treated completely separately. Two different bureaus, two different sets of tax returns. They completely calculated and treated separately Regarding the unemployment the goal of a PEO is to bring down unemployment We want to keep employees working We want to make sure that we bring employees that are laid off from one company We might be able to hire them somewhere else within the group. The goal is to bring down unemployment. I think that's all of our goal is to bring down unemployment, and that's what a PEO strives to do. Regarding the rate itself, the rate's going to be combined with the employer's experience from 700,000, 800,000 clients, whatever it might be.
Mr. Chairman, follow up.
Follow up.
Thank you. What impact would it have on the unemployment system as a whole? Any at all?
Through the chair, certainly it would. I think the best way for me to explain it is, let's say I owed you $100. I could give you a $100 bill, which you'd probably be very happy with, or I could give you a bag full of pennies and nickels, hoping that all those pennies and nickels represent the actual penny and nickel that they represent. Everything would balance out and come out fine. You get $100 and a bag of pennies and nickels, or you get a $100 bill. the program will consolidate that to make sure that I can file a $100 bill and it's going to be right every single time. We're not going to be chasing down the pennies and nickels all over the place, and so would the state.
Other questions? Representative Young.
Yes, thank you, Mr. Chairman. This is a very good bill, streamlined. It makes a lot of sense and cleans up a lot of things. I do have a question. when you do a consolidation, when you do this consolidation and there's an audit or an error, who pays? Who is responsible for that, the PEO or the individual organization?
Through the chair. Employer. The PEO. So we're going to be filing under the concurrent employer account, which is assigned to the PEO, so to us. So if I make an error in reporting, a taxable wage error, for example, the bill is going to come to me and I'm going to research that. Now I might be able to tie that taxable wage error down to an individual employee or a client and have to work that out between the two of them, but the bill is going to come to me. I'm going to do all the research. Follow?
Yes.
And we're doing something new, which really should have been done a long time ago. We're fixing something that we were unaware of.
So when you do the pool arrangement, the contribution rates, are there a risk of changing that consolidation in the future? Do you see that – are there any controls over what we – over the consolidation rates in the future, rulemaking laws and so on and so forth? Are you following me?
Not necessarily.
Obviously, there's legislative risk in this situation, and it kind of opens the door for an opportunity to, not to be negative about it, but game the system in the future. Should we have some guardrails in there in regards to the consolidation and future rulemaking that could take place?
Through the chair, yes, I believe there should always be safeguards in place with taxes, but all taxes, not just unemployment. The process for moving employers into a Common Paymaster program, I believe, should have some rules set to allow some employers in and some employers out. I don't think we would want a penalty-rated employer in the program because they might avoid a penalty rate that they should be paying. I think safeguards like that are important for the program. Right now, they're not in it, but I believe they should be.
Okay. Thank you.
Representative White with a question.
Thank you, Chair. And thank you for being here to testify and answer questions. of processes that help workers, especially our small business owners, that a lot of times are workers. And so my question, I'm hoping that you'll be able to answer, and again, this is your belief, is if you believe that this change will lead more businesses in choosing to use PEOs or AEOs. And again, this is your belief in what you see coming from this bill.
Through the chair, I certainly hope it does. we want to bring employers into the PEO market to manage health care, HR benefits, claims, safety. We want to give small employers that may not have the workforce right now to manage their own processes for us to manage them. So yes, I do hope that legislation like this brings more employers into the PEO and AEO markets.
Can I ask one follow-up, Chair?
Continue.
Thank you. And this is a question I wanted to ask also. Does this change, interact, or conflict with existing federal law governing state employment insurance systems?
Through the chair, no, it does not. As I mentioned in my testimony, there are 21 other states that have PEO-friendly policies that allow a PEO to file under one return. We're actually trying to get maybe caught up, to be honest.
Thank you. That's all my questions. Thank you, chair.
Thank you for your testimony.
Thank you.
I see no further questions. We appreciate you being with us.
I appreciate your time. Thank you.
Next, we have Brad Barger with Proponent Testimony.
Thank you for joining us today. Thank you, Chairman. Good morning. Good morning, Chairman Peterson, Vice Chair Tesco, Ranking Member White, and members of the House Public Insurance and Pensions Committee. My name is Brad Barger. I'm the Assistant Director of the Ohio Department of Job and Family Services. Thank you for the opportunity to be here today and to testify in support of Senate Bill 263. ODJFS is responsible for developing and supervising the state's public assistance, workforce development, adult protective services, and child support programs. In addition to this, we also run the state's unemployment insurance program. Every day at ODJFS, we look for innovative ways to serve Ohioans more efficiently and effectively. When it comes to our workforce development unemployment programs in particular, it is important to listen to Ohio employers to make it easier to do business in the state of Ohio. For this reason, the department is in support of Senate Bill 263. This is a common sense reform that would allow professional employer organizations, also known as PEOs, to file unemployment wage contribution reports with ODJFS on behalf of their clients in one filing, rather than filing one by one for each client. For some, this would mean a difference of filing once rather than hundreds of times every quarter. PEOs provide important functions on behalf of many employers, especially small businesses. This small change will have a big impact as it will cut down burdensome red tape and save employers time and money. At the same time, it should have no cost to the department. While this is a straightforward update, ODJFS does not have the authority to make the change in rule. We appreciate that Senator Rogner has sponsored this bill, which would allow for this reform to move forward. Thank you again for the opportunity to be here today.
Thank you for your testimony on this bill, and we appreciate the work that ODGFS has done on several of the other bills that we've wrestled with in this committee in bringing us good information. Are there questions for Mr. Barger?
Representative White. And I echo the chair with that. Thank you for your testimony. I just wanted to ask how long do you expect that this update will take to get in place Through the chair to the representative thank you for the question I would say it depends on how long it takes
to move through the legislative process, but I think we are anticipating that once it does, we will be able to enact it quickly.
Representative Young with the question.
Yes, thank you, Mr. Chairman. has there been a discussion with the state auditor on this because when you do all the consolidation and they go through this audit if there's 30, 500, 400 or whatever it is they have to seek through a lot of paperwork and transparency is really important especially since we're starting this very efficient process have you gotten any feedback from them?
To the chair, to the representative. No, thank you for the call out. We have undergone multiple audits. We've requested multiple performance audits from the state auditor and appreciate him and his office's willingness to help the state and ODJFS get better at what we do, be more timely, be quicker, be more accurate, and we'd be definitely open to doing that representative.
Thank you.
Thank you, Mr. Hammond. Thank you. Appreciate you being with us.
Thank you.
Next, I'll call up House Bill 719. Representative Hoops with sponsored testimony on House Bill 719.
Thank you, Mr. Chairman, and thank you, members, for allowing me to come before you today on this issue. I know I submitted, you know, testimony on this thing, but I guess I'd like to just talk about why I'm here and why I'm presenting this legislation. Because I don't want to get, I don't want this legislation to be a debate on, you know, what we should do with the pension funds, whether it's STRS or PERS or SERS or the Highway Patrol. So I think that's something that needs to be debated, but not here right now, but with the pension funds who really understand it. Why I'm here today is how this was put into the budget. I'm a process guy. and when we do things, especially major things like this, which affects over 550,000 teachers and people who are part of the STRS process, I know there was discussions being made about what they wanted to do, but I felt, and I was not happy with it. In fact, this is one of the reasons why I almost didn't vote for the budget, and that would have been the first budget that I never voted for because of this. In fact, my wife even texted me, Deb, because she was a teacher, and I was on the House floor getting ready to vote for the budget, and she said, Jim, this is in here. You can't vote for the budget. And she's never done that before. And so I started looking into it, and I'm not saying, you know, the way the budget language is now, that might be what we end up with. It's just the process on how it was put in there and what this language will do is basically just undo and bring it back to what it was before. That all I asking the committee to look at this and not get into the debate of well what should we do How should it do it I think we need to go back to the beginning look at the language and then debate on how we want to not only the STRS funds but also all the other funds, too, and bring it together. Because all of us realize how important the retirement funds are for all of us, whether it's public or private retirement funds, because that's what we are going to survive on once we get out of the public or the private sector. And so I just feel we need to take a step back, and that's why I introduced this because I feel it's the right thing to do. And the other thing is, you know, is a happy wife is a happy life. And I really respect what she said because, again, you know, she doesn't usually bring things up like that, but I just ask the committee to really look at this, take a step back, undo what we did in the budget, and then start over and really debate what we want to do. I mean, I can go into the testimony, but I thought, you know, and this kind of brings up why it's important to get back to it, but I feel the main focus is to make sure, you know, we undo what we did and let's start over again. and take a look at that. So I'll stop there. If anybody has any questions, I'll be glad to answer them. So hopefully the bill will proceed and we can get this done and taken care of and then move on. Thank you, Mr. Chairman.
Thank you. Other questions for the sponsor?
Representative Brennan with a question. Thank you, Mr. Chairman. Rep Hoops, thank you so much for bringing this piece of legislation. I was so happy to hear that you were going to be carrying it and happily co-sponsored it. I'm hopeful that it will sail through the legislative process, particularly when we get back after our break that's going to be starting next week. You kind of anticipated a lot of what I was going to ask. I was dumbfounded when I saw this provision in the budget last year with, as you alluded to, essentially no discussion done in the middle of the night we got the budget the next day and were told to vote on this thing. And I don't even think a lot of people probably knew this was in the budget that we voted on. So I commend you and your wife for noticing that. As a former school teacher and retiree, STRS contributor, and now on the other side of it, I was very concerned. So I guess what I would ask is, Do you feel the bill responds to the concerns that you're hearing from educators and retirees that they've raised about transparency and representation?
Oh, I feel, Mr. Chairman, I feel that, again, what I heard from teachers, because it wasn't my wife, you know, I heard from, but then other teachers, other friends who were teachers, and then across the state, their biggest issue was just the process on how it was done with this issue. and I'm not going to fault anybody. I mean, the budget, there's a lot of things going on. I mean, there were other things I didn't agree with in the budget either, but, you know, the budget, that's one thing I think we need to really look at in the future is when we start putting a lot of policy into the budget, you know, then you're kind of like, well, do I vote for it or not vote for it? Because there's good things in there too. But this one just particularly hit me hard because of the impact it was going to have on so many people who I think do a really good job out there And again I not saying that what the language does I not going to agree or disagree I think there's some things we need to change on it, but let that occur in a transparency. Representative Young talked about transparency in the last bill, and I think we just need to look at it because again this is so important to so many people and we just need to make sure we do it right going forward not just the STRS but all the other pension funds too. Thank you.
Representative Bird with a question.
I don't have a question but I really have to leave for Rules and Reference Committee and I just want to make sure we're always coming and going but I just want to make sure that you understand that I'm leaving for a commitment I can.
Nope, that's fine.
No disrespect to you or the bill. No, not at all.
All right, thank you.
Again, Chairman, Representative Byrd, this is something I think we need to talk about and really look at this thing. So let's just take a step back, and I appreciate the work that you do on the pension fund, the committee, and I think this is just one thing that I felt needed to be talked about. So thank you.
Yes, I probably should echo, for people who aren't familiar, You know, certainly we've got some empty seats, but they've checked in. They've been here. They'll pay attention. They'll catch up on the testimony later in the day or later in the week because there's a lot of committees going on.
Representative White with a question.
And then Representative Miller. I haven't forgotten.
Thank you, Chair. And thank you, Representative Hoops, for being here. And I share your sentiment for today. And I also want to add in there, life is a happy wife. That is the truest. and working together is, sorry, I might be a little slanted on that one, but I do want to say that working together on this is important, and sometimes the best start we can have is starting over, starting from where we were in the beginning and going back to that point and working together where we should do things out in the open and in a transparent way in having everyone at the table, especially those who are doing the work. And so my question to you, and I hope, if it is a question, if it is just we need to go back all in talking together, working in a bipartisan manner and having those at the table who do the work, are there any suggestions from you in being a long-time legislator, someone to me that is just starting, how do we begin doing that, and are there any suggestions and how we do that together.
Mr. Chairman, Representative White, I think it's just being transparent, communicating, talking about issues. And I'm not saying this wasn't discussed at all. I mean, I don't know exactly what was all discussed before that. I just feel in this situation, it just happened to appear, and there really wasn't any actual discussion on such a big issue here. you know they might have been discussing it in the committee or in groups but I just felt since we're all part of the budget process that I think we should have you know not put it in there but continue to talk about it and they may have come up with the same you know ending I don't know I mean but I just feel that it's something that we just need to take a step back and undo what we did and then move forward and make sure all the pension are looked at because they're all important to everybody here.
Representative Miller with a question.
Thank you, Chair. Thanks, Rep Hoops, for being here. Yes, I think that a lot of times we don't really vet stuff. I do appreciate our chair of this committee for giving us all an opportunity to really dig into the bills that come before us. So kudos to our chairman and vice chair for how they handle this committee but you had stated that this House Bill 96, a budget bill, gets a lot of really truly unvetted language in it, and that this almost had you not voting for it. I didn't vote for House Bill 96 for many reasons around education, this being one of them. And so I want to ask you, do you believe that the way you have this set up is a good starting point to really bring balance to the representation upon this particular board? Because it appears to me that there was somebody in the powers that may be that had their, you know, britches in a bunch and didn't like somebody or something about the STRS board, so they're going to punish it by stripping away educators who are the investors into this fund from having any say in it. Do you think this is a good starting point? And then the second piece of this is, do you feel that the dollar amount for sitting on this board is an amount that needs to be paid? Or is this something that should be part of your commission responsibilities?
Mr. Chairman, Representative Miller, I'm not going to answer any of that because I'm not sure. All I'm saying is, because then we start getting into this, you know, he said, she said, and we need to change this, and then we're not going to get to what this bill is trying to accomplish. I think we need to step back, and the first thing we should do is just undo what we did and then start to have those discussions, and not just with STRS, but with all the pension boards. And, I mean, I think that's the way we should do this, because I don't want to get into the, way into the weeds, and then we don't get anything accomplished.
All right.
So you're introducing and not debating. Thank you. Yeah, that's my follow-up. So you're introducing and not debating. Thanks, Chair.
Representative Young, one question.
Thank you, Mr. Chairman, and welcome. So there were many things that led up to this decision, and I think two or the three last years have been front-page news stories about STRS, and I know that you were speaking about the other pension plans, but this is specific to STRS. is there anything about the decision to put this into the budget that you like?
I, no, I think, and again, Mr. Chairman, Representative Young, I feel that I don't want to get into those type of discussions because I think, first of all, we need to undo this, start over and then start talking about those type of issues that you're trying to bring up. I just feel again this is a very important issue for a lot of people And then you get into the other pension funds because who knows what going to happen next You know with what happening around the world I mean, pension funds who look great today could be down here because of just everything going on. So that's another issue there. But I just think that we need to undo this and then start over again. Follow-up, please.
there are some very positive things that were added this do i like the fact of the way it's done you know as well as i do the committee process is very important absolutely but there are positive things that were done that i would believe would have to stay the same but are you aware that there was a huge risk from the investment portfolio which really started this discussion to say we have to do something before something bad happens to the pension plan. That's what I'm concerned about. The retirees, it's very, very important to them, and I've spoken to many of them as well. So do you understand the basis of why there had to be a decision?
Well, Mr. Chairman, Representative Young, I mean, yeah, I know. in the past three or four years, there's been issues with the pension fund, just like the other funds, too. I just feel what happened in the budget should not have happened that way in that we just need to take a step back and then continue to discuss those issues because you're absolutely right. There were some issues in that account, in that pension fund, just like the other ones, too, and we need to look at, okay, how are we gonna keep that from happening again? But I just feel the way it was done wasn't the correct way. I mean, that's all I'm saying.
So I'm not gonna agree or disagree with what you're saying.
Yeah, I get it, thank you, thank you.
Representative White with a question.
Yes, thank you again, Chair.
And Representative Hoops, I appreciate you sticking to just that, is that going back and starting over, And again, Representative Young, I like you also what you said, and I wanted to build on that, is that making sure when we start over, we get the people to the table, and that is the people that lost their voices there, which are the educators, the retirees, those people that are no longer a part of that committee. So starting over, people like your wife, allowing them, even the people that are sitting in front of me, Rep Miller and Rep Brennan, who are educators on this committee, and many of those who are sitting in the audience today, that are educators that were removed, their voices were removed from being a part of the committee. And so when we say reset, refocus, and get back to the root of that, and so even the root of having those people are saying, yeah, we want to make sure we're restoring confidence in our pension systems and STRS, and that's important. So going back to my question, and I hope you can, because it is from your perspective, is saying making sure those educators are represented and why that's important, even in STRS as we're working on refocusing that. Why is it important that those who are part of the pension systems, all the pension systems, why it's important that the workers who are retirees have a voice in their pension systems? well Mr. Chairman
Representative White again
this bill only is just
undoing that but I think it is important that you have people on the boards to you know to help with it but again those are the kind of discussions that need to happen you know not only with this pension fund but with all of them I mean I can tell you I not much of a rabble rouser and I really don you know I accept things, and I'm usually behind the scenes person where I'll go and talk to people, but I just felt this issue was so important because it affects so many people, and I know Sometimes there's got to be things put in the budget at the last minute. But this one I felt was just different. Again, especially with my wife texting me and never doing that before. So that's why I'm here today.
Representative Glassberg with a question.
Thank you, Mr. Chair, and thank you, Representative Hoops, for bringing the legislation forward. I understand the narrow point that you want to make with this of the process and starting from a committee process. But I think there's one really big underlying fact of this for as we move forward in considering your bill, which is there are other states where the state has an enduring liability.
If the pension fund comes up short, they have to pay. We're not one of those states. That's correct.
And so I guess I somewhat asked this rhetorically, but if you do want to opine, if once we pay the money and it's not our money anymore, we don't have a liability, why should any of us as state legislators have any authority over who's on this board? Shouldn't it entirely be the active members and the retired teachers? Because it's their money. It's not our money anymore. So if you have any thoughts on that.
I mean, those are the kind of things that we need to discuss. but you're absolutely right. If something does happen to these, we really don't have the obligation of putting money into those funds. Thank you. Those are the kind of points. I'm sorry, Mr. Chairman. Those are the kind of points that we have to discuss and really look at this. Thank you.
Representative Brennan, did you have another question?
Thank you, Mr. Chairman. Always, I know. Thanks. And thank you for that question. That was a good one and point. So, you know, I just want to say for the record that, you know, being a member of the Ohio Retirement Study Council, we had one hearing where we brought in two individuals to talk about structures of pension boards around the country. That was the extent of the conversation we had. We never talked about potentially changing the STRS board. There were no proposals, no votes on anything related to that. So this was a big surprise when it showed up again in the budget. And I felt that it maybe sent a chilling message to our other pension boards and pensioners around the state. We've got five of them all together, as we know, state employees retirement, the OPNF, the Highway Patrol, and PERS, along with STRS. Would you agree that when you do something like this with no discussion in a non-transparent manner, that that could have a chilling effect, a chilling message to other boards as well?
Thank you, Chair.
I'm sorry, Mr. Chairman, Rep. Brennan. I think discussions are always important when you deal with very important issues, transparency and discussions, how it was done. I guess I don't really want to get into that. I want to move forward and figure out what do we need to do here right now with this, undo this, and then move forward, and then have those discussions. Because I don't think it's a party issue. I just think it you know it just something I think is the right thing to do And that what I want to do with this bill is move it forward and then start you know continue to have those discussions on what we want to do with these pension funds
Jefferson Young with a question.
Yes. I would just like to make a comment. If something would have happened to the pension plan, the STRS plan, and there was a void of $20 billion, $40 billion, you better daggone well believe that everybody sitting in this caucus and this Senate would be responsible for replacing that money. Fact. And you are a rebel rouser.
You may respond to that comment. Any of those comments if you want to?
No, Chairman Peterson, Rep Young, you're absolutely right. If something would happen to those funds, even though we're not obligated, and that's why I think we have some time here to take a step back, undo this, and talk about those issues that were brought up and the comment that you were made and really make people understand that the state is not obligated, but you're absolutely right. we'd be getting a lot of calls from probably my wife to begin with going, hey, you've got to do something. And, you know, so I think this will give us an opportunity to talk about those issues, like just what you said. So I have two quick questions I'd like to delve into just a little bit.
Continuing to represent Young's earlier question, the STRS board, no secret,
has had a lot of ups and downs, disruptions over the last few years. and you know in the best case scenario this was a legislative response to some of those challenges trying to right the ship and so they've been a year under the new format that we passed last year in the budget do you think going back which is what your bill does going back is that going to be that certainly is going to be disruptive again do you want to talk about the pros and cons of disrupting that board again Chairman Peterson, I think if you're looking at the news, the courts have basically not allowed any changes yet. I mean, it's still in the courts, so there really hasn't been any changes. And I think they've done a lot of good things already based on what I've read with investments, with the board. They've already done some really good things based on the way it's running now. But the courts have kind of put this on hold, and that's why I feel this is a good time to undo things, and then that will be one less case the court has to deal with. And then the other question is, as we've all talked today, there was limited public opportunity for debate, or no public debate on this issue. But there was, as I recall, very extensive. I don't get invited to the Democratic caucus very often. or ever, but in the Republican Caucus that day, we spent well over an hour, I believe, debating this very specific point. I just want to make sure to get that in public record that there were no surprises that this was in the budget. We knew what we were doing, right or wrong, whether we agreed or disagreed, but it was debated amongst the caucuses.
Thank you. Other questions? Comments? That concludes the hearing on this bill. Okay, thank you. Next, I call up House Bill 73 for its third hearing.
Thank you for joining us today. Thank you so much.
Chair Peterson, Ranking Member White,
members of the House Public Insurance and Pensions Committee, thank you for the opportunity to testify. My name is Karen Karaher. I am the Executive Director of the Ohio Public Employees Retirement System, which is Ohio's largest public retirement system, representing 1.3 million active, inactive, and retired members, and we hold assets in trust of exceeding $130 billion. I'm here today to testify in opposition to House Bill 73, a bill that would impose an unfunded mandate on OPRS, namely to establish a Deferred Retirement Option Plan, referred to as a DROP, for members participating in our Law Enforcement Division. OPRS strongly opposes the DROP legislation because it does not address the root issue it is trying to solve, which is an employment issue, not a retirement issue. It imposes significant costs and complexity for the benefit of a very small number of members and creates actual risk for the retirement system. Throughout OPERS history, the OPERS Board of Trustees has been very proactive in examining the system's pension and health care plans to ensure that OPERS is properly meeting our mission, which is to provide a secure retirement for our members and their beneficiaries. OPRS also takes our fiduciary responsibility very seriously, and we strive to follow the legislature's expressed desire to continue to reduce our unfunded liabilities. To meet those goals, OPRS scrutinizes existing benefit structure and the potential impact of proposed legislation. We carefully consider how to incent members to take desired actions, and we carefully evaluate how the benefits are funded. This piece of legislation would add a benefit enhancement to a very small group of members in a manner that is not necessary as we feel there is already a vehicle to achieve similar outcomes. OPR has evaluated adding a drop program over the years, but instead determined that we would use a partial lump sum option plan. We love acronyms, so we call that a PLOP, which would be available for all active members, for all members that were retiring. It's more fair, it's more efficient, and it can truly be implemented in an actuarially neutral manner. We strongly oppose House Bill 73 for the following reasons. One, the drop benefit design of this bill creates a liability risk. Number two, the bill attempts to address an employment problem, not a retirement problem. Number three, the cost and complexity are high, benefiting very few members. Number four, the existing PLOP provides better benefits for members. And number five, the proposed drop is not actually neutral. Let me explain some of these in detail for you. So with respect to the rich benefit design that creates a liability risk, this bill is proposed. It materially changes OPR's benefit structures in a way that is inconsistent with how DROP operates in the other Ohio systems, and it's incompatible with our funding model. Let me highlight a couple of critical design issues. As introduced, this bill creates a DROP that is materially richer than the DROP in Ohio's other law enforcement and retirement systems. Unlike Ohio Police and Fire Fund, Pension Fund, and the Highway Patrol Retirement System, this proposal would require that we have returned 10% of the members' contributions, our credit interest during the drop period, and apply a cost of living adjustment to the drop accumulation itself. At the same time, OPRS receives lower combined employer and employee contribution rates than the other systems. This mismatch, a new benefit program without corresponding funding, introduces real financial risk that those systems are structured to absorb, but we are not. For direct comparison the Ohio Cleason Fire Pension Fund provides members with 50 of a 12 member contribution rate in years 1 through 3 moves to 75 of that 12 contribution rate in years 4 and 5 and then tops out at 100% in years 6 through 8. The bill, as written here, would require OPERs to pay 10% of a 13% member employer contribution rate in all years of the drop. By contrast, the Ohio Highway Patrol Retirement System gives drop participants 10%, but they They have a 14% employer contribution rate, and if you compare all the systems, the total contribution rate, both member and employer, OPRS has the lowest. The bill also requires that an annual cost of living adjustment, which is provided to current retirees, be added to the drop benefit, and yet this is another difference between this bill and the other law enforcement systems. Additionally, the bill introduces health care component into law. Our health care funding is, our health care program is not statutorily guaranteed, nor is there any separate funding provided for health care and therefore should not be considered. In short, this bill layers a richer drop benefit onto a retirement system that does not have the contribution rate structure or the population to support it. This bill also supports attempts to solve an employment problem, not a retirement problem. The driving force behind the request for drop option is not a deficiency in OPRS retirement benefits. It's an employment and workforce management issue, specifically the desire for employees to retire without employer awareness while retaining seniority or employment status. OPRS already offers two robust, financially advantageous options to members who retire and return to employment. The partial lump sum optional payment plan, which we call the PLOT, and we also have the money purchase plan, we call that the MP, for reemployed retirees. The combination of these two programs already meets members' needs without adding plan design complexity. Using retirement legislation as a workaround for employer issues misplaces risk on the pension system instead of addressing the root problem directly. The employment issue at hand can be resolved through collective bargaining at an employer level. And in fact, we have already seen several large employers resolve this through employment provisions, through re-employment provisions in their contracts. Additionally, OPRS law enforcement rules do not mandate a retirement age, and thus law enforcement members can continue to work and accrue retirement benefits, earning as much as 90% of their final average salary. By comparison, the Ohio Highway Patrol Retirement System has a mandatory retirement age of 60, and the Ohio Police and Fire Pension Fund's retirement benefit formula limits their members to receiving a benefit that is no more than 72% of the member's final average salary. The costs and complexity are also high, benefiting very few members. Implementing a drop at OPRS would require at least $10 million, and we could not get this completed for more than five years due to all the things that we have in the lineup. We have no category in our information technology for a partially retired member. Essentially, the addition of this drop would require us to reprogram every retirement-related system that we have, and especially given the nature of the application of the cost of living, and the disability, death, and survivor benefits, which grants participants a higher benefit than a retiree. This investment would serve less than 3% of OPERS active members, approximately 9,000 members, out of our over 330,000 active members statewide. Any required changes would meet clarifying funding source, and this proposal does not provide one. This represents a disproportionate use of system resources with minimal system-wide benefit. With respect to the fourth point, OPR's existing PLOP, combined with the money purchase plan, provides a higher level of benefits for our members. Given the results of the financial comparison between OPR's money purchase plan and PLOP, it's unlikely that members would choose to participate in the drop, which may render the implementation costs unwarranted. Our analysis shows that OPR existing PLOP and MP options are actually more financially advantageous for members than a drop while also maintaining the system integrity In every scenario we model the PLOP yielded a benefit that was financially more beneficial for the member than the drop Additionally, the PLOP and MP already exist and does not require development, implementation, or education outreach. More importantly, the PLOP is actuarially neutral. Finally, the proposed drop is not actuarially neutral. Actuarial neutrality describes the comparison of different benefits and suggests that the ultimate payout from the system is the same. True actuarial neutrality can best be determined at payout when most factors are actually known, other than the fact of when they're going to die. But this is the case with our plot. With the proposed drop, it has a predefined benefit structure, which is richer than the ones that exist in the other retirement systems today. And additionally, defining the structure in statute does not allow for future updates without legislative approval. Given that all members will select the benefit structure that best serves them based on their individual circumstances, they will and should always pick the benefit structure that would be best for them. So we strongly oppose adding an additional benefit structure defined in statute with limited options for adjusting based on experience and changing future factors, and it's only available to a small subset of members. In summary, I want to just kind of summarize by saying we strongly oppose this proposed legislation. We work very hard to address our unfunded liabilities and to ensure our system is funded by our available resources. We respectfully urge the committee to reject this legislation, and I'm happy to thank you for offering me the opportunity to testify today, and I'm happy to answer any questions.
Thank you for your testimony. I expect our CPA on the committee enjoyed your testimony and wishes you had presented more numbers to us.
Representative Romer with the question. Thank you so much, Chairman. Thanks so much for coming in also. and I've got a really easy question, I think. It is a numbers question, Chairman, but can you give us an idea of how many people that this impacts and the types of law enforcement that would be included in PERS? Because I'm not aware of that. So is this a significant population? I think you said it was a small subset in your testimony. Could you give us just a little bit of background, please?
Through the chair, Representative Romer. So from one CPA to another, I always enjoyed numbers. Yes, our law enforcement population is basically, it's kind of a hodgepodge of who's in that, I will tell you. It is defined by legislative statute. You have to meet the criteria. But we have a lot of the sheriff's division. We have SWAT officers. We have part-time police officers. And then there are some others that kind of get thrown into that category. In total, we have about 9,000 members of active members. I can tell you specifically, I want the whole numbers because I do love numbers too. We have 8,037 active members, 1,686 inactive members, 6,000 retired members for a total of 15,000 members.
Excellent. Thank you. And no follow-up.
Professor Young with a question. Yes, I do. Thank you. I call this bill the plop, drop, and roll. so my question is you outlined in detail why you don't want to do this and I don't really understand because it's not convincing to me and the reason why it's not convincing to me is the fact that we're talking about a very small group of people that may take advantage of this period case closed And in the past it has been done effectively and we looking at you looking at it from the standpoint of 15 people doing this potentially or 9 people doing this potentially even though we talking in essence about a very very small number Isn't that correct?
Through the chair, Representative Young, thank you for the question. So I agree with some of that, and I would disagree with some of that. So I do like your title of it. I could use that in the future. But with respect to it, yes, there's only about 9,000 members. As I said, we already have a PLOP, which basically allows any member that retires the chance to take part of their benefit retirement in cash. You can take up to six, between six and 36 times your final average salary in cash. So each person is making that decision. I said it's actuarially neutral because we are calculating, and those factors are changed constantly based on our actuarial studies. It's based on everything that happens. So they have that chance, and it is actuarially neutral, so they get the cash. Then we have a program for the money purchase so they can go back to work and get that. There is no need for a drop. And when we actually modeled, and we modeled high earners, low earners, medium earners, all different types, to be able to compare the two. and when you actually compare the two, our existing PLOP is better. The purpose, as I understand it, for the drop in the law enforcement systems is they have requirements, barriers to people working longer. From a pension system, we like people to work longer, and we don't have any barrier at the end to say you need to get out by a certain time. So if you don't have that need, the drop exists in those systems because they're trying to get them to kind of come back to work or work longer. We don't have that same need. So I apologize if my testimony didn't convince you and maybe my rambling doesn't convince you either, but that's kind of the background on that. Continue.
Yes. I personally feel that we can work this out, and do you think that there's any way of working this out? Through the chair, Representative Young,
I think it would be a waste of money to put this in. And, you know, we've talked a lot about how we want very much transparency. We want to make sure that all our dollars are spent in the most frugal and efficient manner. As I said, we use every dollar that we can to pay off the unfunded liability. So I do not think this is a good idea. Thank you.
And a couple quick questions. If I followed your testimony correctly, you suggest that there's a $10 million liability as you analyze the situation.
Representative Peterson, to be clear, it's a $10 million expense for reprogramming all the systems that it has to go through. We have two categories. You're either active or you're retired. You can go inactive, but you're just sort of dormant. We don't have this category, and this bill was created so that basically it cherry picks, and there's some things that the retirees get, we want to give that to them. There's some things that the actives get, we want to give that to them. so it's very much a whole new factor in our whole systems.
I want to make sure I heard you right in the previous question. The PLOP would apply to all members of the ERS.
That's correct? Representative Peterson, that's correct. Every member of OPRS has the opportunity to PLOP. And if this were to become law, the DROP would only apply to the law enforcement section? Representative Peterson, that is correct.
Okay. I'm sorry. Other questions? Representative Glassman.
Thank you, Mr. Chair. So there appears to me to be a pretty significant Big contradiction in this, and hopefully you can explain this to me. You seem to be reiterating that the PLOP is superior in every single way, amounts to more money for the beneficiary. If that is the case, then why would anyone ever select the drop, and why is this a problem?
Representative Peterson, Representative Glasburn, I would agree I don't think people would select this when we've actually educated people that we're interested in it. I think it's simply a matter of this system has it. We want that. We don't have it. And when we educate, they're like, oh, well, that makes some sense. Again, I think it would be wasting a lot of money to implement something that if we looked back and had to implement it and looked back five, ten years later, it would be very, very unused. Follow?
Thank you, Mr. Chair.
The second item that seems to be a big contradiction to me is the suggestion that this would take five years to implement, that this is such a large change. I mean, I've been part of ERPs with government organizations. It doesn't take people that long to overhaul systems, much less make a policy change. Are you really saying that you can't implement a policy change from the legislature in five years?
Representative Peterson, Representative Glaspern, thank you for the chance to clarify that. My statement means, as I tried to say in this testimony, that basically we have a large list of priorities in front of that. If this were forced on us, we would need five years because it needs to fit into the category. It is, again, there are a lot of major things that are in place before that.
Thank you, Mr. Chairman.
Representative Brennan with a question. Thank you, Mr. Chairman. I appreciate the questions from Rep. Glassburn and Rep. Young. They're very similar questions to what I was going to ask, but I've got others as well. You know, I'm dealing with a bill over the insurance committee with Rep. Lorenz, and we're getting a similar pushback, or we were, anyway, getting similar pushback from the insurance carriers that, you know, the cost of implementation was just going to be sky high. And, you know, with computers and algorithms and AI that we have today, I just find it hard to believe, but it costs $10 million to upgrade all the computers to simply onboard a new, you know, this new system. So where does that $10 million figure come from?
Representative Peterson, Representative Brennan, so first of all, let me apologize. I am not the computer person. When I talk about computers, I'm very, I use thingamajig a lot. But with respect to that, I mean, essentially, the contributions come in, you know, it gets It gets invested, and it's on the outflow side, basically. As I said, we have active members and we have inactive members. This would basically create a whole new set of systems that has to go through where we would take a person, a drop account. You put it out there. You now have to invest it. So it's got to be tracked separately and differently through that. You've got to then give them COLAs on that. Those only go to retirees. And then, by the way, if they end up becoming disabled, deaf, whatever, now we've got to compare the benefits and give the hire. It is extensive. I can't do justice explaining it, so I apologize. But I will tell you that I do know, and I don't doubt in the least.
Follow-up?
Continue.
When you were putting together the PLOP program, was there any discussion or looking into doing drop for all public employees? If here we're only talking about a small number, what about opening it up to all public employees Representative Peterson Representative Brennan we have the board has actually analyzed this several times It is almost a standing joke on
Let me finish my sentence. I don't want to misinterpret it. It's kind of a standing joke that one of our members of the board brought it forward, and when it was discussed, he actually then wasn't there, so they waited for him to vote for the next month when he could be there, and the vote was 10 to 1. So it is one, it has been discussed with our board before we have looked at it. Again, we feel like the PLOP actually works better for people. It doesn't restrict them. When we did all of our pension reform, we were basically trying to incent members to work longer. The pension changes were the stick, if you will, and the health care changes were the carrot to try to get those actions to occur. So we actually have it pretty well balanced right now, and people are using the PLOP. They do understand it. It's amazing for the non-CPAs how quickly people can become actually smart when they're trying to figure out, well, if I take this much in cash, how long do I have to live to make that balance out? They get it. So it's working.
Ms. Chernin, I'm wondering if she could provide any analyses regarding drop that they've done in the past.
Representative Peterson, Representative Brennan, happy to. We've shared that, and we will be happy to share it. Thank you.
If you get that to our office, we'll make sure all the committee say it.
Representative Miller, question?
Thank you, Chair. Thanks for being here. I've got a lot of information that's come in. It seems to me that contradicts each other, but I do understand how if you're bringing in a new system of payouts, you have to set up investment strategies. You have to define the matrix of how you're going to make sure that that new system doesn't negatively impact the rest of the retirees and those members that are in PERS. So my question to you is whether it's $10 million, $9 million, $11 million, there's going to be a cost for this. Is there, if something like this gets implemented, it's going to have to be put up in front of other priorities. What are some of the things that you could see possibly negatively impacting the rest of the 300 and some thousand PERS members that this would cause? What would you have to do to make up for this?
Representative Peterson, Representative Miller, it's always scary for me to speak on behalf of our IT division. As I said, I am not an IT expert. There are a lot of priorities. We are implementing a lot of changes with Ohio Deferred Compensation, I can tell you. We are implementing a new general ledger system because that system is actually being phased out. So there is a time in down that date. There's a lot of other priorities. So I can certainly give you a list. I'm not going to do a very good job articulating them here, so my apologies. If you want to share that with us, our office will be glad to distribute.
Continue. Thank you, Chair.
So let's not look at the $10 million cost. let's look at the actual actuary cost to returns and payouts and how this could affect other members. If this isn't actuary smart, if this isn't a good investment, how is this going to negatively impact the rest of the PERS members and their ability to receive the same or expected benefits in their retirement?
Representative Peterson, Representative Miller, thank you for the question. With respect to the actuarial cost, and it's very hard to determine what the actuarial cost is, but this was a program if you asked us to design a drop we would go work with our actuaries to ensure it actuarially neutral This one is designed it created basically from my perspective cherry kind of the best of all the ones that are out there and saying well here it is So we don't know how many people would take it. Again, especially if we continue to educate on our plot to kind of show, A, you have more flexibility with the plot, you have the control over the plot, and for us it's actuarially neutral. So with respect to the actual number and how funding would or wouldn't, it is, I can't say that per se. But I can tell you that, again, this is not the plan design we would do. And we would always have one that we would be able to change because actuarial factors change. People live longer in life. Again, we do those experience studies every five years, and those actuarial factors change. And once this is set in, we can't change some of these. Fair enough.
Thank you very much.
Person White with a question.
Thank you, Chair, and thank you for your testimony here today. I wanted to start off, and Chair, if I could ask one follow-up, just to start off with one short question. For law enforcement under OPERs, are they 25 and out, or do they do the full 30 years for pension credit service?
So Representative Peterson, Representative White. I never know because the reps are saying, thank goodness I have to kind of cheat and look. So with respect to our requirements for pension. And I'm just referring to law enforcement. For law enforcement, yes. So essentially we actually do have three groups. When we phased in our pension reform, we phased it in. We did not grandfather folks in, so we phased it in. So basically we have what's group A. They are 52 with 25 years of service, so age 52 with 25 years of service. Group B is age 54 with 25 years of service, and group C is age 56 with 25 years of service.
Thank you. Thank you for the follow-up. And so my question has to do then with the implementation of the drop to align, again, with the broader evolving workforce trends. do you believe allowing this option then will help with recruitment then since you have the different, again, not grandfathering then, but the phasing in and out, will this help then with recruitment rather than retention?
Representative Peterson, Representative White, I don't believe so, but that question is probably not the best situated to answer. I would tell you that I think that most people, when they are hired by someone, they're not necessarily looking at their retirement as the motivating factor on selecting that. I think this comes into play more as people get closer to retirement. And again, it does, I can see the need for it potentially in the law enforcement, the pure law enforcement systems where you want them to work longer, but they have that age cap or that cap on how much they can earn. We don't have that same situation. So ours can work for as long as they want to. But I can't speak to the, that's just what I've heard from folks.
Okay. Thank you.
Thank you with no further questions. This will conclude this hearing. And don't go too far. We now call up House Bill 424 for its third hearing. We welcome Karen Carraher with OPRS back to the podium. So Chair Peterson. So catch your breath. Yeah. It's all good. Let's start on the next one. It's all good. Chair Peterson, Ranking Member White, and members of the House Public Insurance and Pensions Committee.
As I said, I'm Karen. I won go through our statistics again But this one is this issue is really super important to us OPRS strongly supports the portability of benefits among the Ohio retirement systems and the Cincinnati retirement system House Bill 424 responds to an issue that arose more than a decade ago when OPRS asked the General Assembly to amend the law governing inter-system transfers with the uniform systems and Cincinnati retirement system so that those transfers would occur under the same conditions as for the non-uniform systems. So contrary to testimony that this committee has heard, those amendments were actually proposed as part of the broader pension reform and were considered for several years before being enacted in 2014. In addition, I personally discussed these changes with the Ohio Police and Fire's executive director at the time. The changes had two purposes. One is to minimize the subsidization between OPERS and the uniform systems by distributing the actual liability of transfers more equally, and two, to promote portability by making transfers among Ohio's retirement systems and Cincinnati retirement systems consistent. This consistency helps avoid system shopping, if you will, and ensures that members are treated equitably. So as background, the service credit transfers among Ohio's five retirement systems in Cincinnati were created decades ago to kind of maximize that portability for public employees. Since 1953, OPRS and the other non-uniform retirement systems, the school employees' retirement system, the state teachers' retirement system, and have followed the broad portability for members, which we often refer to as joint retirement. These provisions require two things. One is that service credit and contributions are all accumulated at retirement. And two, the system with the greater service credit is the paying system. These principles have allowed members to basically work in multiple systems, maximize their portability with few limitations, and concurrent service is not counted twice. In the late 1990s, the intersystem transfers between the non-uniform systems and the uniform systems, which are the Ohio Police and Fire and the Highway Patrol in Cincinnati, were established to create kind of the same level of portability for all members. From that time, however, the law imposed restrictions that limited OPRS law enforcement division members from transferring credit to uniform systems. Specifically, to transfer service credit to a uniform system, a member was required to be actively contributing to the uniform system. This kind of created an unequal playing field because all transfers to OPRS were allowed completely. After these inter-system transfer provisions were enacted, OPRS experience showed that while we might have equal numbers of transfers between OPRS and OPNF, the amount of service credit transferred was not. In 2014, OPRS amended the law to apply the two joint retirement principles uniformly to the inter-system transfers with Ohio Police and Fire, Highway Patrol Retirement System, and Cincinnati Retirement System. However, OPNF's restriction on transfers to OPNF was not changed, so unless the individual is in active service of a police or fire department, then basically they cannot, it remains in conflict with the goal of portability amongst the five retirement systems. So in 2017, we worked with the General Assembly to open a 90-day window between OPRS and OPNF to temporarily remove both sets of restrictions to service credit. to take advantage of the window, the member had to be eligible to retire within 90 days. All legislators and stakeholders at the time understood that the window was not a long-term solution and that was going to be left to future legislatures. I guess one additional comment about the window is creating that temporary window was not a reflection of failed policy. From the beginning, O-PERS has sought to make inter-system transfers consistent with joint retirement to reduce, if not eliminate, subsidization and to level the playing field across all Ohio systems. It's important to note that during this window, OPNF did accept transfers of credit for inactive OPNF members whose service credit was greater in OPNF. In other words, this approach can work in practice. We want members to be able to retire when they decide. However, we believe that the rules should be fair and equitable in place that support both retirement systems. The financial impact of a member retiring under current rules is that if a member transfers service credit from OPNF to OPRS, the member and the employer contributions transfer at the lesser rate between the systems. That is, OPNF retains the difference between their higher contribution rates and OPRS lower contribution rates. Additionally, there is no transfer of funds to pay for health care. So regardless of whether the systems offer an assured plan or a stipend, there is still a cost for health care. When the member transfers service credit from OPRS to OPNF, there is usually a formula reduction applied to their service credit which ends up requiring the member to contribute additional funds. So members should be subject to a set of rules that define which retirement system they retire from. What we would like is House Bill 424 would undo 2014 changes to OPRS law that were intended to promote equity and consistency between joint retirement and inter-system transfers. Recognizing that there is still an issue, we respectfully ask the committee to retain OPRS current law and instead modify OPNF's law by removing the active service restriction. This would allow service credit and contributions to be transferred in a more equitable and consistent basis. Simply put, the bill could be redrafted to remove from the revised Code 742.21 the active service requirement for the purposes of inter-system transfers involving OPRS law enforcement. The changes in OPRS law in 2014 were made to minimize subsidization and to ensure each Ohio retirement system is on a level playing field when allocating actual liabilities associated with inter-system transfers. To our knowledge, two justifications have been offered for preserving the active service requirement. One is that it has been in place since 1974, and number two, it's necessary to prevent civilian service from being used to qualify for earlier retirement thresholds offered to law enforcement officers. Setting aside the first justification, the second is not applicable. Unlike SERS, STERS, and Cincinnati, the OPERS Law Enforcement Division is law enforcement. It is not civilian service in the eyes of the state of Ohio. It has similar duties, similar training, and benefit structures. Law enforcement members should therefore be permitted to transfer service credit to OPNF. Doing so would resolve the problem described in our prior testimony, which keeps, which while keeping the allocation of the unfunded liabilities between the retirement systems as equitable as possible. The active service requirement is an unnecessary impediment to portability in today economy where public employees are more transitory than in past decades OPNF law should be modified to bring consistency and equity to the intersystem transfer process If OPNF is concerned with the types of service credit being transferred there are other solutions available If this solution is acceptable, all the remaining restrictions in OPNF's intersystem law transfer would remain intact. And I wanted to highlight an example of our proposed remedy. So, as an example, an OP&F member could have 18 years of service. They accept a position as a deputy sheriff covered by OPRS law enforcement, and they work seven years. Under the current rules, they cannot transfer under OP&F's law because they are under OP&F, because they are not active. But they also can't retire under ours because they don't have the most service credit, and ours they would need to work more. So this is a real problem. We do understand that people are caught in this, and we want a solution. So we believe this approach, though, is more equitable and accomplishes the objective of House Bill 424, removing the restrictions of service credit transfers among Ohio's retirement systems. Once this is accomplished, joint retirement and intersystem transfers would be permitted with the same conditions. So thank you for the opportunity to testify, and I'm guessing you guys have questions.
Thank you for your testimony. and just so I don't forget to say this later there is an extensive testimony from Mary Beth Folligoth that's written testimony. I encourage you to make sure you review that also. We do have another committee coming in in about 10 minutes so let's ask questions. Representative Miller has the first one but let's get through them quickly please.
We'll do it quick. We've got another meeting. I got you. Thanks Chair. I think the biggest thing is providing this as an option because we do have some people stuck out there in law enforcement. I find it disingenuous when we believe that we can go to the systems and tell them actually what is an accurate amount of years to the amount of time, to the amount of money contributed, and just say, here, we want this because this is going to give us a favorable outcome for this specific group. Do you believe that you could, your system could figure out a way so that this group is not left in lingo that goes from PNF to police and fire, excuse me, to, wait for the door to close. PNF to PERS Do you think that you guys could come up with a fair and equitable distribution and service credit amount so that they wouldn get stuck but yet it also wouldn hurt the other members of either fund and their ability to get the benefits that they are expecting?
Representative Peterson, Representative Miller, thank you for the question. It's an excellent question. I'd like to say yes. Reality is we are at an impasse, basically. you're correct I think I get very nervous when legislators start to try to define things in legislation as far as being actuarially neutral or anything like that because the reality is those numbers are going to change over time we need the ability in order to stay solvent and stay funded well funded we need to be able to adjust our actuarial factors so for example I told you right now if we that that 18 year member can't go back can't try it there they're stuck in limbo we definitely want to address that But if it were reversed and they had seven years in ours and their last 18 years were worked, they would move over to OPNF. They could take the money, but they would be taking the lower contribution rate, so the member has to pay more money. So, yes, there are actual ways to do it. But what we have right now is a big barrier. There's one system that says we're not going to change this. You have to be active to come in our way. And we have looked around the country, and we can't find another system that does it like that. We've asked for decades why. and the first time we've ever really heard anything other than that's the way it's always been was in the written testimony. So we are very willing to work on it, but with the way it is right now, with a forbidden coming in, there is no solution other than we take it, and that ends up, our members then end up subsidizing, and our members, when we made our pension changes, we did not grandfather in people with 15 years or more, so there's a resentment that builds up that, like, I've taken my pension reform changes, I don't want to subsidize other pension reform changes. So long answer. I apologize for that. But yes, there's a way to work it, but you can't have both barriers like that.
Okay, thank you.
Other questions?
Ripson Glassburn. So I think this will mostly be rhetorical, but we have written testimony from the police and fire pension, and it contradicts many of the points that you made. Why should we be picking the word of one pension over another on this? Why isn't this just based on actuarial cost and people move? In the private sector, if I have a 401K with one company and a 401K with another company, I don't have to go through all this rigmarole.
Representative Peterson Representative Glaspern I agree with you First of all I can speak to the contradictory testimony I know what we say and I will stand by ours And I know for a fact that I talked to their executive director at the time during this thing So with respect to that, again, the numbers can work, but you have a one way. Unless you tear down that you have to be an active members, then you can't go that way. You can only come to OPRS with the service credits. So as long as there's that blockage on that way, it's only going to go one way. So you can make the numbers work actuarially. We can transfer. I have no. We do it with all the other systems. It isn't an issue.
Other questions?
Representative White with a question. Thank you, Chair. And thank you again for your testimony. And I just want to ask about in light of workforce shortages and in light of ongoing workforce shortages, across various sectors, to what extent has the limited transferability of service credit impacted the recruitment process?
Representative Peterson, Representative White, I can't really speak to that. The issue, again, comes at retirement more so, where we do have somebody who's moved over. They have significant time in Ohio Police and Fire. And if they want to work, my 18-year example, if they're 18 years in Ohio Police and Fire, they either need to stay there until they retire or they need to be willing to work right now on OPRS for more than 18 years so that we become the service with the most credit.
It needs to be solved. I 100% agree. Can I have one follow-up?
Yes.
And so just going back to your question, so the other one is in your personal experience, how many individuals have transitioned then for OPNF to, and I'm going to use the letters S-H-P-H-R-S or O-PERS without being aware of this specific statutory requirement potentially resulting in unexpected delay in their retirement eligibility?
Representative Peterson, Representative White, I don't know the answer to that. I apologize.
We don't know. Thank you. Appreciate it.
Thank you for your testimony. This is a real issue. I'll give one quick example. We do have an elected sheriff who is considering, because he's trapped in both systems, is considering giving up being sheriff, the job he loves and is very good at. So we all agree we need to find a way to resolve this issue. With that, we are adjourned. I encourage everybody to exit the room quickly unless you want to stay for Ag Committee. We are adjourned.